Commodity derivatives have started gaining significant popularity in recent times, primarily due to their unique features. The article explores into this.

Change is law of nature hence; change can be witnessed in every sphere of life and business activities. In past fate assumed a vital place and in the modern world, there is a shift to changes or volatility and the risk associated with each change. Business in the present competitive arena has to undergo a number of changes in terms of technology, rules and regulations, interest rates, exchange rates, etc. Amidst the volatile nature of business, there arises a need for tools and techniques to manage the risk in such a way that returns are not negatively affected.

Similar is the case of investment decision where investment options offer different risk-return combinations. The acceptance or rejection of a particular investment decision is purely based on such combination and generally that alternative is accepted which offers high returns at minimum risk. So investors are always in the search of optimum portfolios (which maximizes return and minimizes risk). As the stock market purely reflects its fundamentals and the securities are subject to wider fluctuations, a need was there for an instrument that can minimize some of the impact of financial volatility. It was such a need that the financial markets witnessed emergence of derivatives.

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