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A bear market is a period of declining market prices.

A bull market is a period of rising market prices.

Hedging is the practice of using the futures market for price protection involving the offsetting of price-change risk in any cash market position by taking an equal, but opposite position in the futures market. For example, a farmer may use futures or options to establish the price for his crop long before he harvests it. Various factors affect the supply and demand for that crop, causing prices to rise and fall over the growing season. The farmer can watch the prices discovered in trading at the CBOT®and, when they reflect the price he wants, will sell futures contracts to assure him of a fixed price for his crop.

Speculating is the practice of buying and selling futures contracts and options to make a profit. A speculator will buy and sell in anticipation of future price movements, but has no desire to actually own the physical commodity. Speculators, thus, assume market price risk and add liquidity and capital to the futures markets.

A "call" is an option that gives the option buyer the right (without obligation) to purchase a futures contract at a certain price on or before the expiration date of the option for a price called the premium, determined in open outcry trading in pits on the trading floor. A "put" is an option the gives the option buyer the right (without obligation) to sell a futures contract at a certain price on or before the expiration date of the option.

A futures option gives the right (but does not impose an obligation) to buy or sell a futures contract at a certain price for a limited time. Only the seller of the option is obligated to perform. There are two types of options: calls and puts.

A futures contract is a binding, legal agreement to buy (take delivery) or sell (make delivery of) a commodity. The terms of a futures contract are standardized by type (corn, wheat, etc.), quantity, quality, and delivery time and place. The variable portion of the contract is the price, determined at the time of the trade in a process called price discovery that takes place on our trading floor.

The price you pay for goods and services depends to a great extent on how successful businesses are in managing risk. By using the futures market effectively, businesses can minimize their risk, which, in turn, lowers their cost of doing business. This savings is passed onto you, the consumer, in the form of lower prices for food and other commodities, or a better return on a pension or investment fund.

Choosing a commodity broker is the first step in your trading. There are plenty of commodity brokers in India. Each brokers have their unique feature in attracting the customer to open account. Some brokers give lowest broking fee but fails in other features. A trader should not see only the broking fee but there are many other features. Below is the step by step idea to choose your best broker.
1. Find the famous commodity brokers with the help of search engine.
2. Filter the list by lowest broking fee.
3. Compare each brokers by public reviews and rating. Use the National futures association to check the records of each broker.
4. Below is the list of features a commodity broker should have,

- Max of 0.02% Broking fee per lot
- Online trading application support
- Buffer allowed
- Phone trading
- Online e-statement on the trading calls
- Trading advice or tips
- Payment processing time maximum of 24 hours.

The sales tax is applicable only in case of trade resulting into delivery. If the trade is squared off no sales tax is applicable. If you settle your trade before the expiry you don’t have to any sales tax.

All the commodity exchanges gives you the option to settle your trade either with cash or with delivery mechanism. In case you want your contract to be cash settled, you must indicate this at the time of placing the order that you don’t intend to physically deliver the item. If you wish to take or make delivery of the physical product, you need to have the required warehouse receipts. You can switch between the options to settle the trading in cash or through delivery as many times as you wants till the last day of the expiry of the contract.

You can start with commodity trading with minimum of Rs 5000. In the commodity trading you have to pay the margin money, which varies from product to product. The margin money is generally 5-10% of the commodity product. For the one lot of silver( 1 kg) the margin money is Rs 9,500 . If the current price of silver per kg is 60,000 , then you only have to pay 9,500 per lot of silver for a future contract. If the price of silver increase by Rs 500 in the next trading day, then Rs 500 will be credited to your demat account. Similarly if the price reduces by Rs 400, then Rs 400 will be debited from your account. So you don’t have to pay the whole 60,000 you have to pay only 9,500+- price change amount. For agricultural commodities the margin money and lot size varies from exchanges to exchanges.

The first thing that you require to start with investing and trading in commodities is the demat account. There are so many broking companies that are offering demat account. Many banks are also now offering demat account to their customers. Instead of banks I would suggest you to go with broking company as they provide better services than banks. Activate the commodity trading account with your broker. The brokers may charge fees for this, while some brokers also offer it for free.

- Pip = "price interest point".
- A pip measures the amount of change in the exchange rate for a currency pair.
- For currency pairs displayed to four decimal places, one pip is equal to 0.0001. Yen-based currency pairs are an exception and are displayed to only two decimal places (0.01).
- Some brokers now offer fractional pips to provide an extra digit of precision when quoting exchange rates for certain currency pairs.
- A fractional pip is equivalent to 1/10 of a pip.

Futures contract in the commodities market, similar to equity derivatives segment, will facilitate the activities of speculation, hedging and arbitrage to all class of investors.
o Speculation:
It facilitates speculation by providing opportunity to people, although not involved with the commodity, to trade on the views in the movement of commodity prices. The speculative position is taken with a small margin amount that is paid to the exchange, and the contract can be squared-off anytime during the trading hours.
o Hedging:
For the people associated with the commodities the futures market can provide an effective hedging mechanism against price movements.
For example an oil-seed farmer may go short in oil-seed futures, thus ‘locking’ his sale price and in the process hedging against any adverse price movements. On the other hand a processor of oil seeds may buy oil-seed futures and thus assure him a supply of oil-seeds at a pre-determined price. Similarly the oil-seed processor may go short in oil futures, which may be bought by a wholesaler of oil. Also, there is a saying that ‘Gold shines when everything fails’. Thus, gold can be used as a hedging tool against other investments.
o Arbitrage:
Traders may exploit arbitrage opportunities that arise on account of different prices between the two exchanges or between different maturities in the same underlying.

The biggest advantage of having an exchange-based platform is reach. A wider reach ensures greater participation, which results into a more efficient price discovery mechanism. In fact it comes to a stage where the derivative market guides the spot market in terms of pricing.
This can be well understood by looking at the following example:
Imagine a soy wholesaler in Madhya Pradesh who, having bought the crop from the farmer, wishes to sell it to the oil refiners. To sell his crop he has to go to the local market at Indore. The price that he will get for his crop would be solely dependent upon the demand supply condition prevailing at that point of time at that market place. Also as the number of players is less there are chances of the prices being biased. In contrast the prices in the futures market are determined not only by the local demand supply conditions but also by the global scenario. Add to that the view taken on a commodity by various sets of people depending upon different parameters such as technical analysis, political news, exchange rates etc. The price that is thus quoted can be safely regarded as the most efficient price.
So, now looking at the futures price the trader can price his crop appropriately.

The government has now allowed national commodity exchanges, similar to the BSE & NSE, to come up and let them deal in commodity derivatives in an electronic trading environment. These exchanges are expected to offer a nation-wide anonymous, order driven, screen based trading system for trading. The Forward Markets Commission (FMC) will regulate these exchanges.
Consequently four commodity exchanges have been approved to commence business in this regard. They are:
o Multi Commodity Exchange of India Ltd. (MCX) located at Mumbai
o National Commodity and Derivatives Exchange Ltd (NCDEX) located at Mumbai
o National Board of Trade (NBOT) located at Indore
o National Multi Commodity Exchange (NMCE) located at Ahmedabad.

India, being an agro-based economy, has markets for most of the agro-based commodities. India is the largest consumer of Gold in the world, which implies a huge market for the yellow metal. India has huge spot markets for all these commodities. E.g. Indore has a huge market for soya, Ahmedabad for castor seeds and Surendranagar for Cotton etc.
During the pre-independence era India also had a thriving futures market for commodities such as gold, silver, cotton, edible oils etc. In mid 1960’s, due to wars, natural calamities and the consequent shortages, futures trading in most commodities were banned.
Currently, the futures markets that exist in India are localized for specific commodities. For example, Kerala has an exchange for pepper; Ahmadabad for castor seeds and Mumbai is the major center for Gold etc. These exchanges, however, have only a regional presence and are dominated by people who are involved with the physical trade of that commodity.

In the developed markets the volumes on the exchange-based commodity derivates markets are about five times more than that of the equity markets.

The commodity exchanges do facilitate delivery, although it has been observed world-over that only 2% of all the trades result in actual delivery.

The exchange-traded markets are essentially only derivative markets and are similar to equity derivatives in their working. I.e. everything is standardized and a person can purchase a contract by paying only a percentage of the contract value. A person can also go short on these exchanges. Also, even though there is a provision for delivery most of the contracts are squared-off before expiry and are settled in cash. As a result, one can see an active participation by people who are not associated with the commodity.

The OTC markets are essentially spot markets and are localized for specific commodities. Almost all the trading that takes place in these markets is delivery based. The buyers as well as the sellers have their set of brokers who negotiate the prices for them. This can be illustrated with the help of the following example: A farmer, who produces castor, wishing to sell his produce would go to the local ‘mandi’. There he would contact his broker who would in turn contact the brokers representing the buyers. The buyers in this case would be wholesalers or refiners. In event of a deal taking place the goods and the money would be exchanged directly between the buyer and the seller. Thus it can be seen that this market is restricted to only those people who are directly involved with the commodity.
In addition to the spot transactions, forward deals also take place in these markets. However, they too happen on a delivery basis and hence are restricted to the participants in the spot markets.

The commodities market exits in two distinct forms namely the Over the Counter (OTC) market and the Exchange based market. Also, as in equities, there exists the spot and the derivatives segment. The spot markets are essentially over the counter markets and the participation is restricted to people who are involved with that commodity say the farmer, processor, wholesaler etc. Majority of the derivative trading takes place through exchange-based markets with standardized contracts, settlements etc.

World-over one will find that a market exits for almost all the commodities known to us. These commodities can be broadly classified into the following:
Precious Metals: Gold, Silver, Platinum etc.
Base Metals: Nickel, Aluminum, Copper etc.
Agro Commodities: Wheat, Corn, Cotton, Oils, Oilseeds, etc.
Soft Commodities: Coffee, Cocoa, Sugar etc.
Live-Stock: Live Cattle, Pork Bellies etc.
Energy: Crude Oil, Natural Gas, Gasoline etc.

The commodities markets are one of the oldest prevailing markets in the human history. In fact derivatives trading started off in commodities with the earliest records being traced back to the 17th century when Rice futures were traded in Japan.

A physical or virtual marketplace for buying, selling and trading raw or primary products. For investors' purposes there are currently about 50 major commodity markets worldwide that facilitate investment trade in nearly 100 primary commodities.
Commodities are split into two types: hard and soft commodities. Hard commodities are typically natural resources that must be mined or extracted (gold, rubber, oil, etc.), whereas soft commodities are agricultural products or livestock (corn, wheat, coffee, sugar, soybeans, pork, etc.)

Commodities: you have probably heard the term before, but what does it really mean? Simply, commodities are goods like beef, gold or lumber. When farmers and other producers put their goods up for sale they are selling commodities. Answer by mcxkey.com

A short position involves selling futures contracts or purchase of a cash commodity without offsetting an offsetting futures transaction. (A cash commodity is an actual, physical commodity someone is buying or selling, such as corn or soybeans, also referred to as actuals.) A long position involves buying futures contracts or owning the cash commodity.

Hedging is the practice of using the futures market for price protection involving the offsetting of price-change risk in any cash market position by taking an equal, but opposite position in the futures market. For example, a farmer may use futures or options to establish the price for his crop long before he harvests it. Various factors affect the supply and demand for that crop, causing prices to rise and fall over the growing season. The farmer can watch the prices discovered in trading at the CBOT®and, when they reflect the price he wants, will sell futures contracts to assure him of a fixed price for his crop. Speculating is the practice of buying and selling futures contracts and options to make a profit. A speculator will buy and sell in anticipation of future price movements, but has no desire to actually own the physical commodity. Speculators, thus, assume market price risk and add liquidity and capital to the futures markets.

A "call" is an option that gives the option buyer the right (without obligation) to purchase a futures contract at a certain price on or before the expiration date of the option for a price called the premium, determined in open outcry trading in pits on the trading floor. A "put" is an option the gives the option buyer the right (without obligation) to sell a futures contract at a certain price on or before the expiration date of the option.

A futures option gives the right (but does not impose an obligation) to buy or sell a futures contract at a certain price for a limited time. Only the seller of the option is obligated to perform. There are two types of options: calls and puts.

A futures contract is a binding, legal agreement to buy (take delivery) or sell (make delivery of) a commodity. The terms of a futures contract are standardized by type (corn, wheat, etc.), quantity, quality, and delivery time and place. The variable portion of the contract is the price, determined at the time of the trade in a process called price discovery that takes place on our trading floor.

The price you pay for goods and services depends to a great extent on how successful businesses are in managing risk. By using the futures market effectively, businesses can minimize their risk, which, in turn, lowers their cost of doing business. This savings is passed onto you, the consumer, in the form of lower prices for food and other commodities, or a better return on a pension or investment fund.