Role of future trading in agricultural commodity in India

Abstract

The study explores the role of future trading in agricultural commodities in India, detailing its historical evolution and current significance. Organized commodity trading began in India in 1875 with the Bombay Cotton Trade Association Ltd. Today, three major national exchanges-NMCE, MCX, and NCDEX-facilitate trading in over 100 commodities. The study focuses on the performance of Guargum and Soybean. MCX recorded higher growth rates for Guargum (51.31% annual volume growth and 13.80% future price growth) and Soybean (45.23% annual volume growth and 12.53% future price growth) compared to NCDEX. Instability analysis showed higher volatility in MCX for Guargum volume (36.33%) and Soybean volume (17.52%). The study concludes that despite positive growth rates, there is significant instability in commodity prices and volumes. Recommendations include increasing farmer awareness and simplifying trading processes to encourage participation in futures trading, which can enhance liquidity, price discovery, and risk management.