Thestudy conducted on the Commodity market gives us an exhaustive idea regardingthe risks associated with commodities exchange and it emphasizes more on the hedgingand Arbitrage procedures by utilizing the futures, which helps in reducing the lossto a negligible degree to shield the interests of the investors.
Commoditiesmarkets have been portrayed as nonstop sale markets and as a clearing house forthe most recent data about the free market activities. They are like the meetingplaces of purchasers and sellers of a consistently extending rundown of the commoditiesthat today incorporates agricultural items, metals, financial instruments, foreignexchange, oil, and stock indices. Atrade in commodity futures goes about as a commercial center for people interestedby arbitrage. The elements driving arbitrage are the differences and view ofdifferences of the equilibrium prices dictated by the free market activity at variousdifferent locations. Forthe futures markets, the exercise of arbitrage are brought out through theexchange of paper promissory notes to purchase or to sell an item at a settledupon price at a future date. As people with various view of where demand andsupply right now and where demand and where supply will be in the future, theprices of the commodity are headed towards equilibrium. As new data enters themarket, people recognize change and the way toward arbitraging starts oncemore.
Pricerisk can happen for various reasons. For rural items, price risk may happenbecause of dry season, near record produce, an increased demand, diminished internationalsupply, and so on. Thecommodity futures markets give a way for the transfer of risks between peopleholding the physical (hedgers) and different hedgers or people speculating inthe market. Futurestrades do exist and are highly effective in light of the rule that hedgers maydo without some benefit potential in return for less risk and speculators willapproach increased profit potential from accepting this risk. IndianCommodity Market The huge geographical extent of India and its largepopulation is highly complemented by the size of its market. The classificationof the Indian Market can be made in terms of: the commodity market and then thebond market. In this study, we shall deal with the former in a little detail.
The commodity market in India consists of all visiblemarkets that we come across in our day to day lives, and these markets act asinstitutions that help in the facilitation of exchange of goods for money.Indian Commodity Market can be subdivided into the following two categories: • Wholesale Market • Retail Market The old or orthodox wholesale Indian market dealt with whole-sellers whopurchased goods from the manufacturers and the agricultural farmers and then theysold the goods to retailers after making profits or gains in the process. Thegoods were then sold to the consumers by these retailers.Lately, the retail market (both unorganizedand organised) has developed by a wide margin. This the development of thecommodity market of India as of late is mostly based on the development createdby the retail sector.
Relatively all commodities, both agricultural andindustrial are currently being provided across retail outlets all through thenation. Additionally, these retail outletshave a place with both the organised and also the unorganized areas. The unorganizedretail outlets do comprise of small shop proprietors who are the price takerswhereas, the customers confront an exceedingly aggressive price structure. India, which is a commodity basedeconomy where approximately about two-third of entire population rely upon variousrural items, shockingly has a very under developed commodity market.
Very unlikethe physical market, the futures market exchanges in commodities are to a greatextent utilized as a risk management (hedging) component on either physicalitem itself, or the open positions in commodity market. For example, a jewelercan hedge his stock against a expected short-term downturn in the gold pricesby going short in future markets.