National Commodity & Derivatives Exchange (NCDEX)

National Commodity & Derivatives Exchange (NCDEX)

What is the National Commodity & Derivatives Exchange (NCDEX)?

The National Commodity & Derivatives Exchange (NCDEX) is a commodity exchange which deals mainly with agricultural products in India. The National Commodity & Derivatives Exchange was created in 2003 and is headquartered in Mumbai. Many of the major financial institutions in India have a stake in the NCDEX. In September 2019, major shareholders included Life Insurance Corporation of India (LIC), the National Stock Exchange of India Limited (NSE) and the National Bank for Agricultural and Rural Development (NABARD).

KEY POINTS TO REMEMBER

  • The National Commodity & Derivatives Exchange (NCDEX) is a commodity exchange which deals mainly with agricultural products in India.
  • The National Commodity & Derivatives Exchange is located in Mumbai but has offices across the country to facilitate trade.
  • Exchanges like NCDEX have also played a key role in improving Indian farming practices.
  • Barley, wheat and soybeans are among the main agricultural products traded on the NCDEX.

Understanding the National Commodity & Derivatives Exchange (NCDEX)

The National Commodity & Derivatives Exchange (NCDEX) is one of the leading commodity exchanges in India in terms of value and number of contracts. It comes just behind the Multi Commodity Exchange (MCX), which focuses on energy and metals. The National Commodity & Derivatives Exchange is located in Mumbai but has offices across the country to facilitate trade. The trade included futures on 19 agricultural products and options on five agricultural products in March 2019. An independent board of directors heads NCDEX, and they have no direct interest in agriculture.

India is a world power in terms of agriculture. It is one of the largest producers of wheat, rice, milk and many types of fruits and vegetables. The size of India’s agricultural sector is somewhat hidden internationally because the populated nation consumes much of what it produces. However, the increase in productivity at the farm level makes India’s strength in agriculture more apparent. The NCDEX plays a vital role in India’s growing agricultural sector.

Advantages of NCDEX

By creating and maintaining an online futures market for crops, NCDEX has helped to increase market transparency. The exchange helps Indian farmers in the price discovery process. NCDEX allows them to set the price of their products more precisely even if they are not active on the futures market. Intermediaries, known as commission agents, previously controlled much of the market information in India. The introduction of online product exchanges such as NCDEX reduces the cost of price data for farmers by removing middlemen.

Exchanges like NCDEX have also played a key role in improving Indian farming practices. By standardizing the quality specifications of various products through contracts, the NCDEX has raised awareness of quality. Indian farmers are increasingly focusing on testing the requirements and adopting farming practices that result in consistent quality crops.

The NCDEX is still young by certain standards, but traders and large market players are already using contracts to hedge and speculate. This trend should continue as the Indian agricultural sector develops in terms of productivity and exports.

Examples of raw materials on the NCDEX

Barley, wheat and soybeans are among the main agricultural products traded on the NCDEX. The stock exchange also hosts certain contracts which are world benchmarks for products such as coriander. NCDEX is considered an important source of information on spices, as India is the leading producer and consumer of spices.

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