Types of Commodity Market
                     Types of Commodity Market
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What is a Commodity Market?
A commodity market is a platform where raw materials like gold, 
oil, wheat, and more are bought and sold. It plays a vital role in:
● Price discovery
● Risk management
● Hedging against inflation
There are two primary types of commodity markets:
1️ ⃣Spot Market – Immediate buying/selling of commodities
2️ Derivatives Market – Trading via contracts for future delivery
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Spot vs. Derivatives Commodity Market
Spot Market (Physical Market)
● Real-time transactions
● Immediate delivery
● Prices driven by current demand & supply
● Common in gold, wheat, crude oil
 Example: A jeweler buying gold today for immediate delivery.
Derivatives Market
● Trade via contracts for future delivery
● Used for hedging or speculating on price movement
● Includes Futures and Options
Example: A trader buys crude oil futures to lock in today’s price 
for future delivery.
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Understanding Futures and Options Markets
Futures Market
● Agreement to buy/sell a commodity at a set price on a future date
● Regulated by exchanges like MCX
● Requires margin deposits
● Great for both hedging and speculation
Use Case: An oil producer locks future selling prices through oil futures 
contracts.
Options Market
● Gives the right, not the obligation, to buy/sell at a fixed price
● Requires a premium to enter
● Offers flexibility and limited risk
Use Case: A wheat trader buys an option to protect against rising prices.
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Types of Commodity Markets in India
By Geography
● Domestic Markets: Influenced by local demand & rules (e.g., 
MCX in India)
● International Markets: Impacted by global trends (e.g., CME, 
LME)
 By Commodity Type
● Agricultural: Wheat, turmeric, soybean – traded on NCDEX
● Metals: Gold, silver, copper – traded on MCX
● Energy: Crude oil, natural gas – also on MCX
● Livestock/Meat: Not traded on exchanges, but regulated by 
APEDA for exports
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Disclaimer
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