Generally, a commodity refers to the things which we used in our daily life. Rice, wheat, LPG, gold, and silver are the basic example of commodities. In a commodity market, investors can trade different commodities. It is similar to the stock market.
There will be equity transactions in the stock market, however, different types of commodities will trade in this commodity market. In short, It is the market where investors and traders buy and sell different kinds of commodities.
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History of Commodity Market
Commodity trading has a long history. Pigs, cattle, corn, and wheat were traded in Europe and American using standard instruments since 1800 AD. The commodity market started with the establishment of the Chicago Board of trade in 1848 AD. This market has huge scope in the world market.
There are many commodities exchanges in Nepal and they are working since 2006. Commodities and Metal Exchange Nepal (COMEN), Mercantile Exchange Nepal Limited (MEX), Nepal Derivative Exchange Limited (NDEX), Commodities future exchange (CFX) are the institution related to the commodities exchangers of Nepal.
Government of Nepal followed by the Ministry of finance, the regulatory body (SEBON), Derivative Exchanges, Clearing members, Trading members, and traders/clients are the proposed structure for the Commodities market of Nepal.
Nepal is a developing country and its economy is growing steadily. So, the people are looking for different opportunities to invest their money. Furthermore, in the near future commodity market will get a new reach.
The increasing literacy rate of finance and account, technological improvement, strong and visionary regulatory body, increment inaccessibility of trade broker are the basis to increase the future of the commodity market.
Commodities Traded in Nepal
Securities Board of Nepal (SEBON) is the main regulatory body of the commodity market as well. SEBON permitted the six types of goods in the Commodity exchange market.
- Agriculture Products: As per the report of SEBON, there 23 goods included in agriculture products. Cotton, Cardamom, Soyabean, Black pepper, Sugar, Pulses, Castor Seed, Maize, Barley, Paddy, Ginger, Buckwheat, Chili, Sugarcane, and fruit included in the agriculture category.
- Base Metal products: The listed product under this category are Aluminum, copper, Lead, Nickel, Zinc, iron, brass, and tin.
- Precious Metals: It is also known as Bullions. Gold, Silver, and Platinum listed under this category. Gold and Silver are the metal which is most traded in commodity market.
- Mineral Oils: All the mineral-related oils are separated into this category. Crude oil, petroleum products, heating oil, and natural gas are the products traded in the commodity exchange market under Mineral oils.
- Edible oils: Investor can also invest their money in coconut, palm, mustard, sunflower, and linseed oil under the edible oil category.
- Other Commodity: Likewise, a trader can also invest their money in sugar, egg, coffee, and medicinal herb on the commodity exchange market.
Commodity Market in Nepal
Most of the buyers and sellers of the commodity market are those who do not need the commodity itself. The trader just presumes the price of the money and makes a profit. In a security market, investors invest in a company, however, in the commodity market people invest in the product rather than the company. The commodity market is beat for both consumer and producer because it reduces the risk of price fluctuation by future and forward contracts.
The commodity spot market, commodity spots market, physical delivery commodity futures market, cash settlement commodity futures market are the basic types of the commodity market that are usually practiced in Nepal.
In Nepal, SEBON regulated the commodity market under the Commodities Market Exchange Act 2017. Additionally, the major functions of SEBON in the commodities market are; protect the legal rights of investors, promote the commodity market and encourage investors to invest safely. Also, regulate the issue of commodity derivative products, exchanges, clearing, and settlement houses are the responsibility of SEBON.
There will be a middle man between buyer and seller which is a broker. The popular broker company in Nepal are as follows:
- Mercantile Exchange Nepal Limited
- Himalayan Clearing Corporation
- e-zone Commodities Market Pvt. Ltd.
The commodity market in Nepal is still new and there are very few traders in Nepal, but the trading is done in the same way that is all over the world. Before entering into the market you should have to do a lot of study about risk, bullish and bearish market, price fluctuation, and other information which might impact the price of the commodity.
Best Time To Enter In Commodity Market
A broker is necessary to do the transaction in the market. Firstly, select the best broker which suited for you. All the brokers have certain forms which you need to fill. You can open the account online and all brokers have the two types of account which you have to download. The Demo account and the Real account.
A demo account is an account that is provided by brokers to the investor to develop their skills in the real market. In a demo account, everything is virtual means the amount you trade, the product you buy and sell but the market scenario will be real. The demo account is crucial for beginners because it gives a different idea about the real market scenario. Also, it is the preparation to enter the market.
After certain practice in the demo account, you can take the step in the real market with real investment. The commodity market has more as compared to the share market because of the heavy price fluctuation. Recently more than 2.5 million Nepalese people are engaging in the Nepalese stock market.
According to NEPSE, almost 80% of people are doing transactions online. Technological advancement is one of the reasons for the stock market growth of Nepal. An investor can buy and sell commodity products online in Nepal.
The trading session in Nepal for the commodity market is 23 HRS every day from Monday morning to Saturday morning in summer and the market opens and closes one hour later in winter.
The commodity market in Nepal is growing slowly. So, the government of Nepal, SEBON, Nepal Rastra Bank, Finance Ministry, and other related bodies should play a vital role to boost the commodity market of Nepal. Although there are regulatory bodies and technological improvements in Nepal, the commodity market is not improving as compared to the share market.