Introduction to Derivative

Brief History of commodity market

Derivative
A derivative is a financial instrument that derives its value from an underlying asset. The most common underlying assets include bullions, currencies, Agro commodities, Base metals, stocks, bonds,interest rates etc. Type of Derivatives based on Market : 1. Exchange Traded 2. Over the Counter (OTC) Form of Derivatives Contracts:Options, Futures, Spot, Forward, Swap. Derivatives are used for a number of purposes including risk management, hedging, arbitrage between markets, and speculation.

Market Participants
Hedger
Protect against price movement

Speculator
Profit from price movement

Arbitrager
Profit from price difference of two markets

Producers, Business Houses

Banks, Investment Co. Individuals

Investment Co. Individual Business houses

Commodity Market
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.

It is similar to an equity market, but instead of buying or selling shares one buys or sells commodities.

To protect producers, manufactures, processors, EXIM etc. as well as to facilitate investor to invest in the price fluctuations of different commodities, Commodity Derivatives were implemented as an effective financial strategy.

History of commodity Market

The first future contract was commenced by Yodoya rice market in OSAKA Japan in around 1650s. In 1848, Chicago Board of Trade (CBOT) the worlds first official futures exchange was established by 82 Chicago merchants offering contracts of flour. In 1936, the U.S. Government passed the Commodity Exchange Act to regulate futures and commodities trading. Initially the future contracts were traded on paper based agreements.

In 1970, the automated trading system was started by different Commodity Exchange.

History of commodity Market

When did the commodity Exchange came into Existence ???

When was the regulation Act for commodity Exchange developed ???

Global Commodity Exchanges

Exchange
CME Group Tokyo Commodity Exchange London Metal Exchange Dalian Commodity Exchange Multi Commodity Exchange

Country
USA Japan UK China India

Nepalese Commodity Market

It came into existence in 2006 A.D.

Investors of around 40 k .
In process for the formulation of Regulation by SEBON. Good source for generating taxes for government. Diverse sector for investment in Nepalese Financial Sector. Employment and Business opportunities for general public.