Commodity futures form a small portion of trading and are very important for agricultural producers and consumers. Earlier, in India, trading in commodity futures was banned for several decades. However, with changing times trading in commodities has assumed significant proportions. At present, with commodity exchanges varying in their contract specifications and settlement rules, futures trading is conducted in over 25 exchanges, with four major multi-commodity exchanges set to dominate trading in the future.

The growth of commodity futures has widely spread in the recent years strengthening to contribute significant changes in the Indian economy to meet the market challenges.

The Commodity futures or Exchange Markets bring new ideas for both retailers and market traders to participate in the commodity derivatives as compared to investing in bonds and shares. The turnover of commodities across the country is around Rs. 1,400 bn. With the introduction of futures trading, the size of the commodities market has grown further. Commodity futures have come up with separate asset class for the market players, institutional investors, speculators and arbitrageurs. The retail investors who depend on equity trading may find it difficult to invest in commodities. Unlike in any other market the commodity futures play a vital role in pooling the information as well as risk sharing. Forward contracting is an important tool for an economy to meet adequate raw materials for storage as a profitable economic tool and also to manage demand and supply risk. The futures market and forward contracts compliment each other for effective price discovery.

Even though history reveals that India has a good record in commodity derivative but it still remained underdeveloped mainly due to the government interventions, rules and regulations in many commodity markets that affected the control prices. Some trades in commodities are restricted under Essential Commodities Act (ECA), 1955 and other forward and futures contracts are restricted to certain commodity items under the Forward Contracts Regulation Act (FCRA), 1952.

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