COMMODITIES FUTURES
The commodity trading was permitted in India just a few years ago and slowly growing to accommodate more products and services. There are a little more than 70 commodities that are allowed by the Government. The latest entrant to the list is US Dollars against Indian Rupee. These are traded in different commodities exchanges controlled by the Government.

MARKET
Market can be defined as a place where buyers and sellers meet to exchange their goods and services for money. This is a step higher from the rudimentary barter deals that was the precursor to the market phenomenon. Futures trading started nearly 4000 years ago when Arab Traders called at the Indian ports for our Merchandise. The Arab Dhows carried Pearls, Dates, European and Chinese pottery and other items to the Indian ports and returned with food stuffs, spices, and clothes and so on. Before the Arab ships arrived, the goods were sold off at a pre-determined price by importers or the agents here and probably it could have been reciprocated by the Arab merchants in their home countries also.

Futures trade became official when it was first established in Chicago nearly 200 years ago. The idea was to protect the interests of the producers so that they could buy or sell at reasonable rates.

Market is divided in to spot, forward and futures. Forwards have many arms like options, Futures. A forward contract is an agreement to buy a product at a specified rate in a future date agreed upon by both parties. In futures, the initial amount paid to do the buy or sell is called margin, in this case physical deliveries are rare. Margin is usually a very small percentage of the total amount traded and is usually 2-7% of the total value of the commodity you buy or sell. Prices are quoted on units and trading units are known as lots or contact. The unit price of Gold is for 10 grams and trading unit (Contract size) can be 100gms or 1000gms. There are many future sales and buys in our daily life.
 
Examples
One explicable case is that of a realtor who contracts to buy a property worth one Crore Rupees. But he pays an advance of Rs 5lakhs which is just 5% of the original value of the property with the balance to be paid at a future date when the title is transfered. After a few weeks the buyer finds another buyer who agrees to buy the said property at Rs.1.25 Crore. By this transaction the first buyer who contracted this deal by paying a margin (advance) of just 5% made away with Rs 25 lakhs as his profit with an investment of Rs 5 lakhs. Another case study is when you buy furniture or Gold ornaments sometimes the  concerned merchant sells an item to you that is not yet produced. He takes an advance from you and then produces and delivers the item at a future date and collects his balance. The same action works in a systematic manner in the futures or spot market.

Spot market is the one where you pay and get the items physically. The price you get in this situation is the spot price. There are different rules applied when it comes to futures trading and spot trading. In spot market either you will pay interest or get interest. In spot, there is a spread in the prices. On other words the buying and selling prices are different.

FUTURES MARKET
You can buy an item by keeping a small margin then sell off when the price is favorable. Future months are decided by the exchanges. Usually active futures are 2-3months from the current market. If you find the prices are falling and a down trend is developed then you can sell first and buy back at a later date agreeable to the exchanges. In futures there is no spread in the price. The prices in spot and active future months move in tandem.

You can keep margin money and buy a ‘lot’ of any of the specified commodities. Say if you want to buy Gold, The current price for 1 kg pure Gold is approximately Rs.12 Lakhs but you need to pay approximately Rs.50, 000 to buy this quantity. Then watch the price of Gold, you can sell it off when the price is favorable. In a falling market, if a down trend is developed, you can sell first and buy back later. Commodity trading is like a two way traffic. There is always chance, irrespective of the movement of the market, as we can employ appropriate strategies to tackle the situation. You can buy as many lots as you want depending on your money power. However, there are some limits set by the GOI on the number position one can hold.