Risk management and its implicationsIn commodity trading with special Reference to national stock Exchange

Abstract

Commodity derivative is a financial instrument that achieves betterreturns with minimum risk through the process of price risk management,price discovery, correlation, implication of macroeconomic variables andlong-run and short-run relationship among various metal commodities.Commodity derivative plays a major role in case of metals in an Indiancommodity market over 100 years with exchange trade mechanism.Commodity Trade and Risk Management are the process of tradingphysical commodity and derivative products. Producers, trading companiesand industrial end-users are involved in trading of standardized goods inregulated exchanges. The price fluctuations in commodity generates risks, thisgives more opportunities for traders for buying and selling of commodities atacceptable price. Commodity Trade and Risk Management systems arehandling the life cycle of physical commodity transactions. The transaction ismanaged and overseen from the beginning of trade to final settlement oftrade.From the origin, a commodity trading has a better development andthe main problem faced is that the investors cannot forecast on the futureprice due to fluctuations in the market price and that creates a major impacton different macro-economic factors like inflation rate, exchange rate, reporate and so on. The long-term investors earn a better return and increase theirknowledge in commodity market, whereas short-term investor fails inpredicting the future prices. The other problem faced by the investor is thedecision of investment in future commodity market with high risk and return.Hence, the investors are highly susceptible to earn return in long terminvestment over long interval and that tends to predict the market trend anddirections. newline