Commodity trading advisors (CTAs) for the Indian commodity market

Purpose - The Indian commodity market requires large investments and enhanced trading activity both in the national as well as the regional commodity markets. The participation of non‐professional people trading commodity markets makes the market a risky venture. Non‐professional participants simply add to the volatility factor of the market. There is a dire need for professional experts who are able to provide advice on commodity trading and build commodity inclusive portfolios. Such professional awareness, expertise, and guidance in commodity trading can come from professional commodity traders called commodity trading advisors (CTAs). The purpose of this paper is to offer arguments and insights as to why the Indian commodity market needs the participation of the CTAs. The money brought in by CTA advised clients will add to the depth, liquidity, and trade which in turn will make commodity prices more efficient. As a regulatory measure, the Indian market too can adopt guidelines structured for CTAs by Commodity Future Trading Commission and National Futures Association. The CTAs can bring the Indian commodity market at par with developed commodity markets like Chicago Board of Trade. Design/methodology/approach - The paper reviews and discusses the various issues related to CTAs applicability in India. The goal of the paper is to outline the need for allowing CTAs activity in Indian commodity market and discuses the key operational and policy considerations in developing the commodity market for CTAs in India. Findings - The recent expansion of Indian commodity market has not been very structured. The market has expanded with the expansion in demand for commodities both in spot and derivative market. There have been constraints through policy restrictions and at the same time there has been an effort for liberalization of the commodity market to bring them at par with international commodity market. Of late, the Indian equity market has been very volatile. Participation of CTAs will provide much required downside protection to traditional portfolios and they will also provide the expertise in commodity derivative trading to participants and help build the commodity inclusive portfolios with better return and lesser risk. Originality/value - This is the first paper that initiates thoughts on allowing CTAs to participate in the Indian commodity market. The paper builds on the concept that CTAs would add the desired price discovery, volume, and depth to the Indian commodity market. The Indian commodity market, despite being quite old, has recently broken free from the restrictive policies and has ushered into an era of initiates supporting commodity derivative market development. To the best of the authors' knowledge, there exists no literature on CTAs participation in India.