mcx gold futures: an opportunity for price risk management · 2012. 5. 12. · gold futures...
TRANSCRIPT
MCX Gold futures:
An opportunity for price risk management
Shaivalya ThakerManager-Training
25 August,2005
Introduction
MCX Gold futures contracts
Features
Performance
Opportunity for price risk management
Strategies using futures
Implications
Introduction
Commodity futures•Meaning
• Benefits
• Pricing
•Meaning of Basis• Contango (Normal market)• Backwardation (Inverted market)
•Meaning of Spread• Intra commodity • Inter commodity
MCX Gold Futures contracts
Gold futures contracts at MCX
Gold
Price Quote: Rs./10 gms.
Trading unit/Lot Size: 1 kgMaximum Order: 10 kg.
Order Type1 Lot: 100: 1kg2 Lot: 200: 2kg3 Lot: 300: 3kg
Current contracts available for Trading at MCX
Gold OCT 2005( Expiry date- 5th Oct 2005)
Gold DEC 2005( Expiry date- 5th Dec 2005)
Example:
Price Quote:Rs.6000/10gms
Margin:3.5%
Margin:Rs.21000/-
Contract detailsMCX Gold October 2005 futures contract
Price Quote : Ex-Ahmedabad
Margin : 3.5%
Daily price limit : 2.5%
Delivery lot : 1 Kg.
Delivery center : Ahmedabad/Mumbai
Delivery type : Compulsory
Delivery standards : as per the contract specification
Tender & Delivery period : 1st October, 2005 to 6th October,2005
Approved warehouse/vault : Group 4 at Ahmedabad/Mumbai
Silver futures contracts at MCX
Silver
Price Quote: Rs./1 Kg.Trading unit/Lot Size: 30 Kg.
Maximum Order: 600 Kg.
Order Type1 Lot: 30: 30kg2 Lot: 60: 60kg3 Lot: 90: 90kg
Current contracts available for Trading at MCX
Silver SEP 2005( Expiry date- 5th Sep 2005)
Silver DEC 2005( Expiry date- 5th Dec 2005)
Example:
Price Quote:Rs.10500/1Kg
Margin:5%
Margin:Rs.15750/-
Features
MCX Gold futures contracts
• Concurrent contracts
• Different types of contracts
• Longer trading hours
• T+1 settlement
• Delivery based settlement
•Multiple delivery center
• Deliverable gold bars of approved suppliers
Performance
MCX Gold futures contracts
• High volume
• High open interest
• Low impact cost
• High positive correlation with International prices
Volume
Open interest
MCX Gold futures price curve
Opportunity for price risk management
MEANING :
Buying a futures contract to hedge physical position
PARTICIPANTS :
Dealers/Fabricators/Jewellers
OBJECTIVES :
•To protect increase in the cost of raw material.
•To replace inventory value at a lower prevailing cost.
•To protect uncovered sale of finished products.
Long hedge
Price fix hedge-An illustration
Market Date Natureof tran.
Market Price Date Natureof tran.
Market Price Profit/(loss)
Spot 11-Jun-05 6100 11-Jun-05 BUY 6230
Futures 21-Jun-05 BUY 6121 21-Jun-05 SELL 6249 128
Net purchase price 6102
Date Spot price Gold AUG 2005
11-JUN-2005 6100 6121
Date Spot price Gold AUG 2005
21-JUN-2005 6230 6249
Long hedge
Short hedge
MEANING :
Selling a futures contract to hedge physical position
PARTICIPANTS :
Dealers/Fabricators/Jewellers
OBJECTIVES :
•To protect the price of finished product.
•To protect price of inventory not covered by sale.
•To protect price for estimated production of finished product.
Offset hedge-An illustration
Market Date Natureof tran.
MarketPrice
Date Natureof tran.
Market Price Profit/(loss)
Spot 11-Jul-05 BUY 6090 21-Jul-05 SELL 6060 -30
Futures 11-Jul-05 SELL 6099 21-Jul-05 BUY 6049 50
NET 20
Date Spot price Gold AUG 2005
11-JUL-2005 6090 6099
Date Spot price Gold AUG 2005
21-JUL-2005 6060 6049
Short hedge
Rolling over the hedge position
Hedging horizon longer than available futures contracts
Rolling over before enters into delivery period
Liquidity risk
Basis risk
Roll over
Strategies using futures
Investment/Trading
MEANING :
Buying a futures contract /Selling a futures contract
PARTICIPANTS :
Investors/Traders
OBJECTIVE :
To earn from expected increase / decrease in the futures price based on
fundamental / technical analysis.
Spread
MEANING :
Buying a near month futures contract and selling a far month futures
contract / Selling a near month futures contract and buying a far month
futures contract
PARTICIPANTS :
Investors/Traders
OBJECTIVE :
To earn from existing spread between near month futures contract and far
month futures contract.
MCX prices
Arbitrage
MEANING :Cash and carry arbitrage means buying physical asset with borrowedfunds and simultaneously selling the futures contract which is closed by
delivering physical asset on maturity of the futures contract.
Reverse cash and carry arbitrage means lending funds realized by selling
physical asset and simultaneously buying the futures contract which is closed by taking delivery of physical asset on maturity of the futures contract.
PARTICIPANTS :Arbitragers/Financers
OBJECTIVE :To earn from the existing difference between spot and futures prices.
Arbitrage
Cash & carry arbitrage opportunity when
F (o , n) > S(o) (1+c)
Reverse cash & carry arbitrage opportunity when
F (o , n) < S(o) (1+c)
Implications
Implications
Hedging
Hedging reduces or limits the price risk associated with the physical asset
Outright position
Outright position is risky as it is a leveraged transaction.
Spread trading
Spread trading is an yield improvement strategy which is less risky than
outright position & payoff does not directly depend on the direction of the
price movement.
Arbitrage
Arbitrage transaction results in minimum profit potential subject to execution risk.
Thank You