A bit of history would help us understand Futures Trading in right perspective.

In India, it started in an organized manner in 1875 at Mumbai for cotton by Bombay Cotton Trade Association.It then began to spread. Certain mill owners, unhappy with the working of their association, began a new association in 1893, called the Bombay Cotton Exchange Limited. It conducted Futures Trading for cotton.

In 1890, a Gujarati merchant, Mandali, started the Futures Trade of oil seeds. They also did Futures trading for cotton and peanuts. Although Futures trading worked in Punjab and Uttar Pradesh earlier too, the Chambers of Commerce, Hampur, which came into being in 1931, was the first one to get noticed.

Soon after, wheat Futures market started in various places in Punjab like Amritsar, Moga, Ludhiana, Jalandhar, Fasilka, Dhuri, Baamala and Bhatinda, and in Uttar Pradesh at Muzzafarnagar, Chandahusi, Meerut, Charanpur, Hatras, Ghaziabad, Bareili etc. In due time Futures market started for pepper, turmeric, potato, sugar and jaggery.

Until World War II broke out in 1939, Futures trading for various Commodities happened in Punjab and Gujarat also. When the Indian Constitution was framed, Share market and Futures market were put in the Union List. So the regulation of Futures markets is with the Central Government.

According to the Futures Contracts Regulation Act, a three-leveled regulatory system came into existence, Central Food and Public Distribution Ministry, Futures Market Commission (FMC) and the associations that are recommended by the FMC for conducting Futures market.

A law in 1952 classified Commodities into three--Commodities that can be traded in Futures market, Commodities for which Futures trading is banned, and Commodities that could be traded only through special registration of the associations.

However, when Futures trade was temporarily breezed in the 1970s, many associations were de-activated. In 1980 Khusro Committee suggested to restart Futures trade for cotton, jute etc. It also sanctioned Futures Trade in potato and onion. In 1994, the Prof. K. N. Kabra Committee, which was appointed in view of the market liberalization, recommended Futures Trading of Basmati rice, cotton, jute, oil seeds, groundnut oil, onion, silver etc.

There was also a suggestion to raise Futures Market for Pepper to the international levels. With liberalization, government intervention began to decrease in setting price limits of Commodities. The government also narrowed its role of buying and distributing Commodities. Gradually, by 2003 the Central Government gave consent to start Futures Trading for most of the major Commodities.

Along with major agricultural Commodities like rubber, pepper and cardamom, there are 127 Commodities that can be traded in the Futures markets now.