A commodities futures exchange is an exchange where derivative contracts of various commodities are traded through a single mechanism (central order routing), by facilitating effective price discovery.
Commodity exchanges have the following functions:
1.They serve as an intermediary between buyers and sellers.
2.They take margins in the form of deposits on transactions to eliminate credit risk from the markets.
3.Exchanges Set up all the rules and regulations to minimize fraudulent activities in the market.
4.Establishing worldwide standard prices for all the commodities traded.
There are two major commodity exchanges in India, which are:
1. Multi Commodity Exchange (MCX):
Multi Commodity Exchange of India Ltd (MCX), is an electronic commodity futures exchange which started its operations in November 2003. It offers more than 40 commodities across various segments such as bullion, ferrous and non-ferrous metals, energy, and several Agri-commodities on its platform. MCX holds a market share of 96.48% in terms of the value of commodity futures contracts traded, as of Dec 2020.
List of commodities that are traded on MCX:
2. National Commodity and Derivative Exchange (NCDEX):
National Commodity and Derivative Exchanges or NCDEX, is one of the leading commodity exchanges in India for agri-commodities. In the fiscal year of 2019, NCDEX had a market share of 81.5% in its agricultural commodity segment.
NCDEX began its business on the 9th of May, 2003.
NCDEX supports an order driven market and provides complete transparency of trading operations. The trade timings of the NCDEX are 9.00 a.m. to 5.00 p.m.
NCDEX offers two types of products:
- Agricultural products
- Non-agricultural products
List of commodities that are traded on NCDEX:
Some Global Commodity Exchanges are:
1. London Metal Exchange:
The London Metal Exchange (LME) is a futures exchange with the world's largest market share in options and futures contracts on base and other metals. The LME offers contracts with daily expiry dates of up to 3 months from the day they are traded, weekly contracts of up to six months, and monthly contracts of up to 123 months. LME also permits cash trading.
The LME offers futures and options contracts for Aluminium, Aluminium alloy, NASAAC (North American Special Aluminium Alloy), cobalt, copper, lead, molybdenum, nickel, steel billet, tin and zinc.
2. Intercontinental Exchange:
Intercontinental Exchange is an American network of exchanges and clearinghouses for financial and commodity markets. The ICE also owns and operates 5 central clearinghouses, that are:
- ICE Clear Europe
- ICE Clear U.S
- ICE Clear Canada
- ICE Clear Credit
- The Clearing Corporation
Price transparency, high efficiency, high liquidity and low costs are some of the features of this exchange.
3. Chicago Mercantile Exchange (CME):
The Chicago Mercantile Exchange is an American financial and commodity derivative exchange based in Chicago. CME, CBOT, NYMEX and COMEX are owned by the CME Group.
Similar to the Intercontinental Exchange, the contracts traded on CME are majorly future contracts and option contracts.
- It leads in size and scale.
- Highly liquid.
- Efficient trades.
- Most diverse product lines.
- Superior trading technology.
- Financial safeguard.
- Transparent and anonymous marketplace.
4. Tokyo Commodity Exchange (TOCOM):
Tokyo Commodity Exchange, Inc. (TOCOM) is an exchange located in Japan and is Japan’s largest, and one of Asia’s most prominent commodity futures exchanges.
TOCOM is an electronic exchange, which primarily trades for precious metals, oil, rubber and soft commodities. It also offers futures and options contracts for precious metals like gold, silver, platinum, palladium, etc., and, various energy contracts like crude oil, gasoline, kerosene and gas oil, etc. and, natural rubber and agricultural products like soybeans, corn and azuki.
Other Leading Commodity Exchanges of the World: