Commodity derivatives play a pivotal role in the price risk management
process especially in any agricultural surplus country. As unique hedging
instruments derivatives such as forwards, futures, swaps, options and
exotic derivative products are extensively used in the global market.
Commodity derivatives are not new in India. However, many feared that
derivatives fuelled unnecessary speculation and were detrimental to the
healthy functioning of the markets for the underlying commodities. As a
result, after independence, commodity options trading and cash settlement
of commodity futures were banned in 1952. The present study is an
investigation into the present status, growth constraints and developmental
policy alternatives for commodity futures markets in India. Also, as the
factors that drive commodity prices are observed to be different from the
factors that drive equity prices, commodities are perceived to be effective
diversifying agents. Also, the discussion will focus on the impact of
commodity futures on prices of essential commodities.