Commodity Markets Challenges and Arbitrage Opportunities – An Insight into Commodity Trading Business in India

19 Pages Posted: 14 Jun 2012 Last revised: 24 Aug 2013

See all articles by G. S. Popli

G. S. Popli

Delhi School of Business

Sima Kumari

Delhi School of Professional Studies and Research (DSPSR)

Date Written: June 14, 2012

Abstract

The concept of commodity futures is not new in India. However commodity futures trading in India remained in a state of hibernation for four decades, which was market by suspicion on the benefits of futures trading. This is now replaced by policy, institutional and market activism in the last few years. Thus now the commodities have started to be bigger than stocks. This is in tandem with the ongoing global and domestic reforms in agriculture and allied sectors. The Indian Govt. has also reduced its direct market intervention. Now it is encouraging private participation based on market forces. This had led to increased exposure of agricultural produce to price and other market risks which consequently emphasis the importance of futures markets for price discovery and price risk management. This paper makes a modest attempt to analyze the current scenario of commodity trading in U.S.A, U.K, and India. It also examines the relationship between the future and spot price of two commodity exchanges in India. It finds out the possibility of arbitrage gain between the two Commodity Exchanges of India i.e. MCX, and NCDEX.

The purpose of this paper is to analyse the efficiency of agricultural markets by accessing the relationships between futures prices and spot prices of major agricultural commodities in India. It reveals that there is a positive correlation between future and spot prices of the commodities. It was also observed that there is possibility of arbitrage in those commodities which are traded at both NCDEX and MCX Commodity Exchanges.

Keywords: Spot Prices, Future Prices, Commodities, Derivatives, Arbitrage, Correlation and Volatility

Suggested Citation

Popli, Gurmukh Singh and Kumari, Sima, Commodity Markets Challenges and Arbitrage Opportunities – An Insight into Commodity Trading Business in India (June 14, 2012). Available at SSRN: https://ssrn.com/abstract=2084082 or http://dx.doi.org/10.2139/ssrn.2084082

Gurmukh Singh Popli (Contact Author)

Delhi School of Business ( email )

VIPS - Technical Campus
AU Block, Outer Ring Road
Delhi, 110034
India

Sima Kumari

Delhi School of Professional Studies and Research (DSPSR)

9, Institutional Area,
Sector 25 Rohini Phase III
Delhi, Delhi 110085
India

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