(Article) Evolution of Commodity Market

Evolution
of
Commodity Market

Commodities future trading have evolved from the need for ensuring continuous supply of seasonal agricultural crop In Japan merchant stored rice in warehouses for future use In order to raised cash warehouse holder sold receipts against the stored rice these were know as rice ticket eventually such rice ticket became accepted as a kind of general commercial currency rule come into being to standardize the trading in rice ticket.

This concept of trading evolved in the 19th century In Chicago of trading had emerged as a major commercial hub with rice road and telegraph line It happens in 1848.

Gradually the farmers and dealer started to make commitment to exchanged the produced for future trading evolved where by the produced would agree to sell his produce (wheat) to the buyer at a future delivery date at an agree upto price this contract became popular very quickly and started changing hand even before the delivery date of the products If a dealer in not interested in taking delivery of the produce he would sell his contract to some one similarly It farmer who did not able to deliver his crop then he would pass on the responsibilities to another with some more modification such contract gradually transformed into an instrument to protect the parties evolved against adverse factors like unexpected price movement unfavorable climatic factor etc for example during bad weather people having contracts to sell wheat would be interested to hold more valuable contracts due to supply shortage conversely If there is oversupply the sellers contract value would decline. This prompted the entry of traders in the future market who had no intension to buy or sell wheat but would purely speculate on price movement in the market to earn profit the hedger’s (farmers) who wanted to protect themselves from price fluctuation began to efficiently transfer risk to the dealer trading in future as a result become a very profitable mode of activity that Encouraged the entry or other commodities, thereby creating a platform to setup a body that can regulate and supervise these contracts . Thus during 1848, The Chicago board of trade (CBOT) was established, It was initially formed as a common location known both to the buyers and seller to negotiate forward contracts.

In the 1870 and 1880’s the New York coffee, cotton and produce Exchange were born the largest cotton and produce exchange of the USA Chicago board of trade the Chicago mercantile exchange, The New York mercantile exchange, The New York commodity exchange and New York coffee, Sugar and Cocoa exchange worldwide. There are major future trading exchanging in over twenty (20) countries including Canada, England, India, France, Singapore, Japan, Australia and New Zealand. In America future trading is regulated by an agency of the department of agriculture called the commodity future trading commission.

There are three national level and 21 regional commodity exchange situated in different parts of India.

They are:

• MCX: Multi Commodity Exchange of India Ltd. (Mumbai )

• NCDEX: National Commodity & Derivatives Exchange (Mumbai)

• NNCE: National Multi Commodity Exchange (Ahmedabad)