Role of Warehouse in Future Market

Topics: Futures contract, Commodity Futures Trading Commission, Chicago Board of Trade Pages: 4 (1163 words) Published: November 21, 2008
Among the investment avenues, commodity futures trading is a fast growing sector with huge untapped potential, along with the financial markets.

The major difference between commodity and financial markets is that, in commodities futures physical delivery takes place where as in the capital market it does not. In these markets, there are farmers, industrialists, warehouses, consumers, dealers and traders, who buy and sell commodities. There are warehouses, which stores commodities and there are consumers, who consume them eventually.

In the Indian context, warehouses are necessary for the commodity sector and commodity future trading especially for farmers because agricultural commodities constitute a major segment of the Indian economy. When the role of warehouse is necessary

The role of a warehouse is most necessary in the spot market where a farmer after having harvested his crop sells them to commission agents who in turn sells them to a Mandi. The Traders in Mandi may then sell it to a large consumer or to a trader who in turn will sell it to some other consumer, industry, exporter or miller at the right time and right price. The Goods during this period are stored in the warehouse. It is seen that today 80% of the warehousing capacity is used by the Government for storing various commodities under the Public Distribution System and for storing fertilizers

Commodities form almost 58 percent of India's Gross Domestic Product out of which 22 percent is agriculture, and two third of the population depend up on agriculture for livelihood.

Warehousing forms the basic platform of delivery based trading in commodity futures. Warehouses play an important role in commodities futures, as most of trades are settled with delivery. That is, if the seller chooses to handover the commodity instead of the difference in cash, the buyer must take physical delivery of the underlying asset.

Hence, warehouses play a significant and decisive...
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