Commodity Exchanges in India: What You Need to Know?

Commodity Exchanges in India: What You Need to Know?

The world is rich in resources, with numerous commodities to exchange across different countries. The exchange of commodities across the countries makes them rich n resources with various options per their needs.

With the increased Globalisation, there is an increase in the trade of commodities around the globe. With this blog, let’s understand the meaning of commodities, various commodities of India, and the different commodity exchanges of India. 

What are Commodity Exchanges?

Commodity exchanges are platforms where buyers and sellers trade standardised contracts for agricultural commodities. 

These exchanges provide a transparent and regulated marketplace for participants to buy or sell commodities at a mutually agreed price. 

The contracts traded on commodity exchanges specify the commodities' quantity, quality, and delivery terms, ensuring standardised trading practices.

Commodity Exchange is Advantageous in many ways. To know the benefits of commodity trading, check:

Benefits of Investing in Commodity Trading  
 

How do Commodity Exchanges Work?

Commodity exchanges in India operate through an electronic trading platform where participants can: 

1. Place buy or sell orders for various commodities. These orders are matched based on price and time priority, ensuring efficient price discovery and execution of trades. 
2. The exchanges provide facilities for the warehousing and delivery of commodities, ensuring the smooth settlement of contracts.
3. One key feature of commodity exchanges is the availability of futures contracts. Futures contracts allow participants to buy or sell commodities at a predetermined price for future delivery.
4. It helps farmers and traders hedge against price fluctuations and manage their risks effectively.
5. Farmers can guarantee a fair price for their crops by setting prices ahead of time, while traders can make sure they have a steady supply of goods at set prices.

To know how to begin with commodity trading, read:

How To Start Commodity Trading

Commodities Trading in India

Commodity trading in India can be divided into two parts, i.e., agricultural and non-agricultural commodities. These categories are even sub-categorized into different categories. Here we have a list of these categories that are being exchanged or traded regularly:
 

Impact of Commodity Exchange on Farmers and Traders

Commodity exchanges have had a significant impact on farmers and traders in India. 

Impacts on Farmers

• These exchanges provide a platform to sell their produce at fair prices, ensuring better price realisation and reducing price volatility risk. 
• Farmers can access information on market trends and prices, enabling them to make informed decisions about their production and marketing strategies.

Impacts on Traders

• Traders benefit from the availability of standardised contracts and transparent trading practices. 
• They can efficiently manage their inventory and price risks through futures contracts, ensuring a steady supply of commodities and stable profit margins.
• Commodity exchanges also facilitate the participation of various stakeholders, including processors, exporters, and retailers, creating a robust ecosystem for agricultural trade.

Impact of Commodity Exchange on Economic Development

Commodity exchanges play a crucial role in the overall economic development of India; these impacts are as follows:- 

• They contribute to price stability by providing a transparent marketplace for buyers and sellers to trade commodities fairly. It helps in controlling inflation and ensuring food security for the country.
• Commodity exchanges also attract domestic and international investments in the agricultural sector. 
• The availability of efficient trading platforms and risk management tools encourages participation from institutional investors, leading to increased liquidity and market depth. 
• This further strengthens the agricultural value chain and promotes the growth of ancillary industries such as warehousing, logistics, and finance.

Commodity Exchanges of India

Traders willing to commodity exchange in India should be aware of these commodity exchanges in India:

1. National Multi Commodity Exchange (NMCE)

The National Multi-Commodity Exchange (NMCE) was launched on the 26th of November 2002, and its headquarters at Ahmedabad, Gujarat. It is a major platform for commodity trading that promotes the trading of the following hot and soft commodities:

•  Gold

•  Aluminum

•  Copper

•  Lead

•  Nickel

•  Zinc

•  Rubber

•  Jute

•  Coffee

•  Isabgoal

•  Rapeseed

•  Mustard

•  Soyabean

•  Seasame

•  Copra

•  Black Pepper

•  Gram

•  Castor Seeds

2. National Commodity and Derivatives Exchange Limited (NCDEX)

National Commodity and Derivatives Exchange Limited (NCDEX) is a large market of commodities exchange that primarily focuses on the exchange of agricultural commodities. NCDEX was established in December 2003 and has its headquarters in Mumbai. It majorly facilitates the trade of 57 commodities; here is a list of a few important ones:

• Cereals and pulses

• Gold Silver

• Oil and oil seeds

• Plantation products

• Steel

• Copper

• Crude Oil

• Brent Crude Oil

• Polyvinyl chloride

• Fibres

• Spices

3. Multi Commodity Exchange of India (MCX)

Multi Commodity Exchange of India Ltd is India’s largest commodity derivatives exchange, with 86% of the market share of the commodity exchange in India. It was established in November 2003 by the Government of India and is based in Mumbai. It operates with more than 40 commodities, and a few of those trading commodities are as follows:

• Metal

• Bullion

• Fibre

• Energy

• Spices

• Plantations

• Pulses

• Petrochemicals

• Cereals

4. Indian Commodity Exchange (ICEX)

Indian Commodity Exchange (ICEX) is an online platform for multi-commodity derivative exchange. It was launched on 28th September 2015 with its headquarters in Mumbai. It involves the trade of the following commodities:

• Mustard

• Soyabean

• Soyabean oil

• Jute

• Menthe oil

• Iron ore

• Gold

• Silver

• Copper

• Lead

• Crude oil

• Natural gas

5. ACE Derivatives & Commodity Exchange Limited

ACE Derivatives and Commodity Exchange Limited (ACE) is one of the prominent commodity exchanges in India. It was established in 2009 and operates under the regulatory framework of the Securities and Exchange Board of India (SEBI).

• Soybeans

• Soy oil 

• Rape mustard seed

• Castor seed 

• Chickpeas

• Metals 

• Spices

6. Universal Commodity Exchange

It is a national-level online commodity exchange in India, headquartered in Mumbai. It deals with 11 commodities. Here are 9 of those commodities:

• Mustard

• Soyabean

• Refined soya oil

• Turmeric

• Gold

• Silver

• Crude oil

• Chana

• Rubber

Traders willing to trade can trade at 

Commodity Trading Platform 

Conclusion 

Commodity Exchange has impacted the farmers and traders of India by facilitating and offering various trading facilities and options. There are several prominent commodity exchanges, including the Multi Commodity Exchange (MCX), National Commodity and Derivatives Exchange (NCDEX), Indian Commodity Exchange (ICEX), ACE Derivatives & Commodity Exchange Limited, and Universal Commodity Exchange.

These exchanges operate under the regulatory framework of the Securities and Exchange Board of India (SEBI) to ensure fair and transparent trading practices.

Frequently Asked Questions

1. How does commodity exchange work in India?

Ans: MCX Exchange promotes commodity trading in India, and investors willing to trade in commodities can easily trade through a commodity trading account with an MCX broker. There are other commodity exchanges:

• National Commodity and Derivatives Exchange of India (NCDEX), Mumbai
• National Multi Commodity Exchange (NMCE), Ahmedabad
• Indian Commodity Exchange (ICEX), New Delhi
• ACE Derivatives & Commodity Exchange Limited, Mumbai
• Universal Commodity Exchange Limited, Navi Mumbai.

2. What are the two types of commodities?

Ans: The two types of commodities are:
1. Soft commodities - Agricultural products, livestock.
2. Hard commodities - Crude oil, metals, or other natural resources that are extracted.
 

3. Which is the 1st commodity exchange in India?
Ans:  The first commodity exchange of India is The Multi Commodity Exchange of India Limited (MCX).
 

4. Who started MCX in India?
Ans: The Multi Commodity Exchange of India Limited (MCX) was established by the government of India in 2003.
 

5. Who owns commodity exchange?

Ans: Ministry of Finance, Government of India, owns the commodity exchange.