The instituation of formal commodity futures market in India is almost as old as in the USA and UK . The Indian Experience, however, is much older as references to such markets in India appear in Kautialya's Arthasastra . The first organized futures market was established in 1875 under the aegis of the Bombay Cotton Trade Association to trade in cotton contracts which was followed by oilseeds & food grains. Before the second worldwar, a large number of commodity exchanges trading Futures contracts in several commodities like Cotton, Groundnut, Groundnut oil, raw jute, Jute goods, Castor seed, wheat, rice, sugar, precious metals like Gold & Silver were flourishing throughout the country.

During the second world war Futures trading was prohibited. After independence, aspecially in the second half of the 1950s and first half of 1960s, commodity Futures Trading again picked up. However, due to shortage during the early and mid-sixties Futures Trading in the most of the Commodities was prohibited.

The forward contract (Regulations) act, 1952, a central act, governers commodity derivatives trading in India . The act defines various forms of contarct.

Ready delivery contarcts are contracts for supply of goods and payment there of wgere both the delivery and payment is completed within 11 days from the date of contract. Such contracts are outside the purview of the act. Forwasrd contract are contarcts for supply of goods and payment where supply of good or payment or both take place after 11 days from the date of contract or where delivery of goods is totally dispensed with.

The forward contracts are catagarized as specific delivery contract abd other than specific delivery contracts. The specific delivery contracts are those where delivery of goods is mandatory though the delivery takes place after a period longer than 11 days. Specific delivery contracts are essentially merchandising contracts entered in to by the parties for the actual transactions in the commodity and the terms of contract may be drawn to meets specific needs of parties as agains standardized terms in the Futures Contracts.

The specific delivery contracts are again of two sub types, Namely, the transferable varieties where rights and obligations under the contracts are capable of being transferred and the non transferable variety where rights and obligations are not transferable.

Forward Contracts other than specific delivery contracts are what are generally known as ‘futures contracts' though the Act does not specifically define the futures contracts. Futures contracts are standardized contracts where the quantity, quality, date of maturity and place of delivery are all standardized and the parties to the contract only decide on the price and the number of units to be contract only decide on the price and the number of units to be traded. Futures contracts are entered into through the commodity Exchanges and are regulated by the provisions of the FC (R) Act.

Options in goods means an agreement for the purchase or sale of a right to buy or sell, or a right to buy and sell goods in future and includes a put, a call, or a put and call in goods. Options in goods are currently prohibited under the Act. An Option Contract is the right(but not the obligation) to purchase or sell a certain commodity at a pre-arranged price (the “strike price”) on or before a specified date. For this contract, the buyer or seller of the option has to pay a price to his counterpart at the time of contracting. It is called the premium. If the option is not used, the premium is the maximum cost involved.

There are two broad categories of operators in the futures markets, namely, hedgers and speculators. Hedgers are those who have an underlying interest in the specific delivery or ready delivery contracts and are using futures market to insure themselves against adverse price fluctuations. The examples could be stockist, exporters and producers. They require some people who are prepared to accept the counter party position. Speculators are those who may not have an interest in the ready contracts, etc. but see an opportunity of price movement favorable to them. They are prepare to assume the risk which the hedgers are trying to cover in the futures market. They provide depth and liquidity to the market.