Commodity future trading is permitted is
presently permitted in 41 commodities in India.
Futures Trading
Futures trading is an agreement between a buyer and a
seller obligating the seller to deliver a specified asset of specified
quality and quantity to the buyer on a specified date at a specified
place and the buyer, in turn, is obligated to pay to the seller a
pre-negotiated price in exchange of the delivery.
In futures trading the contracting parties negotiate on, not only the
price at which the commodity is to be delivered on a future date but
also on what quality and quantity to be delivered and at what place.
Futures trading is usually carried out on a futures exchange.
Advantages of Futures Trading
- It aids in the process of proper price discovery and hedging of
price risk with reference to the given commodity.
- It is useful to producer because he can get an idea of the price
likely to prevail at a future point of time and therefore can decide
between various competing commodities.
- It helps the consumer get an idea of the price at which the
commodity would be available at a future point of time. The consumer
can do proper costing and also cover his purchases by making forward
contracts.
- It provides the exporters an advance indication of the price
likely to prevail and thereby helps them in quoting a realistic
price and secure export contract in a competitive market.
Futures Trading in India
Presently, futures trading is permitted in 41 commodities in India.
These include pepper (domestic and international), turmeric, gur,
castorseed, hessian, jute, sacking, cotton, potato, castoroil
(international), soyabean (oil and cake), kapas, RBD palmolein, sugar
and tea.
