All the commodities are not suitable for futures trading. It must fulfill the following characteristics:
1) The commodity should have a suitable demand and supply conditions.
2) Prices should be volatile to necessitate hedging through futures price risk. As a result there would be a demand for hedging facilities.
3) Prices should be volatile to necessitate hedging through futures trading in this case persons with a spot market commitment face a price risk. As a result there would be a demand for hedging facilities.
4) The commodity should be free from substantial control from Govt. regulations (or other bodies) imposing restrictions on supply, distribution and prices of the commodity.
5) The commodity should be homogenous or, alternately it must be possible to specify a standard is necessary for the futures exchanges to deal in standardized contracts.
6) The commodity should be storable. In the absence of this condition arbitrage would not be possible and there would be no relationship between spot and futures.
