Commodity exchanges are institutions which provide a platform for trading in  commodity futures just as how stock markets provide space for trading in equities and their derivatives. They thus play a critical role in robust price discovery where several buyers and sellers interact and determine the most efficient price for the product. Indian commodity exchanges offer trading in  commodity futures in a number of commodities. Presently, the regulator, Forward Markets Commission allows futures trading in over 120 commodities. There are two types of commodity exchanges in the country- 3 national level and 21 regional.

The unique features of national level commodity exchanges are: * They are demutualized, meaning thereby that they are run professionally and there is separation of management from ownership. The independent management does not have any trading interest in the commodities dealt with on the exchange. * They provide online platforms or screen based trading as distinct from the open outcry systems (ring trading) seen on conventional exchanges. This ensures transparency in operations as everyone has access to the same information. * They allow trading in a number of commodities and are hence multi-commodity exchanges. * They are national level exchanges which facilitate trading from anywhere in the country. This a corollary of being an online exchange.

Spot price is the price in the cash market (where one buys and sells goods  on the spot just as we make purchases from a shop by paying cash) while future prices are prices of the same commodity at a future date. Therefore, if the spot price of gold is Rs 6000/10 gms today, the 1-month future price would be Rs 6050, while the 2-month future price would be Rs 6100. The difference between spot and futures prices is the cost of carry i.e. interest cost, storing, insurance etc. Normally futures prices are higher than spot prices. The exception is when the futures prices are lower than the spot price, which is called  backwardation . This situation is more common in case of agriculture commodities where due to the arrival of crop on certain future dates, the future prices would be lower than the current spot price.

Futures are financial instruments based on a physical underlying (commodity, equities etc.). A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future for a certain price. Therefore (delete), the futures price of wheat is the price of a financial instrument called wheat futures at say, Rs 10/kg at a future date. Market participants are able to buy and sell a certain commodity at a pre-determined price at a later date as specified by the Exchange. For example, if a person wants to buy 10 gms of gold after three months when the price today is say, Rs 6000 per 10 gms (spot prices) and Rs 6050 after three months (futures prices). He enters into a contract through a member of NCDEX to buy gold. On the due date if the price in the spot market is say, Rs 6100, then he still has to pay only Rs 6050, and has hence hedged himself against the price risk.

There are three options - the National Commodity and Derivative Exchange, the Multi Commodity Exchange of India Ltd and the National Multi Commodity Exchange of India Ltd. All three have electronic trading and settlement systems and a national presence.

You can do both. All the exchanges have both systems - cash and delivery mechanisms. The choice is yours. If you want your contract to be cash settled, you have to indicate at the time of placing the order that you don't intend to deliver the item. If you plan to take or make delivery, you need to have the required warehouse receipts. The option to settle in cash or through delivery can be changed as many times as one wants till the last day of the expiry of the contract.

You will require a bank account. And a separate commodity demat account from the National Securities Depository Ltd to trade on the NCDEX just like in stocks.

Daily financial newspapers carry spot prices and relevant news and articles on most commodities. Besides, there are special magazines on agricultural commodities and metals available for subscription. Information easiest to access is from websites. Though many websites are subscription-based, a few also offer information for free. You can surf the web and narrow down you search.

The exchanges are regulated by the Forward Markets Commission. Unlike the equity markets, brokers don't need to register themselves with the regulator. The FMC deals with exchange administration and will seek to inspect the books of brokers only if foul practices are suspected or if the exchanges themselves fail to take action. In a sense, therefore, the commodity exchanges are more self-regulating than stock exchanges. But this could change if retail participation in commodities grows substantially.

The commodities market will have three broad categories of market participants apart from brokers and the exchange administration - hedgers, speculators and arbitrageurs. Brokers will intermediate, facilitating hedgers and speculators. Hedgers are essentially players with an underlying risk in a commodity - they may be either producers or consumers who want to transfer the price-risk onto the market. Producer-hedgers are those who want to mitigate the risk of prices declining by the time they actually produce their commodity for sale in the market; consumer hedgers would want to do the opposite. For example, if you are a jeweler with export orders at fixed prices, you might want to buy gold futures to lock into current prices. Investors and traders who want to benefit or profit from price variations are essentially speculators. They serve as counterparties to hedgers and accept the risk offered by the hedgers in a bid to gain from favourable price changes.

Though the government has essentially made almost all commodities eligible for futures trading, the nationwide exchanges have earmarked only a select few for starters. While the NMCE has most major agricultural commodities and metals under its fold, the NCDEX, has 10 commodities (gold, silver, castor, soya, rape/mustard oil, crude palm oil, RBD palmolein and cotton). MCX offers futures trading in gold, silver and castorseed, rubber.

As of now, there is no stamp duty applicable for commodity futures that have contract notes generated in electronic form. However, in case of delivery, the stamp duty will be applicable according to the prescribed laws of the state the investor trades in. This is applicable in similar fashion as in stock market.

Based on the specifications of the Exchange, the seller can put in his intention to make physical delivery on the Exchange. The Seller has to inform the exchange that he wants to deliver the product and does so at an assigned warehouse of NCDEX which is certified by the exchange. The goods that are stored in the warehouse are verified by an approved assayer and a certificate is given to the seller. This is facilitated in a demat mode where the person would now hold commodity balances in an electronic account just as one holds a savings bank account in a bank or a demat share of a company. He can draw cheques for the same when he sells the product to a buyer.

No, delivery is optional. It is only when the seller puts in the intention to deliver that delivery takes place. Otherwise all contracts are cash settled. NCDEX specifies the warehouses where delivery can take place. However, usually traders use the Exchange as a hedging platform. For example, if I have to buy cotton at Rs 100 after 3 months. I am located in Mumbai but the delivery centre is Ahmedabad. Suppose after 3 months the futures price is Rs 120, as is the spot price. I would not like to go to Ahmedabad and pick up the cotton because of the transport cost, tax payments, insurance etc. I therefore, sell the futures contract on the Exchange for Rs 120 and make a profit of Rs 20. But, the price in the spot market is also Rs 120. I buy cotton at Rs 120 in Mumbai spot market and the implicit loss is Rs 20 now as I had a price of Rs 100 in mind. But, this loss is offset by the gain thus providing the perfect hedge for me.