Overview of Commodity Derivatives Market in India

Over the centuries, commodity trading has evolved from the barter system to spot markets to derivatives markets. In commodity spot markets, traders sell goods such as rice for immediate delivery against cash. At some stage, counterparties needed to enter into agreements to deliver commodities (eg, rice) at a specified time in future at a price agreed today. These agreements came to be known as forward contracts. For example, on April 1, a seller agreed to sell rice of specific quantity for delivery on a future specified date say July 31 to the buyer at pre-decided price, the contract will be honoured by both the parties, irrespective of prevailing price of rice on July 31.