Trading in commodity futures has a long history. The roots of modern trade in commodity futures go back to the 17th century in Osaka, Japan. But it is possible that a form of futures trading in commodities existed in China some 6,000 years earlier. Organised trading on an exchange, however, started only in 1848 with the establishment of the Chicago Board of Trade (CBOT).
India has a 125-year-old history of organised trading in commodities. The formation of the Bombay Cotton Trade Association in 1875 was a milestone in this regard. Trade in commodity futures continued to flourish for many years. But it was discontinued in the mid-1960s due to war, natural calamities, and consequent shortages in the supply of commodities.
Recent developments in India
After initiating economic reforms in the 1990s, India realised the importance of commodity trading. By the beginning of 2002, there were about 20 commodity exchanges in India. These traded in 42 commodities. A few commodities also traded internationally.
Commodity futures contracts and the exchanges they trade in are governed by the Forward Contracts (Regulation) Act, 1952. The regulator is the Forward Markets Commission (FMC). In September 2015, the FMC merged with the Securities and Exchange Board of India (SEBI).
In 2002, the government allowed the reintroduction of commodity futures. The FMC approved the setting up of three commodity exchanges. These exchanges were screen-based. They allowed trading of multiple commodities nationwide.
Commodity exchanges in India
Currently, there are 24 commodity exchanges in India. The following are the three main national-level exchanges.
Multi Commodity Exchange (MCX) :
MCX is India’s largest commodity exchange. Established as a public company in 2003, MCX is based in Mumbai. It offers futures trading in bullion, non-ferrous metals, energy, and a number of agricultural commodities. This exchange was originally promoted by Financial Technologies, a software company in the capital markets space. At present, Kotak Mahindra Bank, Blackstone GPV Capital Partners Mauritius, and IDFC Premier Equity Fund are some of its key shareholders.
National Commodity & Derivative Exchange (NCDEX) :
NCDEX was founded as a public limited company in 2003. It too is based in Mumbai. It offers futures trading in 31 commodities. Trading in agricultural commodities is especially popular on this exchange. Its key shareholders are ICICI Bank, National Stock Exchange (NSE), National Bank for Agriculture and Rural Development (NABARD), and Life Insurance Corporation of India (LIC).
National Multi Commodity Exchange of India (NMCE) :
This exchange was originally promoted by trader Kailash Gupta and Central Warehousing Corporation (CWC) in 2002. It has its headquarters in Ahmedabad. NMCE offers trade in 44 different commodities. These range from copra to menthol. NMCE is especially popular for trading in spices and plantation crops, especially those from Kerala.
History often repeats itself, and you can continue the rich tradition in the commodities market by investing in Commodities Futures. First, though, you should have the necessary knowledge about Commodity Futures for that is one of the ways to reduce any risks involved. So, in the next chapter, you can learn all about the basics of commodity futures contract and its various features.