India is among the top-5 producers of most of the commodities, in addition to being a major consumer of bullion and energy products. Agriculture contributes about 22% to the GDP of the Indian economy. It employees around 57% of the labour force on a total of 163 million hectares of land. Agriculture sector is an important factor in achieving a GDP growth of 8-10%. All this indicates that India can be promoted as a major centre for trading of commodity derivatives.
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Cash VS Futures Market Trading |
Futures | Forwards |
Futures are traded on a stock exchange | Forwards are non tradable, regotiated instruments |
Futures are contracts having standard terms and conditions | Forwards are contracts customized by the buyer and seller |
No default risk as the exchange provides a counter guarantee | High risk of default by either party |
Exit route is provided because of high liquidity on the stock exchange | No exit route for these contracts |
Highly regulated with strong margining and surveillance systems | No such systems are present in a forward market. |