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Community User Posted on 11:50am 17-Dec-2019

What do you mean by commodity derivatives?

It is a financial contract whose value is derived on a commodity like bullion, metal, agricultural product, etc. A commodity derivative provides an opportunity to hedge or speculate on price movement in a given commodity. A commodity derivative could be in the form of a futures, option or swap.

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What are the different instruments available in the commodity derivatives market in India?

ICICIdirect LearnHub

Community User Posted on 11:55am 17-Dec-2019

What are the different instruments available in the commodity derivatives market in India?

In India, commodity derivatives are currently available in the form of futures and options. A derivative contract is designed and approved by exchanges authorized to trade in commodities. SEBI is the regulatory body which authorizes exchanges in this segment.

 

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What do you mean by commodity derivatives?

What are the different commodities available for trading in the Indian market?

ICICIdirect LearnHub

Community User Posted on 12:06pm 17-Dec-2019

What are the different commodities available for trading in the Indian market?

A commodity derivative is based on different underlying assets like bullion, base metals, energy and agricultural products. Bullion includes gold and silver. Base metals include copper, iron, lead, magnesium, etc. Energy includes crude oil and natural gas whereas the agricultural products group include a long list of agricultural produce like mentha, soybean, cotton, sugar,guargum,etc.

 

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What are the different instruments available in the commodity derivatives market in India?

Every commodity has many varieties and price also depends on the quality. How is the price of a commodity derivative contract determined?

ICICIdirect LearnHub

Community User Posted on 12:08pm 17-Dec-2019

Every commodity has many varieties and price also depends on the quality. How is the price of a commodity derivative contract determined?

Just like capital market , a commodity derivative is priced in relation to a price prevalent in spot market for a given underlying asset or a commodity. A spot market is a place where a commodity could be exchanged immediately for a price. Commodity derivative price for a future or an option is based on a spot market price adjusted for time, storage, insurance , etc. 

Since commodities are global in nature, at times prices of different commodity derivatives are linked to prices prevailing in global markets for e.g. in case of crude oil, futures in crude oil would be linked to price of WTI or Brent Crude in USA.

Contract Specifications - Example

S.No.

Commodity

Quality Specifications

As per MCX Futures Contract

1

CPO (CRUDE PALM OIL)

Crude Palm Oil of good merchantable quality in bulk and unbleached

 

 

 

Refractive Index at 50 C

1.4491 to 1.4552

 

 

Specific Gravity @ 42 C

0.895 to 0.897

 

 

Iodine value (Wij’s method)

45 – 56

 

 

Saponification value

195 – 205

 

 

Unsaponifiable matter

Not more than 1.2%

 

 

FFA by wt.

Not more than 5.0%

 

 

Moisture

Not More than 0.25%

 

 

 

 

2

GOLD

995 purity. It should be serially numbered Gold bars supplied by LBMA approved suppliers or other suppliers as may be approved by MCX to be submitted along with supplier’s quality certificate.

 

 

 

If the Seller offers delivery of 999 purity

Seller will get a proportionate premium and sale proceeds will be calculated in the manner of Rate of delivery* 999/ 995 If the quality is less than 995, it is rejected.

 

Related Questions >>

What are the different commodities available for trading in the Indian market?

What are the different commodity exchanges in India?

ICICIdirect LearnHub

Community User Posted on 12:09pm 17-Dec-2019

What are the different commodity exchanges in India?

In India, five exchanges are currently authorized to offer commodity derivative contracts . These exchanges are:

1) National Stock Exchange of India Limited (NSE)

2) Bombay Stock Exchange (BSE)

3) Multi Commodity Exchange of India Limited (MCX)

4) National Commodity and Derivatives Exchange Limited (NCDEX)

5) Indian Commodity Exchange Limited (ICX).

Its worthwhile to note that NSE and BSE offer derivative contracts in both equity and commodity segments whereas the other three 1) MCX, 2) NCDEX and 3) ICX offer derivative contracts in commodity segment only. Further, MCX offers contracts in bullion, base metals, energy and agricultural products whereas NCDEX offers contracts primarily in agriculture products and ICX offers contracts in agri products including plantation and non agri (diamond and steel).

 

Related Questions >>

Every commodity has many varieties and price also depends on the quality. How is the price of a commodity derivative contract determined?

Do I need to open a separate account for commodity trading?