Given the fact that nearly two in three Indians are dependent on agriculture, it can be argued that this is a commodity-based economy even if the share of agriculture in our GDP is today below 20%. From a well-articulated forethought it is revealed that the agricultural commodities market is pretty expected to touch 526 million tonnes which will be worth $217 billion by 2020 at current prices.
The commodities market plays the role of a mediator between buyers and sellers to arrive at a future price of underlying commodity. The market also facilitates decisions related to storage and consumption of commodities. In the process, such transactions make the market more liquid for both the parties i.e. the buyers and sellers being involved. Over the years, the development of commodities trading helped investors hedging their risk, take speculative positions and exploit arbitrage opportunities in the market.
The commodities market offers enormous potential to become a separate asset class for retail investors, arbitrageurs and speculators. Trading in commodities is easy to understand as far as fundamentals of demand and supply are concerned. Remember, the risk involved is high while trading in commodities market compare to equities. So, it’s important for retail investors with conservative and medium risk appetite to analyze the risks and advantages carefully before taking a decision to trade. Historically, pricing in commodities futures has been less volatile compared with equity and bonds, thus providing an efficient portfolio diversification option to investors.
This market trades in a wide range of products which include precious metals (gold and silver), base metals (copper, aluminium, nickel, lead and zinc), energy (crude oil and natural gas), oilseeds (soybean, soy oil, mustard seeds, palm oil) and soft commodities (sugar, cotton) in an organized manner under a strong regulatory body.