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COMMODITY FUTURES IN INDIA
A Career In Financial Market
Why Commodity?
Diversification
Less Manipulations / Intrinsic Value
High Leverage
A Career In Financial Market
A Career In Financial Market
History of Commodity Derivative Market
Chicago businessman formed CBOT in1848
In 1898 Chicago Mercantile Exchange start trading on Future Contract
For Spot Market Forward Market Commission (FMC) setup in 1953
In 1875 establishment of Cotton Trade Association
4 National level exchanges MCX, NCDEX, NMCE, ICEX
A Career In Financial Market
Benefits
• Driven on demand & supply 1.
• Easy to understand & invest 2.
• Less investment i.e. 5 - 7 %3.
• Market timing 10 am – 11.55 pm4.
• Price manipulation not possible because of global market 5.
• Volatility gives chance for easy entry and exit 6.
Opportunities Hedging
Arbitrage
Trading
• Intra Day • Positional
A Career In Financial Market
Indian Commodity Exchange FMC
Regional NBOTOthers
National NCDEX
MCXNMCEICEX
A Career In Financial Market
A Career In Financial Market
Multi Commodity Exchange of India Ltd.An independent and demutualised exchange
Promoted by Financial Technologies (India) Limited
Introduced a state –of –the –art, online digital exchange for commodities trading
On the first week of November, 2004 signed MOU with the Tokyo commodity Exchange
A Career In Financial Market
National Commodity & Derivatives Exchange Limited (NCDEX)
A public limited company incorporated on April 23, 2003 under the Companies Act,1956
Professionally Managed online Multi Commodity Exchange
A only commodity exchange promoted by National Level Institution
Regulated by Forward Market Commission
A Career In Financial Market
Difference & Similarities between MCX & NCDEX
MCX NCDEXMonth Different for each commodity Normally monthly
Expiry day Different for commodities 20th of each contract month
Timing Summer (May to October) : All Commodities : 10 am to 5 pmInternational Commodities :5 pm to 11.30 pmWinter (Nov to April) :10 am to 5 pmInternational Commodities: 5 pm to 11.55 pm
Summer (May to October): AllCommodities : 10 am to 5 pmInternational Commodities :5 pm to 11.30pmWinter (Nov to April) :10 am to 5 pmInternational Commodities :5 pm to 11.55
Active Commodity Gold, Silver, Crude, Oil, Copper, Natural Gas, Nickel, Ref. Oil, Menthe Oil
Pulses, Sugar, Wheat, Spices, Gold, Silver, Steel, Soy Complex
Exchange Volume of MCX & NCDEX
A Career In Financial Market
0
100000
200000
300000
400000
500000
600000
Month
Jul-04
Nov-04
Mar-05
Jul-05
Nov-05
Mar-06
Jul-06
Nov-06
Mar-07
Jul-07
Nov-07
Mar-08
Jul-08
Nov-08
Mar-09
Jul-09
NCDEXMCX
Classification of Commodities
A Career In Financial Market
Bullion Gold and Silver
Metals Zinc,Lead, Copper, Nickel, Steel ingots
Energy Crude O il, Natural Gas, Heating oil , Gasoline
Pulses Chana
O thers Rubber, Guar Seed , Guargum , Cashew, Almond,Gur, Coffee
O il & O ilseeds
Castor Seeds, Soy Seeds, Castor O il, Refined Soy O il, Soymeal, Mustard Seed
Spices Pepper, Red Chilli , Jeera,Turmeric
Contact Specification (MCX)
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Commodity LTP Price QuotationLot Size (Qty) / 1
Rs (+ & -) Margin % Lot Value(Rs)Approx Margin
(Rs) Contract Months
GOLD 17700 10GRMS 100 4.00% 1,770,000 70,800 Feb, April, June,
Aug, Oct, Dec.
SILVER 28300 1KGS 30 5.00% 849,000 42,450 Mar, May, July,
Sep, Dec.
COPPER 322 1KGS 1000 5.00% 322,000 16,100 Nov, Feb, April.
CRUDEOIL 3550 1BBL 100 5.00% 355,000 17,750Jan, Feb, Mar.
(Monthly)
NATURALGAS 240 1mmBtu 1250 8.00% 300,000 24,000Nov, Dec,
Jan.(Monthly)
NICKEL 750 1KGS 250 7.00% 187,500 13,125Nov, Dec,
Jan.(Monthly)
Contact Specification (NCDEX)
Commodity LTPPrice
Quotation Lot Size Margin %Variant (1 Rs + & - ) Lot Value(Rs)
Approx Margin (Rs)
Contract Months
Turmeric 10700 Rs/Quintal 10 MT 34.00% 100 1,070,000 363,800 Nov, Dec,
Apr.
Guar Seed 2800 RS/QUINTAL 10 MT 7.00% 100 280,000 19,600
Nov, Dec, Jan, Feb,
Mar, Apr.(Monthly)
Soy Oil 495 Rs/10Kgs 10 MT 5.00% 1000 495,000 24,750 Nov, Dec,
Jan.(Monthly)
Pepper 15650 RS/QUINTAL 1 MT 5.00% 10 156,500 7,825
Nov, Dec, Jan, Feb,
Mar, Apr.(Monthly)
Chana 2620 RS/QUINTAL 10 MT 6.00% 100 262,000 15,720
Nov, Dec, Jan, Feb,
Mar.(Monthly)
Soy Bean 2420 RS/QUINTAL 10 MT 6.00% 100 242,000 14,520
Nov, Dec, Jan, Feb,
Mar.(Monthly)
A Career In Financial Market
International commodity exchange International Commodity Exchange
A Career In Financial Market
A Career In Financial Market
New York Mercantile Exchange (NYMEX)
Biggest exchange for trading in Physical Commodity Future
NYMEX
Crude oil Natural Gas
COMEX
Gold Silver
London Metal Exchange (LME)1877 as a direct consequence of the industrial revolution witnessed in Britain in 19th 1877
Primary focus on base metals
LME trades 24 hours a day
LME also offer option contract (Trade Average Price Option Contract – TAPOC) based on Monthly Average Settlement Price (MASP)
Trading turnover value is more than US $ 2,000 billion per annual
Commodity traded –Aluminum, Coppers, Nickel, Lead, Tin, Zinc
A Career In Financial Market
Chicago Mercantile Exchange (CME)
1898 primarily to trade in
agricultural commodities
Trade heavily interest rate future, stock
indices & foreign exchange futures
Commodities trade – Butter,
Milk, Frozen Pork bellies, live,
cattle, Non –fat Dry Milk
A Career In Financial Market
A Career In Financial Market
Tokyo Commodity Exchange (TOCOM)
1. • Second largest commodity future exchange
2. • TOCOM initiative towards establishing Asia as the benchmark for price discovery & risk management in commodities
3. • Platform for future price discovery in Asian for Asian players in Crude Oil
4. • Commodity Traded- Crude Oil, Gasoline
A Career In Financial Market
Market Players
Producers Exporters / Importers
HNI / F & O
Traders / Brokers Consumers
Concept of Commodity Derivative
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Gold Jeweler
Example:- For making jewellery XYZ buy 1 kg gold at 21000 for & it sell jewellery in 3 month cycle after 3 month gold prices are 19000.
Strategy
XYZ Buy Spot Price 21000 / 10gm
XYZ Sell 1 kg hold short Future Price 21050
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Net Payoff – 21,000*100 + Initial Margin= 21,00,000 + 5% of 21,00,000
Expiry 3 months = 1,05,000 + 21,00,000= 22,05,000
Pay Off Schedule On Expiry Closes At
Physical Gold Future Position (21,050)
Net Payoff
17000 -4,00,000 +4,05,000 +500018000 -3,00,000 +3,05,000 +5000
19000 -2,00,000 +2,05,000 +5000
20000 -1,00,000 +1,05,000 +500021000 0 0 0
22000 1,00,000 - 95000 +500023000 2,00,000 -85000 +5000
24000 3,00,000 -75000 +5000
A Career In Financial Market
Mechanism of Hedging (Agent)
A Career In Financial Market
APRIL
JULY
WHEAT MILLER
• Agree to sell flour to bread manufacturer
• Buy wheat futures contract
• Sell wheat futures contact • Buy wheat in the physical market for delivery of flour
to Bread Manufacturer
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Mechanism of Hedging (Producer)
SEPTEMBER
NOVEMBER
FARMER
• Sell Guar seed November Futures
• Buy Guar seed November Future to square off
transaction • Sell Guar seed Harvest
A Career In Financial Market
Mechanism of Hedging(Exporter)
JUNE
SEPTEMBER
AUTOMOBILE MANUFACTURER
• Export contract to sell (export) automobiles in
October• Buy steel futures contract
• Sell steel futures contract to square off transaction
• Buy steel from Physical market to meet export
requirement
Commodity V/S Financial Derivatives
Commodity Derivative
Financial Derivative
Settlement Physical / Cash Cash
Delivery Notice Period
Yes No
Warehousing Yes No
Quality Of Assets Issue No Issue
A Career In Financial Market
A Career In Financial Market
Parity Calculation
CrudeNYMEX Crude 76.30
Present Exchange Rates 46.50
3547.95Parity Price Of MCX Crude 3547.95
Natural Gas
NYMEX Natural Gas ($/mmbtu) 5.14
Present Exchange Rates 46.50
239.01
Parity Price Of MCX Natural Gas 239.01
Brokerage Calculation
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Brokerage for Clients
Gold Per 1 Kg
Gold price per 10 gm 17600/- 1760000
Brokerage 0.03% 528
Service Tax (10.2%) 54
Turnover Charges (0.004%) 70
Service Tax on Turnover Charges (10.2%) 7
Stamp Duty on Turnover (0.001%) 18
Total Cost 677
A Career In Financial Market
Learning the Commodities
Demand & Supply Seasonity
Global Commodity
Prices
Fx Currency movement - $
Global Political /
economic events
INR V/S - $
Indian economic data / policies Weather
Factor Effecting Gold /Silver / Crude / Coppers Prices
Employment Data First Friday of month
GDP Last Friday of month
ISM Mfg. Index First working day of month
Trade Deficit Third week of month
Consumer Price Index Third week
Production Price Index Third week
Industrial Production Third week
Retail Sale Third week of month
Durable Goods Order Last week of month
Federal Bank Meeting Eight times in year
A Career In Financial Market
A Career In Financial Market
Important Website
www.bulliondesk.comwww.forexfactory.comwww.bloombear.comwww.futureresource.comwww.nymex.comwww.tocom.com.jpwww.gold.orgwww.kitco.com
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