Commodity Futures Contracts And The Commodity Trading

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The government organization Forward Contracts Regulation Act, 1952 regulates commodity futures contracts as well as commodity trading exchanges. FMC (Forward Markets Commission) is the central agency responsible for regulating the commodity futures market. It is located in Mumbai and functions under the auspices of the ministry.

India was home to many commodity exchanges. The MCX (Multi Commodity Exchange), the NCDEX, National Commodity and Derivatives Exchange and the NMCE are the most prominent.

What’s a ‘Commodity?

All types of goods are considered a commodity. FCRA defines “goods” to include “every type or movable property, other than actionable claims, money and securities”. Futures trading must be conducted in such commodity or goods that are allowed by the government. Futures trading is allowed under the FCRA under all products and goods of agricultural, mineral and fossil origin.

What’s a Commodity Exchange?

A commodity exchange can be a large association, a corporation, or any other entity that organizes futures trading in commodities.

What does Futures Contract mean?

A type of forward contract is a futures contract, or agreement. FCRA defines forward contracts as agreements for delivery of goods. It is not a ready delivery agreement. A ready delivery agreement under the government Act is one that provides for delivery of goods and payment of price. This can be done immediately or within a time period not exceeding 11 days from the date of the agreement.

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The law requires a ready delivery agreement to be executed by providing and taking physical delivery of e-goods. The ready delivery agreement is also known in market parlance as the “spot”, or “cash” agreements.

Forward contracts are all types of commodities contracts that allow for delivery and payment of the price within 11 days from the date of the agreement.

There are 2 types of forward contracts:

  • Delivery contracts with specific terms
  • Futures Contracts

Specific delivery contracts refer to the delivery of specific quantities or types of goods within a future time frame. In which both the buyer and seller’s names are listed,