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Ever since the
dawn of
civilization
commodities
trading have
become an
integral part in
the lives of
mankind. The
very reason for
this lies in the
fact that
commodities
represent the
fundamental
elements of
utility for
human beings.
The term
commodity refers
to any material,
which can be
bought and sold.
Commodities in a
market's context
refer to any
movable |
property
other than actionable
claims, money and
securities. Over the
years commodities
markets have been
experiencing tremendous
progress, which is
evident from the fact
that the trade in this
segment is standing as
the boon for the global
economy today. The
promising nature of
these markets has made
them an attractive
investment avenue for
investors.
Indian markets have
recently thrown open a
new avenue for retail
investors and traders to
participate: commodity
derivatives. For those
who want to diversify
their portfolios beyond
shares, bonds and real
estate,
commodities is the best option.
Till
some months ago, this
wouldn't have made
sense. For retail
investors could have
done very little to
actually invest in
commodities such as
gold and silver -- or
oilseeds in the futures
market. This was nearly
impossible in
commodities except
for gold and silver as
there was practically no
retail avenue for
punting in commodities.
However, with the
setting up of three
multi-commodity
exchanges in the
country, retail
investors can now trade
in commodity futures
without having physical
stocks!
Commodities actually
offer immense potential
to become a separate
asset class for
market-savvy investors,
arbitrageurs and
speculators. Retail
investors, who claim to
understand the equity
markets, may find
commodities an
unfathomable market. But
commodities are easy to
understand as far as
fundamentals of demand
and supply are
concerned. Retail
investors should
understand the risks and
advantages of trading in
commodities futures
before taking a leap.
Historically, pricing in
commodities futures has
been less volatile
compared with equity and
bonds, thus providing an
efficient portfolio
diversification option.
Like
any other market, the
one for commodity
futures plays a valuable
role in information
pooling and risk
sharing. The market
mediates between buyers
and sellers of
commodities, and
facilitates decisions
related to storage and
consumption of
commodities. In the
process, they make the
underlying market more
liquid.
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