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Finance GlossaryCommodity Exchange
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Commodity Exchange

Definition of Commodity Exchange

A commodity exchange is a marketplace where commodities and related derivative contracts are standardized and traded. The commodity exchange can be split into these sub-markets:

  • Derivatives market: this is where commodity exchanges allow futures, options, forwards, and other derivatives to be traded
  • Spot market: this is where commodity exchanges allow buying and selling of commodities in real-time (on the spot), including cash contracts

In India, there are 4 commodity exchanges that are popular and widely turned to:

  • Indian Commodity Exchange (ICEX)
  • Multi Commodity Exchange of India (MCX)
  • National Commodity & Derivatives Exchange Limited (NCDEX)
  • National Multi Commodity Exchange of India (NMCX)

Within these exchanges, the most commonly traded commodities include:

  • Crude oil
  • Coffee
  • Corn
  • Cotton
  • Gold
  • Natural gas
  • Silver
  • Sugar
  • Wheat

Related Terms

Hammer Candlestick Pattern

A Hammer Candlestick pattern occurs when a stock, commodity, or currency opens much lower than its previous closing price but moves close to or above the the same price at the close. The pattern looks like a hammer, hence the name “Hammer Candlestick”.

The candlestick can be read as follows:

  • The main body shows the difference between the financial security’s opening and closing price.
  • The wick (shadow) of the candlestick shows the high and low prices of the security for the day.

Insider Trading

Insider trading refers to the often illegal act of trading shares based on information that is not publicly available, typically obtained through dubious sources.

This privileged access to confidential information is termed “insider trading” because information is generally sourced through insiders or employees working at a publicly traded firm.

Authorized Capital

Authorized capital or authorized share capital is the maximum amount of capital for which shares can be issued by a company to its shareholders.

Or in other words, authorized capital denotes all the shares across all the categories that a company could issue if it wanted to raise money.

Leverage In Stock Market

Leverage is a loan that a broker offers to allow traders to take up bigger positions by paying lesser capital. This feature is known as Margin Trading Facility (MTF) or simply margin funding. Leverage is often represented as a multiple like 2x, 3x, 4x, and so on. For example, getting 4x leverage on a trade worth ₹1,00,000 means you’ll pay ₹25,000 and the broker will cover the rest of the ₹75,000.

Acid Test Ratio

An Acid Test Ratio shows whether a company has enough liquid short-term assets to deal with current liabilities.

The higher the Acid Test Ratio the better a company’s ability to deal with debt.

Acid Test Ratio = (Cash + Marketable Securities + Accounts Receivable)/Current liabilities

Issue Price

The issue price is the price at which a company sells its newly issued shares during an IPO. The company that is set to go public will conduct thorough market analysis before deciding the issue price.



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