Key Intermediaries of the Commodities Market

4 mins read
by Angel One

The commodity market is a marketplace where a wide range of products like precious metals, base metals, crude oil, etc. are traded. To enter into a commodity trade, all you have to do is go to the Angel One app and place an order. But did you know right from opening a Demat account, entering into a commodity trade, and fulfilling the transaction, many market intermediaries are actively involved in this process? These intermediaries/entities ensure smooth processing of the transactions while making sure that all the rules and regulations are complied with. All these intermediaries are interdependent and they come together to create an ecosystem where commodity trading can take place efficiently and effectively. Are you curious to know who these intermediaries are?

Intermediaries of the commodities market

Continue reading the article to understand the various intermediaries involved in the commodities market.

  1. Exchanges

Just like stock exchanges provide space to carry out trading in equities and derivatives, commodity exchanges are the marketplace to carry out commodity trades. They play a crucial role in price determination as thousands of buyers and sellers come together to interact in various commodities on a single platform. You can trade on these exchanges from anywhere in India as they are national-level exchanges. A few of the common exchanges through which commodities trading takes place in India are:

  1. Clearing Corporations

A clearing corporation is an entity/organization authorized by the exchange whose objective is to oversee the confirmation, settlement, and delivery of transactions. These corporations monitor and carry out all activities related to delivery, fund settlement, margin requirements, and management of the settlement guarantee funds. It operates a well-defined settlement system while making sure that there is no deviation from the system by either of the two parties. The National Securities Clearing Corporation Ltd. (NSCCL) is the clearinghouse for NCDEX, whereas, Multi Commodity Exchange Clearing Corporation Limited (MCXCCL) is a wholly-owned subsidiary of MCX, they take care of all the roles and responsibilities of a clearinghouse for their respective exchanges.

  1. Broker

One of the most crucial intermediaries that ensure smooth functioning in the commodities market is the broker. It is a corporate entity that is registered with the commodity exchanges and acts as your gateway to MCX, NCDEX, or any other exchange. However, an entity can perform these activities only after it has received a valid license after fulfilling all the requirements laid down by the exchanges. One such broker is Angel One. If you ever wish to start trading in commodities, your trustworthy broker, Angel One is here to help. From gold, crude oil, rubber, zinc, natural gas, spices, pulses, cereals to farm commodities, you can trade both soft and hard commodities using our user-friendly Angel One trading app. Learn how to activate your commodities segment.

  1. Types of traders

There are thousands of traders who are trading in and out of various hard and soft commodities in India. These traders/participants are broadly classified into 3 categories as discussed below. This classification is important as each of these groups of participants have their unique characteristics and contribute to the market robustness in their own way. Let’s take a look at these market participants.

  1. Hedgers

Investors who enter into a futures contract with an aim to reduce exposure to market volatility are known as Hedgers. When you follow hedging as your investment strategy, any change in the price of the respective commodity doesn’t affect you. Generally, hedgers trade in physical goods as they require them either for production, consumption, or resale purposes.

  1. Speculators

Speculators are basically risk-taker traders. Generally, they predict the market and ensure they are on the right side of the overall market momentum as well as the respective commodity. However, their speculation is based on technical charts, research reports, market performance, present trends, current news, and other relevant information.

  1. Arbitrageurs 

Those investors who benefit from the difference in prices between the two exchanges of a respective commodity or between different maturity dates of the same commodity are known as Arbitrageurs. However, if you opt for delivery, this process becomes slightly complex as additional costs like transportation, storage, insurance, stamp duty, etc. have to be factored in while calculating the difference in prices.

Conclusion  Exchanges, clearing houses, brokers, and traders – these 4 form the ecosystem for the commodities market and act as the pillars for it. Once you get an understanding of the ecosystem, it will be easier for you to trade in the commodities market. To earn substantial returns and avail of the benefits of hedging in the commodities market, you can trade in commodities by registering with Angel One. But before you start trading in commodities, click here to know more about commodities trading.