Conclusion:
Commodities offer exciting opportunities for investors to diversify their investment portfolios beyond stocks, bonds and mutual funds. Like any other investment, commodities carry some risk. However, what makes them particularly attractive is leverage. You can trade them on very low margin. There are more than a dozen major commodity exchanges around the world, reflecting the globalization of the markets. Grains include wheat, oats, corn, rice, soybeans and other agricultural products. Softs include coffee, cocoa, sugar, oats, cotton and similar products. Frozen concentrated orange juice (FCOJ) has been actively traded since the creation and widespread use of inexpensive refrigeration (post World War II). Energies cover a range of products used to provide energy to heat and power homes and businesses. The most common are petroleum and its byproducts: crude oil, heating oil, natural gas and others. Meats like live cattle, pork bellies and feeder cattle are traded on various exchanges. Pork belly prices can be dependent on the price of grain, since the pigs are fed mostly corn. Each commodity has its own tick and standard contract size, which is the amount covered by a standard futures contract.
CONCLUSION The trading in commodity derivatives started on Dec. 2003. Within a short span of 10 years the trading volume in commodity derivatives increased in a rapid manner, now it going to equalize with the financial derivatives trading volumes. First derivatives emerged as hedging products in commodities. These commodities are the risk management instruments which transfers the pricing risks to other parties. Internationally, commodity derivatives are exchange traded. In the bullish market, the investors can earn profits by buying the commodity futures. In the bearish market, the investors can earn profits by selling the commodity futures. The hedgers can transfer their risks to other parties by ways of long hedge and short hedge. The speculators can build large positions with little margins by way of leverage and their profit/loss potential is unlimited. The arbitragers can also earn risk less profits by ways of cash and-carry
arbitrage and reverse cash-in-carry arbitrage. These commodity products are very much new to India. The SEBI is taking necessary actions to create awareness into the investors. RECOMMENDATIONS The commodities are very complex financial instruments. Hence the investor should take at most care while trading. In India, the commodities only have commodity futures, and the options in commodities should be introduced. The SEBI and the Stock Exchanges should take more actions (investors awareness programmers) to create awareness and knowledge in between the investors. All the persons and intermediaries associated with the commodity derivative markets must fulfill the minimum education (NCFM). By using the trading strategies (long hedge and short hedge) the producers can transfers the pricing risk. The agree commodity producers can get better prices for their production in the market by way of efficient price discovery with the help of future prices. By using these commodity futures the farmers can benefit by way of shortselling. By using commodity futures inventory risk will be minimized.
