only in 1848 when the Chicago Board of Trade (CBOT) was established

Commodities trading in India has been in existence for over 125-year. The establishment of the Bombay Cotton Trade Association in the year 1875 was a milestone. Although trade in commodity futures flourished for many years, it was discontinued in the mid-1960s due to war, natural calamities, and shortages in the supply of commodities that resulted.

The importance of commodity trading was realized in India after the economic reforms were initiated in the 1990s, and by the beginning of 2002, there were about 20 commodity exchanges in India that traded in 42 commodities. Some commodities were also traded internationally.

Commodity futures contracts and the exchanges were governed by the Forward Contracts (Regulation) Act, 1952. The regulator was the Forward Markets Commission (FMC). The FMC later merged with the Securities and Exchange Board of India (SEBI) in September 2015

The government allowed the reintroduction of commodity futures in 2002. The FMC approved the setting up of three commodity exchanges which were screen-based and allowed trading of multiple commodities across the country.

There are numerous ways to invest in commodities. An investor can buy stock in companies whose business depend on commodities prices, or invest in mutual funds, exchange-traded funds (ETFs) or index funds that have a focus on commodities-related companies. Buying into a futures contract was the most direct way of investing in commodities. A futures contract binds the holder to buy or sell a commodity on a delivery date in the future, at a predetermined price.

Commodities can indeed be a good option for people who would like to diversify their portfolios other than shares, bonds, or real estate. Retail investors can now trade in commodity futures without holding physical stocks!

For the market-savvy investors, arbitrageurs and speculators, commodities have immense potential to emerge as a separate asset class. As far as the fundamentals of demand and supply of commodities are concerned, they are easy to understand. Retail investors should clearly understand the risks and advantages of trading in commodities futures before they put in their money. Pricing in commodities futures, when compared to equity and bonds, has been historically less volatile, and therefore considered as an efficient option for portfolio diversification.

A commodity market can be a physical or virtual marketplace for buying, selling, and trading of raw or primary products. Worldwide, there are over 50 major commodity markets currently facilitating trade in nearly 100 primary commodities.

Commodities are classified into hard and soft commodities. Hard commodities are natural resources that are extracted or mined for example gold, silver, copper, rubber, oil, etc. Agricultural produce or livestock such as wheat, corn, coffee, soybeans, sugar etc.are soft commodities

The markets operate like any other market in a physical or a virtual space, where one can buy or sell commodities at the current or future date. As in any other market, commodity futures plays an important role in the pooling of information and sharing of risk. The market acts as a mediator between buyers and sellers of commodities, and also facilitates decisions regarding storage and consumption of commodities. This process makes the underlying commodity more liquid.

Commodity trading using futures contracts is an agreement between the buyer and the seller, where the buyer promises to pay the agreed sum when the seller delivers the commodity at a pre-decided date in the future. A farmer will be able to buy wheat futures to fix a price at which he would want to sell a certain quantity in the future. In the same way, a trader would sell or buy wheat futures for delivery at a price that is decided now, on a future date.

As is stocks, one can invest in a commodity through the commodity bourses such as NCDEX - National Commodity and Derivatives Exchange Limited, MCX - Multi Commodity Exchange and NMCE - National Multi-Commodity Exchange of India Ltd. These exchanges have a national presence with electronic trading and settlement systems. COC - Chamber of Commerce - BOOE- Hapur, Bhatinda Om & Oil Exchange Ltd., ACE - Ace Derivatives & Commodity Exchange Ltd., and UCX - Universal Commodity Exchange are the other exchanges. The commodity exchanges in India are - NSEL - National Spot Exchange Limited, ICEX - Indian Commodity Exchange Limited.