We are pleased to inform our readers that from this issue onwards we shall cover major issues to deal in commodity markets. Pl let us know if you require any special details on the subject. We shall provide you reading material from the best of the traders, writers in this subject.The commodities sector was one of the most developing sectors in 2005. Futures trading grew leaps and bounds making the most of the bull-run witnessed globally. Fueled by the rally in equity markets, stock market players jumped into commodity markets to leverage on the all round boom.

Cumulative futures trading volumes on the 24 commodity exchanges crossed Rs 15 lakh crore in the current calendar year up to November 30 and are expected to go up another Rs 1 lakh crore in December.According to the regulator — the Forward Markets Commission (FMC)  the two electronic exchanges, the National Commodity & Derivatives Exchange (NCDEX) and the Multi Commodity Exchange (MCX) of India contributed more than 92% of the turnover.

Besides the two, other commodity exchanges like the Indore-based National Board of Trade (NBoT), Surendranagar Cotton and Oilseeds Association and the Ahmedabad-based National Multi Commodity exchange (NMCE) recorded a handsome turnover.The dramatic rise in volumes in commodity futures trading is due to increasing awareness about the newly opened up sector and a rise in participation by various sectors of the economy. In the last calendar year, exchanges posted a combined turnover of about Rs 2.5 lakh crore.

However, an analyst at a domestic brokerage house stated that the rise in commodity prices by approximately 10% across the board had also been a major reason for the rise in turnover this year.

Nevertheless, because most people lose money, commodity trading has a bad reputation as being too risky for the average individual. The truth is that commodity trading is only as risky as you want to make it.Those who treat trading as a get-rich-quick scheme are likely to lose because they have to take big risks. If you act prudently, treat your trading like a business instead of a giant gambling casino and are willing to settle for a reasonable return, the risks are acceptable. The probability of success is excellent.

The process of trading commodities is also known as futures trading. Unlike other kinds of investments, such as stocks and bonds, when you trade futures, you do not actually buy anything or own anything. You are speculating on the future direction of the price in the commodity you are trading. This is like a bet on future price direction. The terms "buy" and "sell" merely indicate the direction you expect future prices will take.If, for instance, you were speculating in wheat, you would buy a futures contract if you thought the price would be going up in the future. You would sell a futures contract if you thought the price would go down. For every trade, there is always a buyer and a seller. Neither person has to own any wheat to participate. He must only deposit sufficient capital with a brokerage firm to insure that he will be able to pay the losses if his trades lose money.

In addition to speculators, both the commodity’s commercial producers and commercial consumers also participate. The principal economic purpose of the futures markets is for these commercial participants to eliminate their risk from changing prices.

On the other side of the transaction might be a producer such as a cereal manufacturer who needs to buy lots of wheat. The manufacturer, such as HLL, may be concerned that in the next three months the price of wheat will go up, and it will have to pay more than the current price. To protect against this, HLL can buy futures contracts at the current price. In three months HLL can fulfill its obligation under the contracts by taking delivery of the wheat. This guarantees that regardless of how the price moves in the next three months, HLL will pay no more than the current price for its wheat.In addition to agricultural commodities, there are futures for financial instruments and intangibles such as currencies, bonds and stock market indexes. Each futures market has producers and consumers who need to hedge their risk from future price changes. The speculators, who do not actually deal in the physical commodities, are there to provide liquidity. This maintains an orderly market where price changes from one trade to the next are small.

Rather than taking delivery or making delivery, the speculator merely offsets his position at some time before the date set for future delivery. If price has moved in the right direction, he will profit. If not, he will lose.

Govt. Initiave

The proposal is in an advanced stage of finalisation and is likely to be implemented soon. On the agriculture front, Sharad Pawar publicly stated that he favoured mutual funds and foreign institutional investors trading in the Indian commodity markets.This year, the farm minister categorically reiterated on several occasions that FMC will not be merged with the Securities & Exchange Board of India (Sebi). Currently, the commodities futures regulator comes under the purview of the consumer affairs ministry.

To empower the regulator, the government plans to introduce a bill in the budget session of parliament to amend the Forward Contract (Regulation) Act of 1952. The current session of parliament is likely to conclude Dec. 23. Earlier, the finance ministry had favoured a single regulator for the capital market and commodities derivatives.The consumer affairs ministry, had however, contended that the Commission should continue as an individual entity with more autonomy. FMC, under the chairmanship of S Sundareshan, who took over early this year continued to play the role of facilitator while flexing muscles at times.commodities and tightened open position limits and price limits for 24 commodities. In a tough stand, FMC asked the exchanges to move towards delivery based settlement in all open positions as of now.The exchanges are still working out logistics and related issues to implement the directive in most commodities. All in all, the year gone by has been exciting. But, the forthcoming year is set to be even more dynamic and exciting than ever.

Commodity Trading As An Investment Vehicle

as an investment vehicle over other investment alternatives such as savings accounts, stocks, bonds, options, real estate and collectibles.ofits in a short period of time. The reason that futures trading can be so profitable isleverage.While profits can be large in commodity trading, it is not easy to make consistently correct decisions about what and when to buy and sell.

Commodity speculation offers an important advantage over such illiquid vehicles as real estate and collectibles. The balance in your account is always available. If you maintain sufficient margin, you can even spend your current profit on a trade without closing out the position. With stocks, bonds and real estate, you can’t spend your gains until you actually sell the investment.

As you will see, commodity trading is not particularly complicated. Unlike the stock market where there are over ten thousand potential stocks and mutual funds, there are only about forty viable futures markets to trade. Those markets cover the gamut of market sectors, however, so you can diversify throughout all important segments of the world economy.

In futures trading, it is as easy to sell (also referred to as going short) as it is to buy (also referred to as going long). By choosing correctly, you can make money whether prices go up or down. Therefore, trading a diversified portfolio of futures markets offers the opportunity to profit from any potential economic scenario. Regardless of whether we have inflation or deflation, boom or depression, hurricanes, droughts, famines or freezes, there is always the potential for profit trading commodities.There are even tax advantages to making your money from futures trading. Regardless of the actual holding period, commodity profits are automatically taxed as sixty percent long-term capital gains and forty percent short-term capital gains. The current maximum capital gains rate is thirty-three percent, somewhat less than the maximum rate for ordinary income. To the extent that capital gains tax rates are reduced in the future, commodity traders will benefit. If a distinction is re-established so that taxes on long-term gains are lower than on short-term gains, commodity traders will benefit.

To start trading in commoditiein India, first thing you need to register with some company who are member of the exchange. There are over 1100 members of Multi Commodity Exchange alone. You can get registered with Petroleum Bazaar and get a client id. Petroleum Bazaar will provide you necessary training and support to help you start the trading.

It is not very expensive to start trading in the exchange. As a client you need to spend only Rs.5000 for getting the client id and getting started. You will also need to deposit 5% margin money. For example if you deposit Rs. 10000 as margin money, you will be able to keep a trading position open up to Rs. 200,000.The other important thing is brokerage. In the market it is anything between 0.1 to 0.05 percent of the contract amount, depending upon the trading volume. The day traders can get a better deal.Before start you must fill up the form, agreement signed and necessary documentation done. This sector is very demanding and hence be uptodate with your accounts, paper work.