Home Accounting Basic Functions of Commodity Market in India

Basic Functions of Commodity Market in India


Investments in the Indian financial market is not limited to stocks. Traders can diversify and maintain a healthy portfolio in a number of other ways, one of which is commodity trading. We all know that a nation depends on commodities to grow, and commodity markets play an important role in boosting a country’s economy and allowing investors to make a profit. It has been almost 100 years since the commodity market was established in India, although it was legalized in 2003. Although Indian commodity market faces many obstacles in terms of liquidity and regulatory jurisdictions, India’s commodity market is gaining momentum. Let’s take a look at the role of commodity markets in India and their functions here:

What is a Commodity Market?

Before we get into the functions of commodity exchange or market, let us know what a commodity market is. Here, the exchange of physical goods in India takes place in a similar way to the trading of stocks floor lamp online. It is widely used by wholesalers, producers and manufacturers as a pricing mechanism for raw materials and goods. Traders looking to diversify their portfolios can invest in both perishable and non-perishable goods to nullify the risk factor and protect against inflation. Raw materials are divided into hard raw materials and soft raw materials. The former includes metals such as gold, platinum, and copper, and energies such as oil and natural gas. Soft raw materials include agricultural products such as soybeans, wheat, and rice, and livestock products such as beef and pork.

Functions of Commodity Exchange in India

Trade regulation and arbitrary dispute resolution includes few of what is commodity in share market in India 

Provides a Marketplace:

A commodity market provides traders with a convenient platform to do business in accordance with certain rules and regulations. This is very important because raw materials are produced in large quantities and cover a wide area for trade. For example, there are futures markets like the New York Mercantile Exchange and the Chicago Board of Trade that offer organized markets with standardized contracts. This helps traders to negotiate with a proper structure.

Regulates Trade

Like equity markets, commodity markets create and implement rules and regulations to facilitate trade. It sets rules and define rules for doing business. Traders in the commodity market initiate settlement trades after assessing price developments and the possibility of the commodity price rising or falling. Actually, it acts as an association for merchants as it helps them collect important data and information and make it public for merchants.

Classifies Raw materials

Raw materials which are bought and sold in the markets, must be classified according to their quality online store for furniture. This allows distributors and other parties to quickly conclude an agreement.

Determine the Price

These commodity markets trade agricultural products such as cereals, grains, oilseeds energy commodity as ng commodity and oil. It is the market forces of supply and demand that determine the prices of commodities. It is well organized as the brokers use hand signals to trade. The prices decided in these commodity markets form the basis of many political and economic decisions.

Reduces volatility

This is an important role of the commodity market in India. It protects against risk and helps with general distribution of risk exposure. For example, a jeweller may sell gold in a bid to avoid an increase in the price of gold in the next few months. Also, an investor can buy a futures contract with the intention of increasing the value of gold. By doing this, risk is distributed.

Food Safety

The commodity market in India ensures that suppliers are protected against falling prices. International traders, farmers and companies use commodity markets to secure a value that they believe is appropriate for their product. In this way, traders ensure that there is an adequate supply of raw materials throughout the country. Meanwhile, importing companies are using the commodity market to price the products they plan to import later this year.

 Better Agricultural Infrastructure

In agricultural sector, traders generally suffer from inadequate infrastructure after harvest. Although raw materials are produced in large quantities, the lack of adequate storage and transportation facilities can lead to losses. The commodity market helps farmers, brokers, customers, and intermediaries to gain profit. In this way, it helps attract investment in the agricultural sector in the form of proper warehousing systems and better means of transport. Thus, it acts as a catalyst in developing the eco system.

Commodity market live in India is still in the early stages. However, it has got a huge role to play in boosting India’s economy.