commodities market submitted by:- rinki grover rohit chopra menu sharma meghna gupta shubhangi...

COMMODITIES MARKET SUBMITTED BY:- RINKI GROVER ROHIT CHOPRA MENU SHARMA MEGHNA GUPTA SHUBHANGI SHUKLA TUSHAR ARORA VARUN KUMAR

Commodity A commodity is anything for which there is demand, but which is supplied without qualitative differentiation across a markets. A commodity is anything for which there is demand, but which is supplied without qualitative differentiation across a markets. They are things of value, of uniform quality, that are produced in large quantities by many different producers; the items from each different producer are considered equivalent.

Classification of Commodities Precious Metals Other Metals Agro Based Commodities Commodities

Soft Commodities Soft Commodities Petrochemicals Crude Oil

Commodities Market Commodities market essentially represents another kind of organized market just like the stock market and the debt market. However, commodities market, because of its unique nature lends to the benefits of a wide spectrum of people like investors, importers, exporters, producers, corporate etc.

What can commodities offer? If you are an Investor, High Leverage The margins in the commodity futures market are less than the F&O section of the equity market. High Leverage The margins in the commodity futures market are less than the F&O section of the equity market. Less Manipulations - Commodities markets, as they are governed by international price movements are less prone to rigging or price manipulations. Less Manipulations - Commodities markets, as they are governed by international price movements are less prone to rigging or price manipulations.

Cont. Diversification The returns from commodities market are free from the direct influence of the equity and debt market, which means that they are capable of being used as effective hedging instruments providing better diversification Diversification The returns from commodities market are free from the direct influence of the equity and debt market, which means that they are capable of being used as effective hedging instruments providing better diversification

If you are an Importer or an Exporter If you are an Importer or an Exporter Hedge against price fluctuations Wide fluctuations in the prices of import or export products can directly affect your bottom- line as the price at which you import/export is fixed before-hand. Commodity futures help you to procure or sell the commodities at a price decided months before the actual transaction, thereby ironing out any change in prices that happen subsequently. Hedge against price fluctuations Wide fluctuations in the prices of import or export products can directly affect your bottom- line as the price at which you import/export is fixed before-hand. Commodity futures help you to procure or sell the commodities at a price decided months before the actual transaction, thereby ironing out any change in prices that happen subsequently.

If you are a producer of a commodity, 1.Lock-in the price for your produce If you are a farmer, there is every chance that the price of your produce may come down drastically at the time of harvest. By taking positions in commodity futures you can effectively lock-in the price at which you wish to sell your produce 2.Assured demand Any glut in the market can make you wait unendingly for a buyer. Selling commodity futures contract can give you assured demand at the time of harvest.

If you are a large scale consumer of a product, Control your cost If you are an industrialist, the raw material cost dictates the final price of your output. Any sudden rise in the price of raw materials can compel you to pass on the hike to your customers and make your products unattractive in the market. By buying commodity futures, you can fix the price of your raw material. Control your cost If you are an industrialist, the raw material cost dictates the final price of your output. Any sudden rise in the price of raw materials can compel you to pass on the hike to your customers and make your products unattractive in the market. By buying commodity futures, you can fix the price of your raw material.

Cont Ensure continuous supply Any shortfall in the supply of raw materials can stall your production and make you default on your sale obligations. You can avoid this risk by buying a commodity futures contract by which you are assured of supply of a fixed quantity of materials at a pre-decided price at the appointed time. Ensure continuous supply Any shortfall in the supply of raw materials can stall your production and make you default on your sale obligations. You can avoid this risk by buying a commodity futures contract by which you are assured of supply of a fixed quantity of materials at a pre-decided price at the appointed time.

Commodities An Alternate Asset Class Returns are independent of other asset classes Low correlation with other asset classes Its returns cannot be replicated with combination of other asset classes Positively correlated with inflation whereas bonds & equities are negatively correlated Have independent risk/return profile

Commodity Exchange Commodity exchange is an exchange where raw or primary products are traded in standardised contracts for future delivery. Commodity exchange is an exchange where raw or primary products are traded in standardised contracts for future delivery. A commodity exchange is conceptually comparable to a Stock Exchange. The difference between the two is that on a Stock Exchange, securities are traded and on a Commodity Exchange, commodity futures are traded. A commodity exchange is conceptually comparable to a Stock Exchange. The difference between the two is that on a Stock Exchange, securities are traded and on a Commodity Exchange, commodity futures are traded.

What are the major commodity Exchanges? The Government of India permitted establishment of National-level Multi-Commodity exchanges in the year 2002 and accordingly three exchanges have come into picture. They are Multi-Commodity Exchange of India Ltd, Mumbai (MCX). National Commodity and Derivatives Exchange of India, Mumbai (NCDEX). National Multi Commodity Exchange, Ahmedabad (NMCE).

Commodity Exchanges at international level EXCHANGE MAJOR COMMODITIES TRADED New York Mercantile Exchange (NYMEX)- Crude Oil, Heating Oil New York Mercantile Exchange (NYMEX)- Crude Oil, Heating Oil Chicago Board of Trade- Soy Oil, Soy Beans, Corn Chicago Board of Trade- Soy Oil, Soy Beans, Corn London Metals Exchange- Aluminium, Copper, Tin, Lead London Metals Exchange- Aluminium, Copper, Tin, Lead Chicago Board Option Exchange -Options on Energy, Chicago Board Option Exchange -Options on Energy, Interest rate Tokyo Commodity Exchange -Silver, Gold, Crude oil, Interest rate Tokyo Commodity Exchange -Silver, Gold, Crude oil, Rubber Malaysian Derivatives Exchange -Rubber, Soy Oil, Palm Oil Rubber Malaysian Derivatives Exchange -Rubber, Soy Oil, Palm Oil

20 Other Regional Exchanges Commodity Exchanges MCXMCX Structure of Indian Commodity Futures Exchanges National exchanges Regional exchanges FMCFMC NBOTNBOT NCDEXNCDEX

FAQs Can anybody hedge on commodity exchanges? Can anybody hedge on commodity exchanges? What are the precautions one should take in trading on commodity exchanges? What are the precautions one should take in trading on commodity exchanges? Are commodity exchanges subject to any regulatory control by the government Are commodity exchanges subject to any regulatory control by the government?

NCDEX National Commodity & Derivatives Exchange of India Limited NCDEX is a multi commodity exchange incorporated in 2003 NCDEX is a multi commodity exchange incorporated in 2003 It is regulated by FMC & various other laws It is regulated by FMC & various other laws It is located in Mumbai & operates at national level It is located in Mumbai & operates at national level

Share Holders

Products NCDEX currently facilitates trading of 57 commodities Agricultural Metals Energy

INTRODUCTION TO MCX. MCX is an independent Commodity exchange based in India by Financial Technologies. MCX is an independent Commodity exchange based in India by Financial Technologies. It was established in 2003 and is based in Mumbai. It was established in 2003 and is based in Mumbai. The turnover of the exchange for the period Apr-Dec 2008 was INR 32 Trillion. The turnover of the exchange for the period Apr-Dec 2008 was INR 32 Trillion.

FEATURES OF MCX MCX is India's No. 1 commodity exchange with 84% Market share in 2008($0.84 trillion) MCX is India's No. 1 commodity exchange with 84% Market share in 2008($0.84 trillion) The exchange's competitor is National Commodity & Derivatives Exchange Ltd The exchange's competitor is National Commodity & Derivatives Exchange Ltd Globally, MCX ranks no. 1 in silver, no. 2 in natural gas, no. 3 in crude oil and gold in futures trading Globally, MCX ranks no. 1 in silver, no. 2 in natural gas, no. 3 in crude oil and gold in futures trading The crude volume touched 23.49 Million barrels on January 3, 2009 The crude volume touched 23.49 Million barrels on January 3, 2009

Cont The highest traded item is gold with an average monthly turnover of Rs 1.42 Trillion ($29 Billion). The highest traded item is gold with an average monthly turnover of Rs 1.42 Trillion ($29 Billion). MCX has 10 strategic alliances with leading commodity exchange across the globe MCX has 10 strategic alliances with leading commodity exchange across the globe The average daily turnover of MCX is about US$ 2.4 billion. The average daily turnover of MCX is about US$ 2.4 billion.

Cont. MCX now reaches out to about 500 cities in India with the help of about 10,000 trading terminals MCX now reaches out to about 500 cities in India with the help of about 10,000 trading terminals MCX COMDEX is India's first and only composite commodity futures price index MCX COMDEX is India's first and only composite commodity futures price index

MCX Stock Exchange partners with FTSE Group to create new index opportunities for Indian financial market MCX Stock Exchange brings with it superior technology and processes that makes it one of the most efficient exchanges in India. MCX Stock Exchange brings with it superior technology and processes that makes it one of the most efficient exchanges in India. It is recognized by the Securities and Exchange Board of India (SEBI) as a stock exchange. It is recognized by the Securities and Exchange Board of India (SEBI) as a stock exchange. MCX Stock Exchange enjoys good market share in trading currency futures and is fully geared to increase market depth and enhance reach and access in Indian securities market. MCX Stock Exchange enjoys good market share in trading currency futures and is fully geared to increase market depth and enhance reach and access in Indian securities market. Multi Commodity Exchange of India Lmt. (MCX)

Cont It is promoted by MCX, the no 1 commodity exchange in India and Financial Technologies that operates multi asset exchanges in different geographies and time zones. It is promoted by MCX, the no 1 commodity exchange in India and Financial Technologies that operates multi asset exchanges in different geographies and time zones. With more than 600 members and trading terminals spread over several cities, MCX Stock Exchange is committed to deploy state of the art technology and global best practices in regulatory compliance and investor protection. With more than 600 members and trading terminals spread over several cities, MCX Stock Exchange is committed to deploy state of the art technology and global best practices in regulatory compliance and investor protection.

Cont The exchange enables importers, exporters, investors, corporations and banks to hedge their currency risks with greater transparency and safety. The exchange enables importers, exporters, investors, corporations and banks to hedge their currency risks with greater transparency and safety. With a large number of banks, corporates, brokerage houses and actual users as its trading members, MCX Stock Exchange provides the desired liquidity and depth for all categories of users. With a large number of banks, corporates, brokerage houses and actual users as its trading members, MCX Stock Exchange provides the desired liquidity and depth for all categories of users.

Cont. Guarantees settlement of all transactions, by eliminating counterparty risk. Guarantees settlement of all transactions, by eliminating counterparty risk. It believes in systematic development of markets through Information, Innovation, Education and Research It believes in systematic development of markets through Information, Innovation, Education and Research MCX-SXs currency derivatives segment offers an India-wide electronic platform for trading in currency futures. MCX-SXs currency derivatives segment offers an India-wide electronic platform for trading in currency futures.

Commodities traded at MCX AluminiumAluminium Copper, Copper, LeadLead Nickel Nickel SteelSteel Zinc, etc.Zinc, etc. BULLION GoldGold Gold HNI Gold HNI Gold M,Gold M, Silver,Silver, Silver HNISilver HNI Silver MSilver M METAL

Cotton L StapleCotton L Staple Cotton M Staple Cotton M Staple Cotton S Staple Cotton S Staple Cotton YarnCotton Yarn KapasKapas FIBER Crude Oil Crude Oil Furnace OilFurnace Oil Natural Gas,Natural Gas, ATFATF ElectricityElectricity Carbon CreditCarbon Credit ENERGY

CardamomCardamom JeeraJeera PepperPepper Red ChilliRed Chilli SPICES ArecanutArecanut Cashew KernelCashew Kernel Coffee (Robusta) Coffee (Robusta) Rubber Rubber PLANTATIONS

ChanaChana MasurMasur Yellow PeasYellow Peas PULSES HDPEHDPE Polypropylene(PP)Polypropylene(PP) PVC PVC PETRO CHEMICALS

Trading in Commodity market Commodities can be traded in:- Spot markets Spot markets Futures market Futures market Forward contracts market Forward contracts market

How does the trading work? Commodity trading works exactly like stock futures Commodity trading works exactly like stock futures When you buy a Futures, you dont have to pay the entire amount, just a fixed percentage of the cost. This is known as the margin. When you buy a Futures, you dont have to pay the entire amount, just a fixed percentage of the cost. This is known as the margin.

Future trading Futures are standardized contracts among buyers and sellers of commodities that specify the amount of a commodity, grade / quality and delivery location.

Price discovery for commodity players A farmer can plan his crop by looking at prices prevailing in the futures market Hedging against price risk A farmers can sell in futures to ensure remunerative prices A processor/ manufacturing firm can buy in futures to hedge against volatile raw material costs An exporter can commit to a price to his foreign clients A stockist can hedge his carrying risk to ensure smooth prices of the seasonal commodities round the year Easy availability of finance Based on hedged positions commodity market players (farmers, processors, manufacturers, exporters) may get easy financing from the banks BENEFITS OF TRADING

Spot market trading Spot markets are those in which the commodity is traded immediately in exchange for cash or some other good. Spot trading is any transaction where delivery either takes place immediately, or if there is a minimum lag, due to technical constraints, between the trade and delivery. Spot trading is any transaction where delivery either takes place immediately, or if there is a minimum lag, due to technical constraints, between the trade and delivery.

Commodity Market Structure Producers (Farmers/ Co-operatives/ Institutional) Commodities Ecosystem MCX Consumers (Retail/ Institutional) Quality Certification Agencies Clearing Bank Warehouses Transporters/ Support Agencies Traders (Speculators) Arbitrageurs/ Client) Hedger (Exporters/ Millers/ Industry) Global Commodities Market Spot Market

Forward contracts A forward contract is an agreement between two parties to exchange at some fixed future date a given quantity of a commodity for a price defined today. The fixed price today is known as the forward price.

For Example You decide to buy 100gms of gold futures (which is the minimum contract size) for a certain price. You have to pay a certain amount of margin set by the commodity trading exchange you are trading on, which would be a lower amount than the original price for 100 gms.

Cont. The next day the price goes up by Rs. 1000. Rs. 1000 would be credited into your account. The following day it dips by Rs. 500. Rs. 500 is debited from your account. Once you feel that the amount that you have already profited with is not going to change, you can choose to sell the futures.

COMMODITY ECOSYSTEM

References Wikipedia.com Google.com Karvy commodities MCXindia.com NCDEX.com Investopedia.com Business magazines indiabudget.nic.in Boomrang.com Business.mapsofindia.com

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commodities market submitted by:- rinki grover rohit chopra menu sharma meghna gupta shubhangi...

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