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National Commodity And Derivatives Exchange

Updated on April 15, 2024
Article byNanditha Saravanakumar
Edited byShreya Bansal
Reviewed byDheeraj Vaidya, CFA, FRM

What Is National Commodity And Derivatives Exchange (NCDEX)?

The National Commodity and Derivatives Exchange (NCDEX) is an Indian online platform that facilitates trading of agricultural products as commodities and derivatives. Founded in Mumbai in 2003, NCDEX is a government-owned entity under the Ministry of Finance.

National Commodity And Derivatives Exchange

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As a vital exchange in India, NCDEX plays a crucial role, given the importance of agriculture as the primary income source in the country. Beyond being a mere financial platform for agricultural commodities, NCDEX promotes competent and sustainable practices within the sector, supporting farmers and enhancing the agricultural landscape.

Key Takeaways

  • The National Commodity and Derivatives Exchange (NCDEX) is a financial platform that facilitates the electronic trading of agricultural commodities through futures and options contracts and futures indices. 
  • NCDEX trades various agricultural commodities, including spices, pulses, cereals, oil, oilseeds, and fibers. Additionally, it focuses on steel as the only non-agricultural commodity. 
  • The exchange plays a significant role in bringing farmers closer to the financial derivatives market by eliminating intermediaries. It empowers farmer collectives to trade their produce directly on the platform. 
  • NCDEX operates as a government unit and holds the distinction of being the second-largest commodity exchange in India.
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National Commodity And Derivatives Exchange Explained

National Commodity and Derivatives Exchange focuses on agricultural products produced in India. The country is still an agricultural economy as most of its population depends on farming for their livelihood. Thus, an exchange such as NCDEX makes sense.

The NCDEX is a financial platform that allows investors in the country to trade agricultural products as an underlying asset. Steel is the only non-agricultural NCDEX commodity traded on the platform. Here is a list of all the agricultural products traded in NCDEX:

  • Wheat
  • Bajra
  • Maize
  • Barley
  • Moong
  • Paddy (Basmati)
  • Channa
  • Kapas
  • Cotton
  • Coriander
  • Turmeric
  • Jeera
  • Castor seed
  • Castor Oil
  • Soybean
  • Cotton seed oilcake
  • Mustard seed
  • Palm oil
  • Soy oil
  • Sesame seeds
  • Soybean meal
  • Gur
  • Guar
  • Isabgol seed
  • Coffee

NCDEX is government-owned and is led by an independent board of directors, who govern and regulate the exchange’s activities. Currently, there are ten directors. At any time, the exchange should have at least three but a maximum of sixteen directors.

Further, the index has 24 significant shareholders. A few prominent ones include the Life Insurance Corporation of India, the National Stock Exchange, the National Bank for Agricultural and Rural Development, Canara Bank, Punjab National Bank, etc.

One of the essential features of NCDEX is that it facilitates trading in agricultural commodities and supports the country’s agricultural sector. In FY 2021-2022, NCDEX represented 420,995 farmers in the country.

It allows farmer collectives or farmer-producer organizations (FPOs) to trade commodities on the platform, providing them with income relief. In FY 2021-2022, the exchange supported 1,009,472 farmers who are members of over 150 FPOs.

Investors interested in trading agricultural commodities can open accounts with brokers registered with the exchange. They can monitor the NCDEX live quotes updated on the exchange website and trade in futures, indices, and options contracts.

Examples

Here are a few examples of NCDEX.

Example #1

Suppose Mr. X wanted to invest in a Castor seed contract. He had two options – one expiring on June 19 and the other on July 20. He has watched these two contracts’ NCDEX live prices for a week. Mr. X realized that the movements of these two contracts are similar. Therefore, on May 18, he decided to buy based on the asking price. The contract with an expiry in June had a purchase price of ₹5890, while the one with an expiry in July had a purchase price of ₹5951. Therefore, he chose the first contract.

Example #2

India is the largest exporter of Isabgol, with an 85% market share. NCDEX recently launched four Isabgol contracts from May to August with monthly expiry. The market, including traders, FPOs, and exporters, has responded enthusiastically to the new commodity. Isabgol seeds were traded at an all-time high of ₹24,000 in April 2023. Further, the two near-month Isabgol contracts registered a turnover of ₹4.27 crores with a volume of 171 tons.

Benefits

Here’s why the NCDEX commodity market is advantageous:

  • The exchange not only focuses on traders and monetary benefits. It also fosters competent farming practices and supports the agricultural sector in India.
  • Every year, NCDEX adds new FPOs to the exchange and allows farmers to trade on them. In FY 2021-2022, 255 new FPOs who had yet to trade were added to the exchange.
  • Intermediaries are a considerable concern in the agricultural sector and eat away at farmers’ livelihoods. NCDEX ensures that intermediaries are eliminated in trading with farmers.
  • These intermediaries previously controlled market information. NCDEX makes the market more transparent.

Difference Between National Commodity And Derivatives Exchange And Multi Commodity Exchange

NCDEX and Multi Commodity Exchange (MCX) are two significant electronic exchange platforms in India, each providing unique markets for trading commodities. Now, let us explore the contrasts that set them apart.

  • NCDEX offers a broader range of agricultural commodities for trading, including cereals, pulses, spices, oilseeds, fibers, and more. In contrast, A few commodities traded on the MCX include aluminum, gold, copper, zinc, natural gas, crude oil, cotton, cardamom, black pepper, castor seed, etc.
  • NCDEX concentrates on agricultural products, with steel being the sole non-agricultural commodity. Conversely, MCX predominantly deals in metals and energy while featuring a smaller selection of agricultural commodities.
  • NCDEX is not government-owned and operates as a private exchange. On the other hand, MCX is a publicly listed company with significant government shareholding.

A clear comparative analysis is shown in the diagram below; both exchanges have gained quite a significant importance in the trading world. They offer traders a huge choice to trade from their varied range of financial products, as already mentioned above, and they come with their advantages and disadvantages. It is necessary for the traders to understand what their choices and preferences are and also need to possess a deep understanding of each product in order to trade in them successfully. Risk appetite also plays a huge role in trading, be it MCX or NCDEX.

Source

Frequently Asked Questions (FAQs)

1. What is NCDEX market timing?

NCDEX operates in two sessions – morning and evening. The morning session runs from 9:00 a.m. to 5:00 p.m. IST. The evening session works from 5:00 to 9:00 p.m. IST. However, the timings differ according to the commodity’s category (agricultural, internationally-linked agricultural, and non-agricultural products). Traders must verify the operating time of the commodity they are interested in. Further, they should also check the holiday calendar published by the NCDEX.

2. Who regulates NCDEX?

NCDEX comes under the Ministry of Finance. Like every other exchange in the country, it is monitored and controlled by the Securities and Exchange Board of India (SEBI), the supreme authority overseeing financial investments and trading activities.

3. What is the daily turnover of NCDEX?

In its fiscal year 2021-22 annual financial report, NCDEX reported an average turnover of Rs. 1850.93 crores. The highest daily turnover in the same period was Rs. 3,729.85 crores.

This article has been a guide to What Is National Commodity And Derivatives Exchange. We explain its examples, benefits, and comparison with Multi Commodity Exchange. You may also find some useful articles here –

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