Bangalore (Karnataka) [India], March 31: The average daily turnover of options on MCX has surpassed futures for the first time in 2023, indicating the increasing maturity of the Indian commodity market. MCX's reach has grown substantially over the years, as the exchange is now present in 739 different locations across India.
The steady flow of commodities has always been the engine that has kept our society moving forward. If you take a glance around you, you'll see that the gasoline in your car is a refined form of crude oil, that the copper used in your home's electrical wiring powers your appliances, and that India is the world's second-largest consumer of gold. The oil refining sector, the wire-producing industry, and the jewellery industry all rely on these commodities as a source of raw materials. As a matter of fact, these firms trade commodities internationally to hedge themselves from potential increases in commodity prices. In addition, traders and investors employ price volatility to protect themselves or earn short-term gains.
Take the last 5 years of crude oil pricing history as an example. Several occurrences on a global scale have made it an emotional roller coaster. Crude oil demand began declining in January 2020 because to worldwide lockdown decisions, resulting in a precipitous drop in price from Rs. 4654/barrel on 1 January 2020 to Rs. 795/barrel on 28 April 2020. However, it quickly recovered after vaccine formulations were introduced. The price recovered to its pre-covid level in a single year and stayed there until the Russia-Ukraine conflict escalated in early 2022. Fears of a worldwide oil crisis caused the price to skyrocket even further, to Rs. 9996/barrel, on 8th March 2022, as a result of the conflict. The price of a barrel of crude oil fluctuated from Rs. 795/barrel to Rs. 9996/barrel.
In 1875, the Bombay Cotton Trade Association was established, marking the beginning of India's regulated commodities derivatives market. In the past, though, this was typically done without a transaction ever taking place. In 2003, the Multi-Commodities Exchange (MCX) and the National Commodity and Derivatives Exchange (NCDEX) was established, marking the beginning of the legal exchange-traded commodity futures market. Commodity derivatives traded on these exchanges benefit greatly from the removal of counterparty risk and the assurance of payment.
When it comes to commodities futures, MCX has 96.8 percent of the market share (9MFY23). As a result, key non-agri commodities futures have the highest liquidity there. With a particular focus on agricultural commodities, NCDEX holds a 3.1% market share.
Look at the volume and value on MCX after 2015, when SEBI became India's new regulator of the commodity market, to get a feel for the market's liquidity. With an annual average of over 20 crore contracts, the overall value has more than doubled over the last seven years.
The upside potential in FY21 is particularly obvious when one considers Alice Blue's commodity turnover and traded volume. The future of the equation appears optimistic with more people involved.
Mini contracts for commodities such as gold, silver, aluminium, lead, and zinc have been established by MCX/SEBI and commodity options (on commodity futures) introduced in 2017 are gaining traction.