Project Report on commodity market

Commodity Market on Gold, Silver, Copper in India

A STUDY ON COMMODITY MARKET AT SHAREKHAN

FINANCIAL SERVICES LIMITED

HYDERABAD

Paramkusa (14M108)

(Finance & Business Analytics)

Project ReportSubmitted

ToDhruva College of Management

(Approved by AICTE, Ministry of HRD, Govt. of India)N H: 44, Medchal, Hyderabad-501 401

Telangana State, IndiaPh: 040 - 30162000

In partial fulfillment of PGDM Program (2015)

1


2


3


ACKNOWLEDGEMENT

I am thankful to my company guide, Mr.G.V.L.Narayana, from share Khan for not only providing me valuable guidance and support for project but also providing me the required support with his extra ordinary knowledge of various commodities.

I express my sincere gratitude to Dr. S Pratap Reddy - Chairman, DHRUVA

COLLEGE of MANAGEMENT for his valuable guidance and to my faculty

guide, Mr. KH. Gokul Krishnan for his encouragement, support and

valuable guidance throughout the project duration. In spite of being fraught

with unending engagements in college, he kept me motivating to try best at all

times. He provided me with his constant support and guidance in preparing

this report.

I would also like to express my gratitude to my parents who constantly

elucidated upon my repetitive queries and helped me by providing me with

valuable data.

4


Table of contents

1 Title Page…………………………………………………………………………………………………………………

2. Declaration………………………………………………………………………………………………………………2

3 .Certificates……………………………………………………………………………………………………………….

4 Acknowledgements.......................................................................................................3

5. Index.............................................................................................................................4

6. Introduction...........................................................................................................13-39

7. Exicutive summery………………………………………………………………………………………………….. 5 8. Literature Review…………………………………………………………………10-11

9. Objectives of the study................................................................................................12

10. Methodology..........................................................................................................40-41

11 Analysis & Findings……………………………………………………………………………………………43-48

112 Bibliography ………………………………………………………………………………………………………49

5


1. Executive summary

Introduction:-

Any product which exists naturally and serves as an input for the secondary market

can be described as a commodity. They can be classified as agricultural products like

cotton, wheat, pepper etc. or non-agricultural products like crude oil, gold, and copper

and so on.

Agricultural products are prone to spoilage and their availability is dependent on

weather condition; their market is more volatile. Non-agricultural products etc like

oil, copper are useful in industries (for producing derived or secondary products) and

are generally preferred by investors.

For a product to be classified as a commodity it should have a commercial value; all

commodities are not traded in the commodities market. Commodities are fungible

which means they are same irrespective of who produces it and are processed further

into other products.

“The Present Study on Commodity market” compares and price movement of

the market.

3 commodities like Gold, Silver, Copper, Collected the prices from MCX, NCDEX.

Commodities purely depend on demand and supply, but it’s observed that gold depends on US dollar, Silver depends on Gold, and Copper depends on Demand.

US Dollar increase gold price increase, US dollar decrease price of the gold is decrease.

Gold increase 1 tics silver decrease 11 tics, Gold decrease 1 tics Silver increase 10 tis.

Copper purely depends demand and supply.

6


Conclusion :-

Investment in Gold is better for earn higher returns than Silver, Copper.

2. INTRODUCTION:

Share Khan Limited

The strong market was found to be souring to new heights day by day, and then

coming down all of a sudden in such scenario the investors are pretty much confused

as to where to put their money. The menace movement market creates a lot of

confusion among the investors and many investors end up losing their hard earned

money. In such a scenario many broking firms have emerged that claim to guide the

investors about their stocks. These broking firms have their own research department

which continuously monitors the stocks and updating the investors. Once of the

largest broking firm of the country is Share Khan limited. Share Khan limited is one

of the leading retail stock broking houses of SSKI group which is running successful

since 1922 in the country. It stretches to the Mumbai based SSKI group which has

over 8 decades of experience in the stock broking business. The association with

SSKI concluded after recent changes in the share holding pattern of the company.

Share khan offers its customers a wide range of equity related services including trade

execution on BSE NSE Derivatives, depository services, online trading, investment

advice etc.

The firm has been the pioneer in online trading in India. Its online training and

investment site www.sharekhan.com was launched on February 2000 and is the

second most visited broking site in India. It has the largest number of share shops in

the country. The company website gives access to superior content and transaction

facility to retail customer across the country. Known for its Jargon free investor

friendly language and high quality research the site the site has a large number of

customers. The content rich and research oriented portal has stood out among its

contemporizes because of its straight fast dedication to offer its customers the best of

breed technology and superior market information. The objective has been to let

customers make informed decision and to simplify the process of investing stocks.

7


On April 17 2002 Share Khan launched Speed Trade, net based executable

application that emulates the broker terminals along with host of other information

relevant to the day traders. This was for the first time that a net based trading station

of this caliber was offered to the traders. In the last six months speed trade has

become a de facto standard for the Day Trading Community over the net.

Name of the Company: Share khan ltd.

Year of Establishment: 2000

Headquarter: Share khan SSKI A-206 Phoenix House Mills Compound Lower

Parel Mumbai Maharashtra, INDIA-400013

Nature of business: Service provider

Services: Equity Broking, PMS, Financial Product Distribution

Number of Employees: Over 3500

Customers: More than 9.5 million

Website: www.sharekhan.com

Slogan: You’re Guide to The Financial Jungle

CUSTOMER PROFILES CATERED TO :

VISION: To be the best retail brokering Brand in the retail business of stock

market.

MISSION: To educate and empower the individual investor to make better

investment decisions through QUALITY ADVICE, INNOVATIVE PRODUCTS

and SUPERIOR SERVICE

8


THE SERVICE DELIVERY MODEL BLENDING TRADITION

AND TECHNOLOGY:

The service delivery model of Share khan Limited is a combination of tradition and

technology.

The various services on offer are

Share Shops

Online Trading – a choice of three trading interfaces

Trade Tiger for Active Traders

Web based Classic interface for investors

Web based applet –fast trade for investors

Dial-n-trade

SHAREKHAN’S MANAGEMENT TEAM SHAREHOLDING

PATTERN

ADVANTAGE OF SHAREKHAN LIMITED

The advantages of choosing Share khan Limited as a brokerage firm are as follows:

EXPERIENCE & ACCOLADES

Share khan Limited is of the most customer friendly brands since inception. It is

amongst the top5 retail brokers in India. SSKI has more than eight decades of trust

and credibility in the Indian Stock market. In the Asia Money broker's poll SSKI won

the 'India's Best Broking House for 2004' award.

9


TECHNOLOGY

It provides its customers with superior trading platforms, multi-channel access for

customers and real time delivery of quality service and research. With its online

trading account one can buy and sell shares in an instant from any PC with an internet

connection. One can get access to its powerful online trading tools that will help him

take complete control over his investment in shares.

REACH & ACCESSIBILITY

It has a growing retail network across 1041 franchisees and 159 branches in 400

cities. Share khan provides ADVICE, EDUCATION, TOOLS AND EXECUTION

services for investors.

These services are at the right time can translate into direct profits; one can get access

to a wide range of information on Share khan Limited’s content-rich portal. One can

also get a useful set of knowledge-based tools that will empower him to take informed

decisions. Accessible through its centers across the country over the internet (through

the website www.sharekhan.com) as well as over the Voice Tool.

KNOWLEDGE

In a business where the right information

CONVENIENCE

One can call its Dial-N-Trade number to get investment advice and execute his

transactions. Share khan ltd. has a dedicated call-centre to provide this service via a

Toll Free Numbers from anywhere in India.

CUSTOMER SERVICE

Share khan limited’s customer service team will assist one for any help that one may

require relating to transactions, billing, demat and other queries. Its customer service

can be contacted via a toll-free number, email or live chat on www.sharekhan.com.

10


INVESTMENT ADVICE

Share khan has dedicated research teams of more than 30 people for fundamental and

technical researches. Its analysts constantly track the pulse of the market and provide

timely investment advice to its clients in the form of daily research emails, online

chat, printed reports and SMS on their mobile phone.

3. LITERATURE REVIEW

Relationship between fluctuations in gold prices and the U.S. dollar posited in the popular press during 2007-used a bivariate structural Garch model to test for a causal relationship between volatility changes of the dollar and gold for the period October 13, 2004 through March 5, 2010. In their study August 9,2007 was designated the beginning of the Financial crisis period which they call “financial turmoil" in global financial markets. For the late 2007 and early 2010 interval covered by their study they found a significant positive relationship and positive correlation both before and during the post 2007 turmoil period. Interestingly the movements of gold during the crisis period were much more stable than those of the U.S. dollar. Finds that the volatility of gold returns exhibits a symmetric reaction to positive and negative gold returns. The asymmetric nature of this reaction allows for its characterization as abnormal or inverted when compared to its parallel in equity markets. Furthermore, because this asymmetric reaction is ten times larger for gold than for any other commodity, Came to similar conclusions claiming that gold is an attractive investment in terms of diversification only in specific periods of equity turmoil. Hiller et al.(2006) studied the role of gold and commodities on equity markets. They discovered that in the period1976-2004 gold had a small negative correlation with S&P 500 index. They found that portfolios which had 5% to 10% in gold performed better than portfolios without gold.

Silver:-11


reported that the silver market was not efficient in the weak form. ,

found that futures market for gold and silver were weak form efficient and that investors cannot earn abnormal profits.

examined the long run trend in prices of gold and silver futures contracts listed on the Tokyo Commodity Exchange. Using daily closing prices from 1992 to 1998 along with cointegration analysis, the results indicated that the long run stable relationship between gold and silver future prices had disappeared. Furthermore, investors are urged to treat each market independently for price discovery.

investigated price discovery on nearby future prices of various commodities. Using the daily nearby contract of prices from 1969 to 1999 obtained from the Chicago Board of Trade (CBT), the researchers find the existence of a strong bidirectional causality in future prices. Other studies have examined how the addition of commodities can lead to a well-diversified portfolio.

examined the return properties of 142 daily commodity futures from January 1965 to February 2005 using a multivariate analysis framework. They found that commodity futures are roughly uncorrelated with stocks and bonds. However, commodity returns were positively correlated with unexpected inflation. Still, differing commodities within the sample offered hedges and the researchers concluded that a well-balanced commodity portfolio offered diversification.

observed similar findings and concluded that a well-diversified portfolio of commodity futures, bonds and equities offered investors risk reduction. The premise behind these studies seeks to determine what role volatility plays in determining commodity prices and the role volatility plays in determining effective portfolio diversification strategies. This study will add to existing literature by understanding the price volatility associated with silver spot market.

Source: 3.1Business Today, dated June 24, 2012, vide http://businesstoday.intoday.in/story/nine-common-myths-about-investing-in-market/1/185128.html.5.1 Source: International Research Journal of Finance and Economics, ISSN 1450-2887 Issue 2 (2006), © EuroJournals Publishing, Inc. 2006, http://www.eurojournals.com/finance.htm 6.1 Source: Munich Personal RePEc, vide: http://mpra.ub.uni-muenchen.de/29290/7.1 Source: Analytique, Vol. VII, No. 2, Apr-June, 2011, the Quarterly Journal of the Bombay Chamber of Commerce & Industry Trust for Economic and Management Studies.

References:-

12

http://mpra.ub.uni-muenchen.de/29290/

http://businesstoday.intoday.in/story/nine-common-myths-about-investing-in-market/1/185128.html

http://businesstoday.intoday.in/story/nine-common-myths-about-investing-in-market/1/185128.html


Bessler, David A. and Covey, Ted (August 1991) Cointegration: some results on U.S. cattle prices, The Journal of Futures Markets 11(4) 461–74

Choudhry, T. (1997), Short-run Deviations and Volatility in Spot and Futures Stock Returns: Evidence from Australia, Hong-Kong and Japan, The Journal of Futures Markets 17 (6), 689-705.

Cox, Charles C. (December 1976) Futures trading and market information, Journal of Political Economy 84(6) 1215–37

Dickey, David A. and Fuller, Wayne A. (July 1981) Likelihood ratio statistics for autoregressive time series with a unit root, Econometrica 49(4) 1057–72 .

Aggarwal and Sundararaghavan (1987) Johansen’s (1991)

Adrangi et al. (2006) Kat and Oomen (2007)

Erb and Harvey (2006) Solt and Swanson (1981). Moreover, Ciner (2001)

OBJECTIVE OF THE STUDY13


To under stand the commodity prices move goes up and goes down.

To analyze of role and performance in price movement of commodities.

The objective of this report is to give a clear idea about the commodity

markets and commodities trading on “Gold, Silver, Copper” in India to the

readers

The differences between financial derivatives and the commodity derivatives

are discussed so clearly that the reader can understand easily. Similarities and

differences between major commodity exchanges are listed in a table format

so that the reader can easily distinguish between them.

List of Tables

14


Table 1.1 Registered Commodity Exchanges in India

Table 1.2 Commodities Traded over the Exchanges

Table 3.1 Contract Specification for e-series products

Table 3.2 The market timings for trading on the online platform of the Exchange

(NSEL) are as under

Table 3.3 Difference & Similarities between MCX and NCDEX

Table 3.4 Contract Specification (MCX)

Table 3.5 Contract Specification (NCDEX)

Introduction

15


Commodity markets are markets where raw or primary products are exchanged.

These raw commodities are traded on regulated commodities exchanges, in which

they are bought and sold in standardized contracts.

Commodity market is an important constituent of the financial markets of any

country. It is the market where a wide range of products, viz., precious metals, base

metals, crude oil, energy and soft commodities like palm oil, coffee etc. are traded.

History of Commodity Trading

Commodity futures’ trading has been first recorded in the 17th century in Japan. The

futures’ trading was basically done with the seasonal agricultural products so as to

ensure their continuous supply all the year around. Japanese merchants used to store

rice in the warehouses for their future use and used to sell receipts against such stored

rice. These receipts were called as ‘rice tickets ‘which then eventually became the

basis for their commercial currency. The rules which were established during this

time for trading these rice tickets are similar to the rules set for American futures

trading. In the United States, the commodity futures trading first started in the middle

of the 19th century with the help of the Chicago Board Of Trade set up in the year

1848.Gradually then about 10 commodity exchanges were set up with a wide variety

of agricultural products being traded.

Commodity derivative market first started in India in cotton in the 1875 and in the

oilseeds in 1900 at Bombay. Forward trading in raw jute and jute goods started at

Calcutta in the year 1912. But however, within few years of their establishment, the

forwards trading in these commodities was banned in the year 1960. Recently, in the

year 2003, such ban on trading was lifted and the trading in commodity futures was

started. Permission was given to establish online multi-commodity exchange in order

to facilitate trading. The long period of prohibition of forward trading in major

commodities like cotton and oilseeds complex has an enduring impact on the

development of the commodity derivative markets in India and the futures market in

commodities find themselves left far behind the derivative markets in the developed

countries, which have been functioning uninterruptedly. Thus, today the challenge

before the commodity markets is to make up for the loss of growth and development

16


during the three decades of government policies, which had the effect of restricting

the growth of the derivative markets.

Evolution of the Commodity Market in India

Derivatives as a tool for managing risk first originated in the commodities markets.

They were then found useful as a hedging tool in financial markets as well. In India,

trading in commodity futures has been in existence from the nineteenth century with

organised trading in cotton through the establishment of Cotton Trade Association in

1875. Over a period of time, other commodities were permitted to be traded in futures

exchanges. Regulatory constraints in 1960s resulted in virtual dismantling of the

commodities future markets. It is only in the last decade that commodity future

exchanges have been actively encouraged. However, the markets have been thin with

poor liquidity and have not grown to any significant level.

Bombay Cotton Trade Association Ltd., set up in 1875, was the first organised

futures market. Bombay Cotton Exchange Ltd. was established in 1893 following the

widespread discontent amongst leading cotton mill owners and merchants over

functioning of Bombay Cotton Trade Association. The Futures trading in oilseeds

started in 1900 with the establishment of the Gujarati Vyapari Mandali, which carried

on futures trading in groundnut, castor seed and cotton. Futures’ trading in wheat was

existent at several places in Punjab and Uttar Pradesh. But the most notable futures

exchange for wheat was chamber of commerce at Hapur set up in 1913. Futures

trading in bullion began in Mumbai in 1920. Calcutta Hessian Exchange Ltd. was

established in 1919 for futures trading in rawjute and jute goods. But organised

futures trading in raw jute began only in 1927 with the establishment of East Indian

Jute Association Ltd. These two associations amalgamated in 1945 to form the East

India Jute & Hessian Ltd. to conduct organised trading in both Raw Jute and Jute

goods. Forward Contracts (Regulation) Act was enacted in 1952 and the Forwards

Markets Commission (FMC) was established in 1953 under the Ministry of Consumer

Affairs and Public Distribution.

• The majority of the committee recommended that futures trading be introduced in the

following commodities:

17


1. Basmati Rice

2. Cotton

3. Raw jute and jute goods

4. Groundnut, rapeseed/mustard seed, cottonseed, sesame seed, sunflower seed,

safflower seed, copra and soybean, and oils and oilcakes of all of them.

5. Rice bran oil

6. Castor oil and its oilcake

7. Linseed

8. Silver

9. Onions

The liberalized policy being followed by the government of India and the gradual

withdrawal of the procurement and distribution channel necessitated setting in place a

market mechanism to perform the economic functions of price discovery and risk

management.

The national agriculture policy announced in July 2000 and the announcements in

the budget speech for 2002-2003 were indicative of the government’s resolve to put in

place a mechanism of futures trade/market. As a follow up, the government issued

notifications on 1.4.2003 permitting futures trading in the commodities, with the issue

of these notifications futures trading is not prohibited in any commodity. Options’

Different Segments in Commodities Market

The commodities market exits in two distinct forms namely

Over the Counter (OTC) market

The Exchange based market

Also, there exists the spot and the derivatives segment. The spot markets are

essentially over the counter markets previously and the participation is restricted to

18


people who are involved with that commodity say the farmer, processor, wholesaler

etc. But, now-a-days exchange-based spot market has come into existence. National

Spot Exchange provides spot trading of commodities. Derivative trading takes place

through exchange-based markets with standardized contracts, settlements etc.

Commodity Exchanges in India

Commodity exchanges are places which trade in particular commodities, neglecting

the trade of securities, stock index futures and options etc. Exchanges are the

centralized places which provide a platform for both the buyers and the sellers to

meet, set quality standards and establish the rules of businesses. Commodity

exchanges in India plays an important role as it offers a tool for efficient risk

management and price transparency.

In India, there are about 25 recognized regional exchanges of which five are national

level multi-commodity exchanges. These five national level multi-commodity

exchanges are,

National Board of Trade

National Commodity and Derivative Exchange Limited( NCDEX)

Multi-Commodity Exchange Of India( MCX)

National Multi-Commodity Exchange Of India Limited ( NMCEIL)

National Spot Exchange Limited(NSEL)

All the above exchanges have been set up under the overall control of Forward

Market Commission of Government of India.

National Commodity & Derivative Exchange Limited (NCDEX)

National Commodity & Derivative Exchange Limited (NCDEX) located in Mumbai

is a public limited company incorporated on April 23, 2003 under the Companies Act,

1956 and had commenced its operations on December 15, 2003. This is the only

commodity exchange in the country promoted by the national level institutions. It is

promoted by Life Insurance Corporation of India (LIC), National Bank for

Agriculture and Rural Development (NABARD) and National Stock Exchange

19


(NSE). Other shareholders are Canara Bank, Punjab National Bank (PNB), CRISIL

Limited, Indian Farmers Fertiliser Cooperative Limited (IFFCO), Goldman Sachs,

Intercontinental Exchange (ICE), Shree Renuka Sugars Limited and Jaypee Capital

Services Limited.

It is a professionally managed online multi- commodity exchange. NCDEX is

regulated by Forward Market Commission and is subject to various law of land like

the Companies Act, Stamp Act, Contracts Act, Forward Commission (Regulation)

Act and various other legislations.

The Exchange, as on May 21, 2009 when Wheat Contracts were re-launched on the

Exchange platform, offered contracts in 59 commodities - comprising 39 agricultural

commodities, 5 base metals, 6 precious metals, 4 energy, 3 polymers, 1 ferrous metal,

and CER. The top 5 commodities, in terms of volume traded at the Exchange, were

Rape/Mustard Seed, Gaur Seed, Soyabean Seeds, Turmeric and Jeera.

Multi Commodity Exchange of India Limited (MCX)

Multi Commodity Exchange is headquartered in Mumbai and is an independent, de-

mutualised exchange with the permanent recognition from Government of India. Key

Shareholders of MCX are Financial Technologies (India) Ltd., State Bank of India

and its associates, National Bank for Agricultural and rural Development (NABARD),

National Stock Exchange of India Ltd (NSE), Fid Fund (Mauritius) Ltd. - an affiliate

of Fidelity International, Union Bank of India, Corporation Bank, Bank of India,

Canara Bank, HDFC Bank, SBI Life Insurance Co. Ltd., ICICI ventures, IL&FS,

Merrill Lynch and New York Stock Exchange. MCX facilitates online trading,

clearing and settlement operations for commodity futures market across the

country.MCX started offering trade in November 2003 and has several strategic

alliances with leading exchanges across the globe. It has built strategic alliances with

Bombay Bullion Association, Bombay Metal Exchange, Solvent Extractors’

Association of India, Pulse Importers Association and Shetkari Sanghatana.

It is regulated by the Forward Markets Commission. MCX is India's No. 1 commodity

exchange with 83% market share. The exchange's main competitor is National

Commodity & Derivatives Exchange Ltd. Globally; MCX ranks no. 1 in silver, no. 2

20


in natural gas, no. 3 in crude oil and gold in futures trading. The highest traded item is

gold.

Now reaches out to about 800 cities and towns in India with the help of about 126,000

trading terminals. MCX COMDEX is India's first and only composite commodity

futures price index.

National Multi-Commodity Exchange of India Limited (NMCEIL)

National Multi-Commodity Exchange of India Limited (NMCEIL) is the first de-

mutualized, electronic Multi-commodity Exchange in India. It is one and only one

Commodity exchange in the world to obtain the prestigious ISO 9001:2000

certification awarded by the British Standard Institutions (BSI). NMCE not only

revived futures trade electronically in the commodities in India after a gap of 41

years, but also integrated the centuries old commodity market with the latest

technology. It is backed by compulsory delivery based settlement to ensure

transparent and fair trade practices. NMCE offers electronic platform for future

trading in plantation, spices, food grains, non-ferrous metals, oil seeds and their

derivatives.

On 25th July, 2001, it was granted approval by the government to organize trading in

the edible oil complex. It has been operationalised from November 26, 2002.

It is promoted by Central Warehousing Corporation (CWC), Punjab National Bank

(PNB), National Agricultural Cooperative Marketing Federation of India (NAFED),

Gujarat Agro-Industries Corporation Limited (GAICL), Gujarat State Agricultural

Marketing Board (GSAMB), Neptune Overseas Limited (NOL), National Institute of

Agricultural Marketing (NIAM). It has got its recognition in October 2002.

National Spot Exchange Limited

National Spot Exchange Ltd (NSEL) is an electronic, demutualised commodity spot

market. The Exchange is promoted by Financial Technologies (India) Ltd (FTIL) and

National Agricultural Cooperative Marketing Federation of India Limited (NAFED).

It provides an electronic, transparent, well organized and centralized trading platform

with the facility to access and participate in the market remotely. It facilitates risk free

and hassle free purchase and sell of quality and quantity specified commodities to

commodity market participants including farmers, traders, processors, exporters, 21


importers, arbitrageurs, investors and the retail market participants. Exchange also

offers various other services such as quality certification, warehousing, warehouse

receipt financing, etc.

NSEL commenced its live operations on 15th October 2008. The Exchange has

started trading in Pre-certified cotton bales for Mumbai delivery, Imported Gold bar

and silver bar for Ahmedabad delivery from the day one and now has added number

of commodities for the spot trading. Its stated mission is to develop a Common Indian

Market, by setting up a national level electronic spot market and providing a state of

art trading, delivery and settlement facilities in various commodities, which can be

accessed from across the country.

It has created efficient spot delivery platform, helping the sellers/producers to sell

commodities directly to the end buyers comprises of processors/ exporters. Currently,

NSEL holds a market share of over 98% of the Indian electronic commodity Spot

market, and has more than 495 registered members operating through over 3000

trader work stations, across India. Government organizations like FCI, HAFED,

MMTC, PEC, NAFED, APMARKFED, RAJFED, and CCI have been actively

utilizing the Exchange platform for selling various commodities. More than 33

commodities are traded on NSEL Platform having delivery locations spread across 14

states.

For the first time in India, NSEL has introduced demat delivery based instrument

products called e-Series, in commodities like gold, silver, copper, zinc and lead. This

is a unique market segment, which is functioning just like cash segment in equities,

but offering commodities in demat form in smaller denominations.

Salient Features

On spot exchange single day contracts are traded.

It provides intra day trading with settlement of obligation on net basis.

All positions outstanding at end of the day should result into compulsory delivery.

Demat delivery facility is available .

Fungibility of delivery between National Spot Exchange and MCX with common

ICIN nos is possible.

22


Loan facility against pledge of demate / warehouse receipt all deliverable futures

contracts, including agri commodities, gold, silver, non-ferrous metals and wide

number of other industrial products to be launched.

Table 1.1 Commodities Traded over the Exchanges

Bullion Gold and Silver

Oil &

Oilseeds

Castor Seeds, Soya Seeds, Castor Oil, Refined Soya Oil, Soya meal, Crude Palm

Oil, Groundnut Oil, Mustard Seed, Cotton Seed Oil Cake, Cottonseed.

Spices Pepper, Red Chilly, Jeera, Turmeric, Cardamom

Metals Steel Long, Steel Flat, Copper, Nickel, Zinc, Tin, Steel, Aluminum,Lead

Fibre Kapas, Long Staple Cotton, Medium Staple Cotton

Pulses Chana,Urad,Yellow Peas, Tur,

Grains Rice, Basmati Rice, Wheat, Maize, Sarbati Rice, Jeera

Energy Crude Oil, Natural Gas, Brent Crude, Heating oil, Gasoline

Others Rubber, Guar Seed, Guar Gum, Cashew, Cashew Kernel, Sugar, Gur, Coffee, Silk,

Almond.

2. Introduction to Commodity Derivatives

2.1 Derivatives

The term “derivatives” refer to financial instruments which derive their value from

some underlying assets. The underlying assets could be equities (shares), debt (bonds,

T-bills, and notes), currencies, commodities and even indices of these various assets,

23


such as the Nifty 50 Index. Derivatives derive their names from their respective

underlying asset. Here, in case of commodity derivatives the underlying asset is a

commodity. There are various types of derivatives traded on exchanges across India.

They are

Forwards

Futures

2.1.1 Forwards

A forward contract or simply a forward is a contract between two parties to buy or

sell an asset at a certain future date for a certain price that is pre-decided on the date

of the contract. The future date is referred to as expiry date and the pre-decided price

is referred to as Forward Price.

The party that agrees to buy the asset on a future date is referred to as a long investor

and is said to have a long position. Similarly the party that agrees to sell the asset in a

future date is referred to as a short investor and is said to have a short position. The

price agreed upon is called the delivery price or the Forward Price.

Forward contracts are traded only in Over the Counter (OTC) market and not in stock

exchanges. OTC market is a private market where individuals/institutions can trade

through negotiations on a one to one basis.

A drawback of forward contracts is that they are subject to default risk. There are

chances for one party to default, i.e. not honor the contract. It could be either the

buyer or the seller. This results in the other party suffering a loss. This risk of making

losses due to any of the two parties defaulting is known as counter party risk. The

main reason behind such risk is the absence of any mediator between the parties, who

could have undertaken the task of ensuring that both the parties fulfill their

obligations arising out of the contract. Default risk is also referred to as counter party

risk or credit risk.

2.1.2 Futures

A futures contract is an agreement between two parties to buy or sell an asset at a

certain time in the future at a certain price. But unlike forward contracts, the futures

contracts are standardized and exchange traded. To facilitate liquidity in the futures

24


contracts, the exchange specifies certain standard features of the contract. It is a

standardized contract with standard underlying instrument, a standard quantity and

quality of the underlying instrument that can be delivered, (or which can be used for

reference purposes in settlement) and a standard timing of such settlement. A futures

contract may be offset prior to maturity by entering into an equal and opposite

transaction. More than 99% of futures transactions are offset this way.

The standardized items in a futures contract are:

• Quantity of the underlying

• Quality of the underlying

• The date and the month of delivery

• The units of price quotation and minimum price change

• Location of settlement

3. Commodities Trading

3.1 Spot Trading Earlier, commodity spot markets are essentially over the counter markets (OTC).

OTC is a private market. In these markets, individuals/institutions trade through

negotiations on a one to one basis. People who are in need of a commodity, buys the

product from those persons (farmer, processor, wholesaler etc) who had stock with

25


them. The buyer does the payment immediately on the spot and the seller handovers

the product. Thus, a spot market contract involves immediate payment and immediate

transfer of asset.

Now –a –days, the face of commodity spot market is changing drastically. Electronic

spot exchanges have come into existence. Now, spot trading in commodities is similar

to equity spot trading that is cash segment of equity market. We have only one

national exchange in India where spot trading of commodities is allowed. It is

National Spot Exchange Limited (NSEL) which was set up in October, 2008. It is an

electronic spot exchange. It is India’s No.1 spot exchange having 99% market share,

providing delivery based trading platform in commodities (CashSegment in Indian

Commodity Market). Its promoters are Financial Technologies and National

Agricultural Co-Operative Marketing Federation of India Limited (NAFED).

The products offered by NSEL are

1. Agricultural Products

Cereals: Paddy, Wheat, Bajra

Pulses: Bengal gram, Green Gram, Black gram, Pigeon Peas, Yellow Peas etc.

Edible Oils & Oilseeds: Soya bean, Castor Seed, Mustard Seed etc.

Cotton, sugar and Black Pepper.

2. Non Agricultural Products

Bullion: Gold & Silver (Bars & Coins)

Steel: Ignots and Billets

3. E-Series products

E-Gold

E-Silver

E- Copper

26


E-Zinc

E-Lead

.

3.1.3 E-series Products E-series products provide facility to buy commodities in smaller

denominations. Whereas, in future market investor has to buy commodities in lot

sizes. For example, if an investor wants to buy copper, he has to buy 1 lot size i.e

1MT (metric ton) on MCX. In spot market, he will be able to buy 50 kg of copper and

hold in demat account.

Features of E-series products

• Promotes Systemic investment and savings

• Invest in smaller denomination (1 gm gold and 100 gm Silver)

•Transparent and uniform pan India pricing

•Convenient and secure online buying and selling

• No storage or holding costs

• Physical delivery of accumulated demat units at multiple centres available

• Extending trading hours from 10 am to 11.30 pm.

NSDL and CDSL act as the Depository for holding commodity units in the electronic

form, while the commodity in physical form is kept in the designated vault/storage.

Designated vault for Bullion is Brinks Arya.

Registrar and Transfer Agent (RTA) is Karvy.

NSEL is the issuer.

E-series products function just like cash segment in equities.

Retail investors, corporate can trade and invest in the instrument.

Only Authorized Dealers appointed by NSEL are eligible to demat and take care of all

compliance. 27


These products are eligible for off market transfer and pledge.

Physical conversion of accumulated demat units is possible at designated centres.

There are no storage / WR charges for storing of E-Series ICINs.

Advantages of commodity E-Series contract trading:

1. Holding commodities in demat form.

2. Retail investors can diversify their portfolio.

3. No worry for daily MTM pay in/pay out as in derivative market.

4. No risk of commodity custody/theft.

5. Liquidity/ any time buying and selling of commodity.

6. Hassel free low cost transaction in physical commodity.

Table 3.1 Contract Specification for e-series products

Commodity e-gold e-silver e-copper

Symbol E-Gold E-Silver E-Copper

28


Trading days & time

Mon-Fri(10am-11.30pm)



Price quote Per gram Per 100 gram Per kg

Trading units 1 gram 100 gram 1 kg

Tick size 10 paise 10 paise 5 paise

Purity 995 999 999

Demat units 1 gram 1 gram 1kg

DPR 5% 5% 5%

Intial Margin 5% 5% 5%

Delivery margin 10% 10% 10%

ICIN INC20000007 INC200000015 INC200000023

Settlement T+2 T+2 T+2

Market Type Normal Normal Normal

GOLD:Price Quotation Lot Size Margin

Mega 10 Gram 1 Kg 5%Mini 10 Grams 100 Grams 5%Guinea 8 Grams 8 Grams 5%Petal 1Gram 1 Gram 5%

Silver:Price Quotation Lot Size Margin

Silver 1Kg 1Kg 5%

Copper:29


Price Quotation Lot Size Margin

Mega 1 Mt 1 Kg 5%

Mini 250 Kg 1 Kg 5%

Table 3.2 The market timings for trading on the online platform of the Exchange

(NSEL) are as under

Products Monday to Friday Saturday

AGRI 10:00 to 18:00 10:00 to 14:00

NON-AGRI 10:00 to 23:30 10:00 to 14:00

Intraday

Contracts(Agri/non-agri)

10:00 to 16:00

E-series product 10:00 to 23:30

3.2 Futures Trading

There are many exchanges in India that provide trading in commodity futures. The

major exchanges that provide futures trading in commodities in India are MCX

and ;NCDEX.

A commodity futures market (or exchange) is, in simple terms, nothing more or less

than a public marketplace where commodities are contracted for purchase or sale at an

agreed price for delivery at a specified date. These purchases and sales, which must be

made through a broker who is a member of an organized exchange, are made under

the terms and conditions of a standardized futures contract. The primary distinction

between a futures market and a market in which actual commodities are bought and

sold, either for immediate or later delivery, is that in the futures market one deals in 30


standardized contractual agreements only. These agreements (more formally called

futures contracts) provide for delivery of a specified amount of a particular

commodity during a specified future month, but involve no immediate transfer of

ownership of the commodity involved.

In other words, one can buy and sell commodities in a futures market regardless of

whether or not one has, or owns, the particular commodity involved. When one deals

in futures one need not be concerned about having to receive delivery (for the buyer)

or having to make delivery (for the seller) of the actual commodity, providing of

course that one does not buy or sell a future during its delivery month. One may at

any time cancel out a previous sale by an equal offsetting purchase or a previous

purchase by an equal offsetting sale. If done prior to the delivery month the trades

cancel out and thus there is no receipt or delivery of the commodity.

Actually, only a very small percentage, usually less than two percent, of the total

futures contracts that are entered into are ever settled through deliveries. For the most

part they are cancelled out prior to the delivery month in the manner just described.

3.3 Delivery1. Sellers and buyers have to convey intention on or before five days of the contract

expiry date.

2. The intentions are then matched and assigned by the Exchange with the

corresponding buyers. As is the case universally, seller has freedom to tender

delivery during the delivery period at any approved delivery centers. In other

words, buyer cannot demand delivery at delivery center of his choice. When the

seller gives intimation, a call is made to the corresponding buyer to whom the

delivery is assigned by the Exchange. Delivery margin is collected from both the

buyer and seller.

3. After matching the open positions of relevant buyer and seller, the same is

transferred from the system and settled at the closing price of the preceding day,

so that mark to market (MTM) is not levied or paid to the member.

31


4. Within five days from the position transfer, the buyer has to maintain the required

funds in their clearing & settlement account while the seller has to tender the

warehouse receipts to the exchange along with the computation of warehouse

charges. On the 3rd day, the exchange makes pay-in & payout simultaneously

after retaining the warehouse charges margin and sales tax margin from the buyer

and seller respectively.

5. After the completion of pay-in and payout, duly endorsed warehouse receipts are

sent to the buyer immediately.

6. Settlement of warehouse charges, margins and sales tax margins take place soon

after receipt of relevant documents (copies of sales bill, sales tax form) from the

member.

3. 4 Do’s and Don’ts for Clients/Investors in Commodity Futures MarketDO’s

1. Deal only with a registered member of MCX. To check, visit

2. While you take a trading account, carefully read and fill out all the documents that

the Member has to give you, in particular the Know Your Client (KYC form), the

Member-Client Agreement and the Risk Disclosure Document, and keep copies.

3. Only pay your member by cheque ( including margins), insist on receipts and keep

these carefully.

4. Record and check all trades. High value trades should be in writing; insist on

signed copies of Contract Notes within 48 hours of trade execution; obtain bills for

every settlement and also obtain fortnightly monthly statements of your ledger

account. You can check the genuineness of trades, if there are discrepancies report to

your Member within 7 days, and if Member does not respond, report to the Exchange

within 15 days.

32


Don’ts

1. Don’t undertake off market transactions as they are illegal and fall outside the

jurisdiction of the Exchange.

2. Don’t get influenced by indicative returns, rumors, hot tips, luring advertisements,

explicit/implicit promises and bull/bear runs of market sentiment.

3. Don’t start trading before reading and understanding the Risk Disclosure

Agreement and entering into the prescribed agreement with a member.

4. Don’t accept/ pay cash from/to your member towards margins and settlement.

5. Don’t accept contract notes/confirmation memos that are duplicate

/unsigned/signed.

6. Don’t sign Blank Delivery Slips while furnishing security deposits.

33


Table 3.3 Difference & Similarities between MCX and NCDEX

MCX NCDEX

Contract Months 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 11:30 PM.

International

Commodities:

5 PM to 11.30 PM.

Winter (Nov to April):

10 AM to 5 PM.

International

Commodities:

5 PM to 11.55 PM.

Summer (May to

October) : All

Commodities : 10 AM to

5 PM. International

Commodities:

5 PM to 11.30 PM.

Winter (Nov to April):

10 AM to 5 PM.

International

Commodities:

5 PM to 11.55 PM.

Table 3.4 Contract Specification (MCX)34


Commodity LTP Price

Quotati

on

Lot

Size

(Qt

y) /

1 Rs

(+

& -)

Margi

n %

Lot

Value(R

s)

Appr

ox

Margi

n (Rs)

Contract

Months

GOLD 1770

0

10GRM

S

100 4% 1,770,00

0

70,800 Feb, April,

June, Aug,

Oct, Dec.

SILVER 2830

0

1KGS 30 5% 849,000 42,450 Mar, May,

July, Sep,

Dec.

COPPER 322 1KGS 100

0

5% 322,000 16,100 Nov, Feb,

April.

CRUDEOIL 3550 1BBL 100 5% 3,550,00

0

17,750 Jan, Feb,

Mar.

(Monthly)

NATURALG

AS

240 1mmBtu 125

0

8% 240,000 24,000 Nov, Dec,

Jan.

(Monthly)

NICKEL 750 1KGS 250 7% 750,000 13,125 Nov, Dec,

Jan.

(Monthly)

Table 3.5 Contract Specification (NCDEX)

Commo

dity

LT

P

Price

Quotatio

n

Lo

t

Si

ze

Mar

gin

%

Vari

ant

(1 Rs

+ & -

)

Lot

Value(

Rs)

Appr

ox

Mar

gin

(Rs)

Contract

Months

Turmer 107 Rs/ 10 34% 100 1,070,0 363,8 Nov, Dec, 35


ic 00 Quintal M

T

0 00 Apr.

Guar

Seed

280

0

Rs/

Quintal

10

M

T

7% 100 280,00

0

19,60

0

Nov, Dec,

Jan, Feb,

Mar, Apr.

(Monthly)

Soy Oil 495 Rs/10Kgs 10

M

T

5% 1000 495,00

0

24,75

0

Nov, Dec,

Jan.

(Monthly)

Pepper 156

50

RS/

QUINTA

L

1

M

T

5% 10 156,50

0

7,825 Nov, Dec,

Jan, Feb,

Mar, Apr.

(Monthly)

Chana 262

0

RS/

QUINTA

L

10

M

T

6% 100 262,00

0

15,72

0

Nov, Dec,

Jan, Feb,

Mar.

(Monthly)

Soy

Bean

242

0

RS/

QUINTA

L

10

M

T

6% 100 242,00

0

14,52

0

Nov,Dec,

Jan, Feb,Mar.

(Monthly)

36


37


Regulatory Board

Commodity exchanges in India are regulated by Forward Markets Commission.

Forward Markets Commission (FMC) headquartered at Mumbai, is a regulatory

authority which is overseen by the Ministry of Consumer Affairs, Food and Public

Distribution, Govt. of India. It is a statutory body set up in 1953 under the Forward

Contracts (Regulation) Act, 1952.

" The Act provides that the Commission shall consist of not less than two but not

exceeding four members appointed by the Central Government out of them being

nominated by the Central Government to be the Chairman thereof. Currently

Commission comprises three members among whom Shri B.C. Khatua, IAS, is the

Chairman, Shri Ramesh Abhishek, IAS and Shri D.S.Kolamkar, IES are the Members

of the Commission."

The functions of the Forward Markets Commission are as follows:

(a) To advise the Central Government in respect of the recognition or the withdrawal

of recognition from any association or in respect of any other matter arising out of the

administration of the Forward Contracts (Regulation) Act 1952.

(b) To keep forward markets under observation and to take such action in relation to

them, as it may consider necessary, in exercise of the powers assigned to it by or

under the Act.

(c) To collect and whenever the Commission thinks it necessary, to publish

information regarding the trading conditions in respect of goods to which any of the

provisions of the act is made applicable, including information regarding supply,

demand and prices, and to submit to the Central Government, periodical reports on

the working of forward markets relating to such goods;

(d) To make recommendations generally with a view to improving the organization

and working of forward markets;

(e) To undertake the inspection of the accounts and other documents of any

recognized association or registered association or any member of such association

whenever it considerers it necessary. 38


(f) To perform such other duties and exercise such other powers as may be assigned to

the Commission by or under this Act, or as may be prescribed.

Powers of the Commission

(1) The Commission shall, in the performance of its functions, have all the powers of

a civil court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit

in respect of the following matters, namely:

(a) Summoning and enforcing the attendance of any person and examining him on

oath;

(b) requiring the discovery and production of any document;

(c) receiving evidence on affidavits;

(d) requisitioning any public record or copy thereof from any office;

(e) any other matters which may be prescribed.

(2) The Commission shall have the power to require any person, subject to any

privilege which may be claimed by that person under any law for the time being in

force, to furnish information on such points or matters as in the opinion of the

Commission may be useful for, or relevant to any matter under the consideration of

the Commission and any person so required shall be deemed to be legally bound to

furnish such information within the meaning of Sec. 176 of the Indian Penal code,

1860 (45 of 1860).

(3) The Commission shall be deemed to be a civil court and when any offence

described in Sections. 175, 178, 179, 180 or Sec. 228 of the Indian Penal Code, 1860

(45 of 1860), is committed in the view or presence of the Commission, the

Commission may, after recording the facts constituting the offence and the statement

of the accused as provided for in the Code of Criminal Procedure, 1898 (5 of 1898)

forward the case to a Magistrate having jurisdiction to try the same and the Magistrate

to whom any such case is forwarded shall proceed to hear the complaint against the

accused as if the case had been forwarded to him under Section 482 of the said Code1.

139


(4) Any proceeding before the Commission shall be deemed to be a judicial

proceeding within the meaning of Sections 193 and 228 of the Indian Penal Code,

1860(45 of 1860).

Gold:-

A gold price fully depends on US Dollar and Indian Rupee value. When Dollar decrease Gold value will be decrease in India. Because Gold is imported in India from Us. so Us rate is reflected to Gold price in India.

India rupee value increase the gold price will be decrease, Rupee value decrease gold price will Increase.

Now a days gold price is come down because Foreign countries has a thinking to sell the god for increase the Foreign currency and increase the them currency value.

In India Foreign investors are very high, US has to thinking to increase the interest rate so India those have a foreign investors are going to invest in US so earn profit.

When the Foreign investors invest in Indian Gold Market, Gold price will be increase, otherwise decrease.

Silver:-

Silver, like other precious metals, may be used as an investment. For more than four thousand years, silver has been regarded as a form of money and store of value. However, since the end of the silver standard, silver has lost its role as a legal tender in all developed countries, although some countries mint bullion and collector coins like the American Silver Eagle with nominal face values. In 2009, the main demand for silver was for industrial applications (40%), jewelry, bullion coins and exchange-traded products. In 2011, the global silver reserves amounted to 530,000 tones.

Millions of Canadian Silver Maple Leaf coins and American Silver Eagle are purchased as investments each year. The Silver Maple Leaf is legal tender at $5 per ounce and there are many other silver coins with higher legal tender values, including $20 Canadian silver coins. Silver is legal tender in the U.S. state of Utah, and can be used to pay all debts

40

https://en.wikipedia.org/wiki/Utah

https://en.wikipedia.org/wiki/American_Silver_Eagle

https://en.wikipedia.org/wiki/Canadian_Silver_Maple_Leaf

https://en.wikipedia.org/wiki/Silver_exchange-traded_product

https://en.wikipedia.org/wiki/Bullion_coin

https://en.wikipedia.org/wiki/Bullion_coin

https://en.wikipedia.org/wiki/Jewellery

https://en.wikipedia.org/wiki/American_Silver_Eagle

https://en.wikipedia.org/wiki/Bullion

https://en.wikipedia.org/wiki/Developed_country

https://en.wikipedia.org/wiki/Legal_tender

https://en.wikipedia.org/wiki/Legal_tender

https://en.wikipedia.org/wiki/Silver_standard

https://en.wikipedia.org/wiki/Store_of_value

https://en.wikipedia.org/wiki/Money

https://en.wikipedia.org/wiki/Investment

https://en.wikipedia.org/wiki/Precious_metal

https://en.wikipedia.org/wiki/Silver


Like most commodities, the price of silver is driven by speculation and supply and demand. Compared to gold, the silver price is notoriously volatile. This is because of lower market liquidity, and demand fluctuations between industrial and store of value uses. At times this can cause wide ranging valuations in the market, creating volatility.

Silver often tracks the gold price due to store of value demands, although the

ratio can vary. The crustal ratio of silver to gold is 17.5:1. The gold/silver price ratio

is often analyzed by traders, investors and buyers. In Roman times, the price ratio was

set at 12 or 12.5 to 1. In 1792, the gold/silver price ratio was fixed by law in

the United States at 15:1, which meant that one troy ounce of gold was worth 15 troy

ounces of silver; a ratio of 15.5:1 was enacted in France in 1803. The average

gold/silver price ratio during the 20th century

Copper:-

Copper is a chemical element with symbol Cu (from Latin: cuprum) and atomic number 29. It is a ductile metal with very high thermal and electrical conductivity. Pure copper is soft and malleable; a freshly exposed surface has a reddish-orange color. It is used as a conductor of heat and electricity, a building material, and a constituent of various metal alloys.

The metal and its alloys have been used for thousands of years. In the Roman era, copper was principally mined on Cyprus, hence the origin of the name of the metal as aes сyprium (metal of Cyprus), later corrupted to сuprum, from which the words copper (English), cuivre (French), and Kupfer (German) are all derived.[3] Its compounds are commonly encountered as copper(II) salts, which often impart blue or green colors to minerals such as azurite andturquoise and have been widely used historically as pigments. Architectural structures built with copper corrode to give green verdigris (or patina). Decorative art prominently features copper, both by itself and as part of pigments.

Copper is essential to all living organisms as a trace dietary mineral because it is a key constituent of the respiratory enzyme complex cytochrome c oxidase. In molluscs and crustacea copper is a constituent of the blood pigment hemocyanin, which is replaced by the iron-complexed hemoglobin in fish and other vertebrates. The main areas where copper is found in humans are liver, muscle and bone. Copper compounds are used asbacteriostatic substances, fungicides, and wood preservatives.

Copper, silver and gold are in group 11 of the periodic table, and they share certain attributes: they have one s-orbital electron on top of a filled d-electron shell and are characterized by high ductility and electrical conductivity. The filled d-shells in these elements do not contribute much to the interatomic interactions, which are dominated by the s-electrons through metallic bonds. Unlike in metals with

41

https://en.wikipedia.org/wiki/Metallic_bond

https://en.wikipedia.org/wiki/Electron_shell

https://en.wikipedia.org/wiki/Electron_shell

https://en.wikipedia.org/wiki/Group_11_element

https://en.wikipedia.org/wiki/Gold

https://en.wikipedia.org/wiki/Silver

https://en.wikipedia.org/wiki/Fungicide

https://en.wikipedia.org/wiki/Bacteriostatic_agent

https://en.wikipedia.org/wiki/Vertebrate

https://en.wikipedia.org/wiki/Hemoglobin

https://en.wikipedia.org/wiki/Hemocyanin

https://en.wikipedia.org/wiki/Crustacea

https://en.wikipedia.org/wiki/Molluscs

https://en.wikipedia.org/wiki/Cytochrome_c_oxidase

https://en.wikipedia.org/wiki/Dietary_mineral

https://en.wikipedia.org/wiki/Decorative_art

https://en.wikipedia.org/wiki/Patina

https://en.wikipedia.org/wiki/Verdigris

https://en.wikipedia.org/wiki/Turquoise

https://en.wikipedia.org/wiki/Azurite

https://en.wikipedia.org/wiki/Copper#cite_note-3

https://en.wikipedia.org/wiki/Cyprus

https://en.wikipedia.org/wiki/List_of_copper_alloys

https://en.wikipedia.org/wiki/Alloy

https://en.wikipedia.org/wiki/Electrical_conductivity

https://en.wikipedia.org/wiki/Thermal_conductivity

https://en.wikipedia.org/wiki/Ductility

https://en.wikipedia.org/wiki/Atomic_number

https://en.wikipedia.org/wiki/Atomic_number

https://en.wikipedia.org/wiki/Latin_language

https://en.wikipedia.org/wiki/Chemical_element

https://en.wikipedia.org/wiki/Troy_ounce

https://en.wikipedia.org/wiki/United_States

https://en.wikipedia.org/wiki/Crust_(geology)

https://en.wikipedia.org/wiki/Gold_as_an_investment

https://en.wikipedia.org/wiki/Market_liquidity

https://en.wikipedia.org/wiki/Volatility_(finance)

https://en.wikipedia.org/wiki/Supply_and_demand


https://en.wikipedia.org/wiki/Speculation


incomplete d-shells, metallic bonds in copper are lacking a covalent character and are relatively weak. This explains the low hardness and high ductility of single crystals of copper. At the macroscopic scale, introduction of extended defects to the crystal lattice, such as grain boundaries, hinders flow of the material under applied stress, thereby increasing its hardness. For this reason, copper is usually supplied in a fine-grained polycrystallineform, which has greater strength than monocrystalline forms.

The softness of copper partly explains its high electrical conductivity (59.6×106 S/m) and thus also high thermal conductivity, which are the second highest (to silver) among pure metals at room temperature. This is because the resistivity to electron transport in metals at room temperature mostly originates from scattering of electrons on thermal vibrations of the lattice, which are relatively weak for a soft metal. The maximum permissible current density of copper in open air is approximately 3.1×106 A/m2 of cross-sectional area, above which it begins to heat excessively. As with other metals, if copper is placed against another metal, galvanic corrosion will occur.

Together with caesium and gold (both yellow), and osmium (bluish), copper is one of only four elemental metals with a natural color other than gray or silver. Pure copper is orange-red and acquires a reddish tarnish when exposed to air. The characteristic color of copper results from the electronic transitions between the filled 3d and half-empty 4s atomic shells – the energy difference between these shells is such that it corresponds to orange light. The same mechanism accounts for the yellow color of gold and caesium.

42

https://en.wikipedia.org/wiki/Tarnish

https://en.wikipedia.org/wiki/Osmium

https://en.wikipedia.org/wiki/Gold

https://en.wikipedia.org/wiki/Caesium

https://en.wikipedia.org/wiki/Galvanic_corrosion

https://en.wikipedia.org/wiki/Galvanic_corrosion

https://en.wikipedia.org/wiki/Siemens_(unit)

https://en.wikipedia.org/wiki/Monocrystalline

https://en.wikipedia.org/wiki/Polycrystalline

https://en.wikipedia.org/wiki/Ductility

https://en.wikipedia.org/wiki/Hardness

https://en.wikipedia.org/wiki/Covalent_bond


Relationships between commodity futures market and Spot market :- To find out the determination of equilibrium price of future contract of an agricultural commodity along with relationship of future contract with the expected spot market at maturity of the contract. They identified three determinations of the equilibrium price i.e. risk aversion of hedgers, demand and supply conditions expected by hedgers in the spot market and expectations and responsiveness of speculators about current spot market. In case of relationship between future contract and spot market, existence of excess demand was observed. Speculator’s expectation of increase in spot prices resulted in high demand for future and in opposite situation of low prices the speculators by doing reverse trade creates off setting positions. Pointed out that significant risk returns features and diversification potential has made commodities popular as an asset class. Indian futures markets have improved pretty well in recent years and would result in fundamental changes in the existing isolated local markets particularly in case of agricultural commodities. Observed the hedging performance of agricultural commodity futures market in terms of price discovery and risk management. Out of selected six agricultural commodities, caster seed and pepper futures markets were found as efficient and unbiased in terms of price risk management and hedging effectiveness. The factor responsible for inefficient hedgingin other commodities were found as low volume, lowparticipation, inadequate warehouse facility and deficient information system of commodity exchanges.

43


Methodology:-

Secondary Data:-Getting Started…..

At the start of our SIP, our very first objective was to understand the commodity

markets and its dos and don’ts. Having understood the intricacies of the working and

the functioning of the commodity market, we also understood how risk can be

minimized by taking a position at the exchange.

The Bullion Traders…….

In Bullion markets, more specifically on gold traders. Gold is the most actively

traded commodity over the exchange. More amount of liquidity is observed in the

MCX exchange. Hence, there would be a greater opportunity of trading and hedging

for its investors. Keeping in view this point, we focused more on gold rather than on

silver.

Opportunity with clients……………….

Share Khan Pvt Ltd. had organized an educational campaign at the hi-tech city

(Annexure -), Hyderabad. The main objective of the campaign was to educate the

HNI’s about various investment opportunities available in the market. It was a two

day program and we had an great opportunity to interact with the clients and

understand their perspective about the market. As we had a pretty good exposure to

the market movements and other technicalities of trading at Share khan we were given

the responsibility to explain the clients about the company’s product.

Most of the clients there were either Business holders or working for big MNCs such

as Google, Microsoft, etc. Others were Business Holders, Students etc. We observed

the following from the interaction with these clients.

Ø All the clients were well informed about the happenings in the market.

Ø They had very huge portfolios which basically included mutual funds and diversified

stocks. Very few people invested in commodities which was basically lack of

awareness about the commodity markets.

44


Ø People, who invested, invested only for the speculation purpose only and to book

profits.

Value Addition to Share Khan:

Summer Internship Program at Share Khan was a great learning opportunity for me as

the entire duration of the course was equally distributed in gaining theoretical

knowledge about commodities and the practical exposure provided by them in terms

of meeting the clients. The employees at Share khan were always readily available for

clarifying my doubts in every petty issue. With the support of my Company guide and

the employees I was successful in attaining the following goals for Share Khan:

I was able to get new clients for Share Khan.

Conclusion and Limitation of Research

Conclusion:

India is an agrarian country producing a large variety of crops. It also stands as one of

the leaders in the production of wheat, spices and other such crops. For such a country

like ours, commodity futures trading can prove to be an excellent opportunity to the

famers and other such traders for efficient price discovery. Commodity trading can

also be used as a hedging tool for minimizing risk against future price fluctuations.

In order to attain the actual objective of commodity trading, there should be adequate

awareness among these farmers, traders, manufacturers, importers and exporters. But

according to the primary research, we have concluded that the awareness level about

the commodity market is very less and there is a long way to go to reach the actual

beneficiaries of these markets. One can say this because the awareness level among

the qualified and educated people is itself low so it will take a long period of time to

reach these farmers.

The main reason for this lack of awareness is due to the nascent markets and the

mechanism of their operations. Almost all the commonly traded commodities are

present over the exchanges; most of the market participants prefer forward contracts

45


over the exchange traded futures contracts. The participants who prevail in the market

have issues regarding the delivery mechanism and the specification standards of the

contract. Also, as only very few large players exist in the markets, monopoly is being

created by them and thus efficient price discovery is unable to take place.

People prefer the security in the investments in the assets as compared to the high

returns on those particular assets. As an asset class, commodity markets are said to

have high risk with high returns. So, not many people who have knowledge about

commodity trading participate in the markets.

Primary research also reveals the fact that the amount of speculator as more as

compared to the number of hedgers in the commodity markets. Due to this fact,

although the volumes are high, the actual amount of delivery is very meager.

Discriminant analysis reveals that the investment in an asset class by any investor

depend on his annual income, the amount he saves annually and the expectations of

the returns.

46


ANALYSES AND FIENDINGS:-

Objective- 1:-

Analyses the Fluctuate on gold prices, with comparisons of US dollar.

In the month of May:-

Table :-1

DATE US-DOLLAR

to INR

Difference Gold Price Difference

1/5/2015 63.72 26,629

4/5/2015 63.52 -0.2 26874 251

5/5/2015 63.37 -0.15 26900 26

6/5/2015 63.62 0.25 26920 20

7/5/2015 64.07 0.45 26928 8

8/5/2015 63.71 -0.36 26884 -44

11/5/2015 64.01 0.30 26849 -38

12/5/2015 64.15 0.14 27154 305

13/5/2015 64.01 -0.14 27514 360

14/5/2015 63.38 -0.63 27452 -62

15/5/2015 63.44 0.06 27465 13

18/5/2015 63.71 0.27 27634 185

19/5/2015 63.76 0.05 27278 -356

20/5/2015 63.60 -0.16 27261 -17

21/5/2015 63.58 -0.02 27125 -136

22/5/2015 63.49 -0.09 27095 -30

25/5/2015 63.50 0.01 27155 75

26/5/2015 63.97 0.47 26917 -238

27/5/2015 63.83 -0.14 26880 -37

28/5/2015 63.76 -0.07 26844 -36

29/5/2015 6.74 -0.02 26848 4

47


Graph:-1.1

1/5/2015

5/52015

7/5/2015

11/5/2015

13/5/2015

15/5/2015

19/5/2015

21/5/2015

25/5/2015

27/5/2015

29/5/2015

62.863

63.263.463.663.8

6464.264.4

US-INR

US-INR

Graph:-1.2

1-May

-15

3-May

-15

5-May

-15

7-May

-15

9-May

-15

11-May-

15

13-May-

15

15-May-

15

17-May-

15

19-May-

15

21-May-

15

23-May-

15

25-May-

15

27-May-

15

29-May-

1526,00026,20026,40026,60026,80027,00027,20027,40027,60027,800

Gold Rs/10gm

Rs/10gm

Interpretation :-

From the above data, we can understand the inverse relation of gold and silver

prices. When the US Dollar increases, Gold price will be decrease.

48


EX:-

In the first day of this month (1/5/2015) the dollar price is– ₹ 63.72, on the same day the gold price is 26,629, next day (4/5/2015) the dollar is ₹ ₹ 63.52, on the same day the gold prices are 26,874.₹

From the above data the dollar price is decrease; it’s reflected to the gold price, it is increase.

Objective 2:-

Observe and analyses the price fluctuation of silver, comparison of gold

In the Month of June Analysis:-

Date Gold Diffrence Silver Diffrence G&S Diffrence

1-Jun-15 26,761 38,573 -11,812

2-Jun-15 26,833 72 38,399 -174 -11,566

3-Jun-15 26,750 -83 37,921 -478 -11,171

4-Jun-15 26,621 -129 37,219 -702 -10,598

5-Jun-15 26,729 108 37,030 -189 -10,301

8-Jun-15 26,771 42 36,848 -182 -10,077

9-Jun-15 26,841 70 36,861 13 -10,020

10-Jun-15 26,979 138 36,803 -58 -9,824

11-Jun-15 26,897 -82 36,794 -9 -9,897

12-Jun-15 26,895 -2 36,592 -202 -9,697

15-Jun-15 27,016 121 37,069 477 -10,053

16-Jun-15 26,969 -47 36,920 -149 -9,951

17-Jun-15 26,836 -133 36,840 -80 -10,004

18-Jun-15 27,167 331 36,930 90 -9,763

19-Jun-15 27,060 -107 36,660 -270 -9,600

22-Jun-15 26,706 -354 36,705 45 -9,999

23-Jun-15 26,607 -99 35,964 -741 -9,357

24-Jun-15 26,526 -81 36,183 219 -9,657

25-Jun-15 26,493 -33 36,089 -94 -9,596

26-Jun-15 26,513 20 35,942 -147 -9,429

29-Jun-15 26,705 192 35,908 -34 -9,203

30-Jun-15 26,534 -171 35,724 -184 -9,19049


Graph 2.1:-

Graph 2.2:

1-Jun-15

3-Jun-15

5-Jun-15

9-Jun-15

11-Jun-15

15-Jun-15

17-Jun-15

19-Jun-15

23-Jun-15

25-Jun-15

29-Jun-15

26,000

26,200

26,400

26,600

26,800

27,000

27,200

27,400

Gold

Gold

Most commodities, the price of silver is driven by speculation and supply and demand. Compared to gold, the silver price is notoriously volatile. This is because of

50

1-Jun-15

3-Jun-15

5-Jun-15

9-Jun-15

11-Jun-15

15-Jun-15

17-Jun-15

19-Jun-15

23-Jun-15

25-Jun-15

29-Jun-15

34,00034,50035,00035,50036,00036,50037,00037,50038,00038,50039,000

Silver

Silver

https://en.wikipedia.org/wiki/Volatility_(finance)



https://en.wikipedia.org/wiki/Speculation


lower market liquidity, and demand fluctuations between industrial and store of value uses. At times this can cause wide ranging valuations in the market, creating volatility.

Silver often tracks the gold price due to store of value demands, although the ratio can vary. The crustal ratio of silver to gold is 11:1. The gold/silver price ratio is often analyzed by traders, investors and buyers.

Interpretation:-

From the above data we was found that, gold 11 rupees increase, silver 1 rupee increase. When gold price 11 ticks move, the silver price moves 1 tick only. Silver price is fully depends on demand and supply.

51

https://en.wikipedia.org/wiki/Crust_(geology)

https://en.wikipedia.org/wiki/Gold_as_an_investment

https://en.wikipedia.org/wiki/Market_liquidity


52


Objective: - 3

Analyses the copper price fluctuation.

In the month of July.

Table: 3.1

Date Copper Copper

1/7/2015 371.9

2/7/2015 373.95 2.05

3/7/2015 372.35 -1.6

6/7/2015 370 -2.35

7/7/2015 357.3 -12.7

8/7/2015 348.25 -9.05

9/7/2015 353.3 5.05

10/7/2015 359.65 6.35

13/7/2015 358.7 -0.95

14/7/2015 359.4 0.7

15/7/2015 358.1 -1.3

16/7/2015 356.35 -1.75

17/7/2015 356.3 -0.05

20/7/2015 352.15 -4.15

21/7/2015 351.4 -0.75

22/7/2015 350.15 -1.25

23/7/2015 344.4 -5.75

24/7/2015 338.6 -5.8

27/7/2015 340.25 1.65

28/7/2015 336.15 -4.1

29/7/2015 341.4 5.2530/7/2015 341.65 0.25

Graph:-3.1

53


1/7/2015

3/7/2015

7/7/2015

9/7/2015

13/7/2015

15/7/2015

17/7/2015

21/7/2015

23/7/2015

27/7/2015

29/7/2015

310

320

330

340

350

360

370

380

Copper

Copper

Interpretation:-

The copper is partially depends on gold prices. If gold price increase copper price also will be increase.

The copper price is also depends on demand and supply.

54


9. References / Bibliography

www.mcxindia.com

www.ncdex.com

www.nseindia.com

www.sharekhan.com

www.nationalspotexchange.com

www.sripadonline.com

www.fmc.gov.in

http://www.goldpriceindia.com/gold-price-history.php

http://in.investing.com/currencies/usd-inr-historical-data.

55

http://in.investing.com/currencies/usd-inr-historical-data

http://www.goldpriceindia.com/gold-price-history.php

http://www.fmc.gov.in/

http://www.sripadonline.com/

http://www.nationalspotexchange.com/

http://www.sharekhan.com/

http://www.nseindia.com/

http://www.ncdex.com/

http://www.mcxindia.com/

Project Report on commodity market

Education

Transcript of Project Report on commodity market