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BASICCASHMARKETCONCEPT
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ConceptofCashMarket
A market of Commodities or security in which goods are sold
forready cash and delivered immediately is known as Cash
Market.
It is also known as Spot Market. It is deals with risk free
business of trading the goods and security. The contract in the
Spot Market is become immediately effective. In the context of
Securities, The Spot/Cash market is a securitiesmarket in which
securities are sold for cash and deliveryimmediately.
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MechanicsofCashMarket
In Cash Market after the end of the daily trading cycle, all
transactionsare clubbed together, position are netted out and the
balance issettled by payments of cash and delivery of
securities.
Investors who are interested in buying and selling securities
shouldplace their orders with the Brokers of the exchange.
These Brokers/Members of exchange execute the Investors
ordersand for that they charge the Commission.
The mechanics of cash market means how the cash market works.
Itinvolves the following aspects
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Cont
1.FindingtheBroker ProvideInformation
AvailableofInvestmentLiterature Appointcompetentrepresentative
2.KindsoftheBrokersSelection CommissionBrokers Jobber
FloorBrokers OddlotDealer Arbitrageurs
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Cont 3.OpeningofAccountwithBroker 4.Typesoforders
MarketOrder LimitOrder StopOrder StopLimitOrder
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Cont 5.Exercisingchoiceoforders
LongandShortposition Spotdelivery Handdelivery
Specialdelivery
6.Givingthemarginmoneytobrokers
7.ExecutionofOrderinthestockexchange
8.Preparingcontractnoteinthestockexchange
9.SettlementofContract
Readydelivery Forwarddelivery
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SpotMarketversus FutureMarket
SpotMarket
Commoditiesandsecuritiesaresoldforreadycashanddeliveredimmediately.
Nomarktomarketrequired ThismarketisforInvestors
TherenoCounterpartyrisk.
Thereisnoanyfutureobligationtoperform
Thecontractimmediatelyeffective.
FutureMarket
Commoditiesandsecuritiesarenotsoldforreadycashanddeliveredinfuturepredetermineddate.
Marktomarketrequired
ThismarketisforHedgers,SpeculatorsandArbitrageurs.
ThereisCounterpartyrisk. Thereisfutureobligationtoperform.
Thecontracteffectiveatpredeterminedfuturedate.
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EvolutionandgrowthoftheDerivativeMarketinIndia
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HistoryandbackgroundofDerivativesinIndia
Derivative have been existed from a long time. In 1875The Bombay
Cotton Trade Association started Future trading. In 1952 Government
of India Banned cash settlement and optiontrading.
Then, Derivatives trading shifted informally shifted to
Forwardmarket.
Now a days, Government policy formulated in favor of
DerivativeMarket and Liberalized.
SEBI granted to commence derivatives trading in June 2000
aftergetting the recommendation from L. C. Gupta Committee.
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Cont
14Dec,1995NSEaskedSEBIforthepermissiontotradeindexfuture
18Nov,1996SEBIsetupL.C.GuptaCommitteetodraftapolicy 11May,1998
L.C.GuptaCommitteesubmittedreport
7July,1999RBIgavepermissionforOTCFRAandInterestrateswaps.
25May,2000SEBIgavepermissiontoNSEandBSEforfutureindextrading
9June,2000BSEcommencedtrading 12June,2000NSEcommencedtrading
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GrowthofFinancialDerivativesinIndia
TheDerivativeMarketgrowthforequityreached$114.1trillion.
Theopeninterestinthefutureandoptiongrewby38%.
WhileInterestratefuturegrewby42%.
Hence,ThesizeofDerivativemarketforfutureandoptionwas$49trillion.
TheOTCDerivativesmarketsizereachedat$70,000billion.
Thecreditderivativegrewfrom$4.5trillionto$0.7trillionin2001.
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FactorscontributingtotheGrowthDerivativeMarket PriceVolatility
GlobalizationoftheMarket Technologyadvantages
AdvancedinFinancialTheories
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