Commodities touch a huge cross-section of investors, including farmers, exporters, importers, manufacturers, and governments over the past few years. Given the numerous risks that companies face in this well-knit, globalized world; they have begun to increasingly comprehend the importance of hedging. So much so that risk management through commodity and currency derivatives is playing a key role today to ensure that corporate profitability does not get derailed in this increasingly volatile environment. Moreover, commodity futures facilitate efficient price discovery, benefiting all stakeholders and market participants, particularly farmers. Little wonder, therefore, commodity futures trading has become one of the most rewarding operations for the Karvy Group.

 

The boom in global commodity markets was triggered by the ultra-low interest rates in the US during the first half of the last decade. As a result, a huge wall of money found its way into multiple markets and asset classes, causing a global multi-asset boom. Commodity prices moved up sharply during the last decade, driven by significant speculative activity and huge consumption demand from emerging markets like China. So, it can be understand commodity prices are determined largely by supply and demand interactions in the global marketplace. The result—prices have been overwhelmed with excessive volatility, making it difficult for companies to manage their exposures effectively. Given the scenario, commodity futures help companies to hedge their exposures and minimize risk.

​

If you are an investor, commodity futures offers the following benefits:

 

• High leverage: You can take a position in a particular commodity by paying only a fraction of that value as margin. Moreover, the margins in the commodity futures market are lower than equity futures and options.

• Less manipulation: Governed by international price movements, commodity markets are less prone to rigging or price manipulation.

• Diversification: Commodity prices are prone to supply-demand dynamics, weather conditions, geo-political tensions and natural disasters. Accordingly, commodities are an independent asset class, and can prove to be an effective means of diversification in one’s investment portfolio.

 

If you are an importer or exporter, you benefit in the following ways:

 

• Hedge against price fluctuations: In today’s highly volatile scenario, wide fluctuations in prices of import and export products can directly affect your bottom-line. Commodity futures helps you to procure or sell commodities at a price decided months before the actual transaction, thereby ironing out any price changes that happen subsequently.

 

If you are a producer of a commodity, futures can help you in the following ways:

 

• Lock-in price for your produce: If you are a farmer, there is a possibility that the price of your produce may come down drastically at the time of harvest. By taking positions in commodity futures, you can effectively lock-in the price at which you wish to sell your produce at harvest time.

• Assured demand: Any glut in the physical market could mean an endless wait for a buyer. Selling commodity futures contracts can give you assured demand at the time of harvest.

 

If you are a large-scale consumer of a product, here is how this market can help you:

 

• Control your costs: If you are an industrialist, the raw material cost dictates the final price of your output. Any sudden rise in the raw material cost can compel you to pass on the hike to your customers, making your products unattractive in the market. On the other hand, if you are unable to pass on the costs, your margins and profitability will be hit. Through commodity futures, you can lock-in the price of your raw materials.

• Ensure continuous supply: Any shortfall in the supply of raw materials can stall your production and make you default on your sale obligations. You can avoid this risk by buying a commodity futures contract by which you are assured of supply of a fixed quantity of materials at a pre-decided price at the appointed time.

​

Want to Know More or Trade in future and options , CLICK HERE!!

​