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India’s commodity futures market has been there for more than a century. In order to trade cotton derivative contracts, the Bombay Cotton Trade Association formed the first regulated futures market in 1875. Institutions for trading in oilseeds, food grains, etc., used this as their model for trading. Between the First and Second World Wars, the Indian futures market expanded quickly. Numerous commodity exchanges were flourishing nationwide. They traded futures contracts in a variety of commodities like cotton, groundnut oil, jute, rice, and precious metals like gold and silver. Now, all these items are also available for futures trading. So, let us find out the list of commodities in MCX (Multi Commodity Exchange) of India allowed for futures trading.
Table of Contents
What Is a Futures Contract?
A futures contract is an agreement between two parties to buy and sell a certain item in a specified quantity and for a predetermined price at a future date. The asset is paid for and delivered on the delivery date. This date is generally referred to as the future date. The buyer of a futures contract is referred to as holding a long position. The seller of futures contracts is referred to as being in a short position. A futures contract’s underlying asset may be one of the following: commodities, equities, currencies, interest rates, or bonds. The futures contracts are safely held at recognised stock exchanges.
What Are Commodity Derivative Contracts?
Financial instruments known as derivatives are those whose value is determined by the value of an underlying asset, such as stocks, currencies, other financial assets, or commodities. The most popular derivative instrument types include swaps, futures, options, and forwards. Section 2 of the Securities Contracts (Regulation) Act of 1956 (SCRA) defines derivatives. Thus, a derivative contract is referred to as a ‘commodity derivatives contract’ if it uses a commodity as its underlying asset.
Commodity Futures Trading
A contract for the purchase or sale of a commodity at a specified price and date in the future is known as a commodity future. Given that commodity prices are always fluctuating, it is feasible to utilise them both as a means of speculation and as a hedge when buying or selling commodities. The expectation is that buyers will profit from rising commodity prices, and sellers of futures will profit from falling prices. Not all commodities are traded in commodity futures. Exchanges issue futures based on a defined list of commodities that can be traded. The most well-known of these include gas, oil, wheat, coffee, sugar, copper, gold, and so forth.
Leverage in trading makes commodity futures trading more accessible to more people. You will have the chance to invest money lower than the actual worth of the commodity. Another aspect of commodity futures is that each commodity futures contract has an expiration date at which trading ends. So, the two parties satisfy their obligations and make the due settlements.
The Central Government announced the Forward Contracts (Regulation) Rules in July 1954. According to the level of regulation, the Act separates the commodities into three groups:
(a) The commodities in which futures trading can be organised under the aegis of approved associations.
(b) The commodities in which trading in futures is forbidden.
(c) Commodities that have neither been forbidden nor controlled for trading under a recognised association. They are known as Free Commodities. In such Free Commodities, the Forward Markets Commission shall issue the Association with a Certificate of Registration. Or else the association is not allowed to facilitate futures trading in commodities.
Commodities Permitted for Futures Trading
According to the list provided by the Forward Market Commission (FMC), more than 25 exchanges are now active and engaged in the futures trading of a wide range of commodities. Commodities permitted are divided into eight main categories. Currently, the list of commodities in MCX (Multi Commodity Exchange) comprises around 113 items notified under Section 15 of the Forward Contracts (Regulation) Act.
These categories are:
- Vegetable oilseeds, oils, and meals
- Cereals
- Pulses
- Spices
- Metals
- Fibres
- Energy products
So, there are more than a hundred items that are included in the list of commodities allowed for futures trading. This again spans across different types of goods available as natural resources. They are also categorised as agricultural and non-agricultural products. Hence, traders have the luxury of trading a myriad of commodities, taking into account their present performance in the economy. Let’s take a glance at the most prominent items traded by many seasoned traders.
| Commodity Category | Constituents |
| Grains/Cereals | Rice, Basmati rice, wheat, maize |
| Oils/Oilseeds | Castor seeds, groundnut oil, castor oil, mustard seed, soy oil, crude palm oil, cottonseed, etc. |
| Pulses | Chana, tur dal, urad, etc. |
| Spices | Pepper, jeera, turmeric, red chilli, cardamom, etc. |
| Metals | Aluminium, nickel, zinc, iron ore, bauxite, steel, soda ash, rare earth metals |
| Fibres | Cotton and jute |
| Metals and minerals | Gold, palladium, silver, iron, zinc, platinum, etc. |
| Energy products | Brent crude and Crude oil, natural gas, coal |
Investing in the Commodity Futures
For investing in commodity futures, you need to open a trading account that facilitates commodities trading. So, first, choose a trusted brokerage house like Share India, which provides services in a range of areas, including stock, commodities, currencies, derivatives, etc. The proprietary trading terminal of Share India makes it simple to trade commodities by allowing flexible access via desktop apps and a browser-based web application. Once your commodity trading account is activated, you can begin trading your favourite commodities’ futures contracts. Select the asset that you wish to trade on the commodity market.
Conclusion
Futures trading in commodities involves trading various items as the underlying assets of the futures contract. There are over a hundred commodities permitted in India for trading in commodity futures. The list of commodities includes several natural resources, both agricultural and non-agricultural. They are further subdivided into eight categories. One can invest in any of them. All he needs is a good trading account provided by a brokerage firm like Share India that facilitates futures trading in commodities.