In present scenario, commodities trading become very popular in India.

The
volume at commodities exchanges are continuously increasing in India. If
we look upon international scenario of commodities market, volume of in
commodities market is much higher than equity market. The countries like
USA, UK, Japan, Australia, Singapore, and South Africa have well
developed commodity market since long period. Even in India, commodities
market was highly developed before 1960. But during the period of 1960 to
1970, trading in many commodities are banned by government of India as
government felt that trading in commodities market lead to increase in spot
price of commodities. At that time, trading in commodities market affects
the spot price in India mainly due to following reasons.

 Absence of online centralized commodity exchanges as well as organized

spot market, which does not give depth as well as arbitrage opportunity
to commodity market. So, it adversely affects the proper price discovery
mechanism of the commodity market, and due to this spot price was
adversely affected and manipulated of particular underlying commodity.

 A large commodities producer and trader acting as a member/broker of

commodity exchanges and have an influence on the commodity
exchanges. So, spot price was adversely affected.

Thus commodity market was in dark face during 1960 to 2002. During that
period, Government appointed three main committees viz. Khusro
Committee (1966), Datwala Committee (1980) and Kabra Committee (1994)
to access the scope of commodity market in India. And as per the
recommendations given by the Kabra committee, Government of India
reintroduces commodities trading in 2003 which lead to development of
national level commodity exchanges in India, which are independent body
and professionally managed. At present, there are three national level
commodities exchanges namely National Multi Commodity Exchange
(NMCE), National Commodity and Derivative Exchange (NCDEX) and
Multi Commodity Exchange (MCX) which offer online screen based trading
mechanism in commodity future market facilities across the India.

However, even today, many people believe that trading in commodities

future adversely affect the spot price level of particular underlying
commodities and spot price us is manipulated by this. But in reality, trading
in commodities future does not adversely affect the spot price of underlying
commodities due to following reasons.

 The price of the commodity future is derived from the spot price. So, spot

price will affect the future price of commodities which are traded on
exchanges.

 The organized national level commodity exchanges offer online screen

based trading across the countries which give great depth to market,
where there are numbers of buyers as well as sellers of commodities
futures on single platform. So, it will lead to better price discovery in
commodity market and lest manipulation in commodity prices.

 In case commodities future, when position is squared off between buyers

and sellers, both of them, one is gainer and another is loser. So, losers
will learn from his/her experience and looking for more accurate and
precise information before executing his/her trade next time. So, by this,
commodity market becomes more informative and efficient.

 The particular commodity exchange will continuously keep watch over

commodity market movement and monitor circular trading, price rigging,

 concentration, price manipulation and other market abuses. It will take
suitable action as per its rules and byelaws when such thing is identified.

 The forward market commission (FMC), under the ministry of

consumer, food and public distribution of Government of India, is
regulatory authority of commodity market in India, who take regulatory
measures

o By making limit on net open position on individual trader as

well as member broker.

o By limiting upward or downward movement of price of

commodities future prices through circuit filter.

o By imposing special margin on outstanding buy/sell position of

particular commodity, the price of which is fall or rise sharply.

o By prescribing upper and lower price of commodities future, in

which if price go below the lower level, then profit or loss at
that price are unremunarative and if price go above the upper
level, then it is not warranted by genuine supply and demand
factors.

So, all such measures of FMC, controlled the price rigging and the price
manipulation in commodities future so that it does not have adverse
impact on spot price of commodities.

Thus, commodities trading are not going to affect the spot price of any
underlying commodities which are traded on exchanges. In fact, trading is
commodities future is beneficial to
 Investors, as it gives leveraged position to investors and it give good

alternative to investors to diversify their portfolio.

 Producers, as they can hedge their position and price risk and they get
fair price for their product.

 Our economy, as it leads to business generation and job opportunities.

So, commodities market is highly encouraged in India. And it is expected

that volume of the commodity market surpass the volume of the equity
market in India.