Transactions in Commodity Market
1. Spot Market
Market where commodities are bought and sold in physical form by paying cash is a spot market. For example, if you are a farmer or dealer of Chana and you have physical holding of 10 kg of Chana with you which you want to sell in the market. You can do so by selling your holdings in either of the three commodities exchanges in India in spot market at the existing market or spot price.
2. Futures Market
The market where the commodities are bought and sold by entering into contract to settle the transaction at some future date and at a specific price is called futures market.
Derivatives are instruments whose value is determined based on the value of an underlying asset. Forwards, futures and options are some of the well-known derivatives instruments widely used by the traders in commodities markets.