Perception

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA
INTRODUCTION
STOCK MARKETS IN INDIA
Stock exchanges are intricately interwoven I the fabric of nations economic life
with out a stock exchange, the savings of the community the sinews of the economic
progress and productive efficiency would remained under utilized.
The risk of mobilization and allocation of savings might have been attempted by a
much less specialized institution than stock exchanges in the olden days. As the business
and the industry expanded and economy assumed more complex nature, a need for
permanent finance arose. Entrepreneurs require money for long-term where as
investors demanded liquidity and facility to convert their investments into cash at any
given time. The solution to this problem gave way for the origin of stock exchanges,
which is a ready market investment and liquidity.
MEANING OF STOCK EXCHANGES

Stock exchanges mean any body of individuals, whether incorporated or not,
constituted for the purpose of regulating or controlling the business buying and selling or
dealing in securities. Securities include:
Share, scrips, bonds, debentures and other marketable securities.
Government securities
Rights or interest in securities.
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It is an association of member brokers of the purpose of self-regulation and

protecting the interest of its members. With the stock exchanges becoming corporate
bodies with demutualization the control and ownership will be different in hands.
It can operate only if it recognized by the government under the securities
contract act, 1956. The reorganization is granted under section 3 of the act by the central
government, ministry of finance.
The powers of the central government under the Act are far-reaching and include
the following in particular.
Grant and withdrawal of recognition, approval or change of byelaws.
Call for periodical returns from the stock exchanges.
Direct enquiries on the members or on the stock exchanges
Liability of the exchange to submit annual reports.
Directing the stock exchange to make certain rules.
Supersede the governing board of the exchange.
Suspend the governing board of the exchange.
Impose any other conditions or regulations for trading.
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BYELAWS:
Besides the act, the securities contract rules were also made in 1957 to regulate
certain matters relating to trading on the stock exchanges. Which are concerned with the
following subjects?
Opening / closing of the stock exchanges, administration timing of the trading,
Regulation of blank transfers, regulation of badla or carryover business, control of the
settlement and other activities of the stock exchange, fixation of margins fixation of
market prices or making up prices, regulation of taravani business, etc, regulation of
brokers trading, brokerage charges, trading rules on the exchange, arbitration and
settlement of disputes, settlement and clearing of the trading etc.
REGULATION OF STOCK EXCHANGES

The securities contract Act is the basis for operations of the stock exchanges in
India. No exchange can operate legally with out the government permission or
recognition. Stock exchanges are given monopoly in certain areas under section 19 of the
Act, 1956 to ensure that control and regulation are facilitated. Recognition can be granted
to a stock exchange provided certain conditions are satisfied and the necessary
information is supplied to the government, recognition can also be withdrawn, if
necessary.
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NATURE AND FUNCTIONS OF STOCK EXCHANGE

As economic development proceeds, the scope for acquisition and ownership of
capital and private individuals also grows. Also with it, the opportunity for stock
exchanges to render the service of simulating private savings and canalizing such savings
into productive investments exists on a vastly great scale. These are the services, which
the stock exchange alone can render efficiently.
Stock exchanges are the market, which exists to facilitate purchase and sale of
securities of companies and the securities or bonds issued by the government in course its
borrowing of operations. The task facing the stock exchanges is to device the means to
reach down to the masses, to draw the savings of the man in the street into productive
investment to create conditions in which many millions of people from cities, towns and
villages will find it possible to make use of these facilities. For these far-reaching changes
both institutional as well as operational has to be undertaken.
Aim of the stock exchange is to make it nearly perfect in the social and ethical
sense as it is in the economy. To protect the interest of the investing public, members to a
high degree of discipline but also those who use the facilities.
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OBJECTIVE OF THE STUDY
To study about major exchanges trading in Indian commodity market.

To study about participants in Indian derivative market.
To understand the basics of commodity market and to discover the emerging

prospects in the Indian commodity market.
To emphasize trading and settlement mechanism for commodities in Indian stock

exchange.
To know how exactly the commodities are traded through the trading desks and
what happens in the market.
To identify the working procedure of the commodity trading practices in India.

To identify the perception of investors in commodities market.
Study aims at understanding the governance for commodity derivatives
exchanges, traders, investors and other participants.
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SCOPE OF THE STUDY
The study mainly focuses on Indian commodity market, its history and latest
developments in the country in commodities market.
The study furnishes a birds eye view on global commodity market and its
development.
The study covered the aspects of commodity trading, clearing and settlement
mechanisms in Indian commodity exchanges.
RESEARCH METHODOLOGY
The present study is conducted to provide information to the company regarding
the investor perception towards commodity market.
SOURCES OF DATA
Data was collected in systematic manner by meeting the existing investors in
commodity Market&other individuals.
Primary and secondary data were utilized for the purpose of the study by the researcher.
The researcher decided to obtain the data mainly through primary sources.
Survey method has been used to obtain information.
Secondary data was collected from companies and from commodities trading websites.
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TYPES OF RESEARCH
Based on the objectives of the study, the researcher used descriptive research
method.Descriptive study is taken up when the researcher is interested in knowing the
investor perception in commodities market. The conclusions are arrived at from the
collected dataStatistical tools were used to analyze the data collected from the survey.
SURVEY METHOD
A survey conducted amongst the investors in Hyderabad and secunderabad. The
researcher personally met the investors, interviewed them and got their questionnaires
filled.
INSTRUMENT DESIGN
In order to obtain information the researcher prepared a structured questionnaire.
The researcher prepared a single questionnaire according to the need of the data from the
respondent.
PRETESTING OF QUESTIONNAIRE
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The pre-testing was conducted by the researcher to remove questions that are of
vague ambiguity in the nature. The samples of 10 respondents were selected and the
questionnaire was pre-tested and the researcher made necessary modifications.
OBJECTIVES OF THE STUDY

To know the investors perception towards commodities market.
To know the investors requirement from the company providing services.
The findings of the research are applicable to the companys dealing in
commodities market
Marketing manager for the understanding of investor perception would utilize it.
It gives a birds eye view on the opportunities that are opened, which can be
utilized.
To know the views of the company status from the mind of the consumer.
CODING AND TABULATION

After the survey was conducted, the data had to be converted in to statistical or
numerical form so that inference could be drawn about the sample collected. For this,
every option of every question was coded in to alphabets (i.e., they would be represented
in alphabets). The alphabets were used to denote the option and no ranking order was
used. The coded data was entered in to the data sheet. Frequencies were found out for
research option and thus giving us the percentage of the option usage, etc.
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SAMPLE DESIGN
POPULATION
All the investors and individuals who are presently trading and planning to
trade in commodities market in future. The sample size is restricted to 50 only.
SAMPLE UNIT
The study was conducted among the respondents who were investing between
the time period January and March 2009.
SAMPLE FRAME
The list of the investors to be interviewed was chosen by the researcher.
SAMPLE METHOD
The researcher adopted random and area sampling methods. In this method
the researcher selected different areas in Hyderabad and Secunderabad. Among the
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selected areas, the researcher, according to his convenience the maximum possible
customers.
SAMPLE TOOLS USED

SAMPLE BAR DIAGRAM AND PIE CHART
ANGEL COMMODITIES BROKING LTD
PERSONAL INFORMATION
Proprietor name:
Name of the business:
Address:
Telephone:
Mobile:
Fax:
Email:
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LIMITATIONS OF THE STUDY
The survey was confirmed to the surroundings of twin cities Hyderabad & sec bad
The size of sample was only 50.

The investors response could have been biased.
Time of 6 weeks was constraint for the study.
The scope of the study is limited to Indian commodity market
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COMPANY PROFILE
ABOUT ANGEL BROKING
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Ever since its inception in 1987, ANGEL BROKING Limited has sought to
provide premium financial services and information, so that the power of investment is
vested with the client. They equip those who invest with us to make intelligent
investment decisions, providing them with the flexibility to either tap into their extensive
knowledge and expertise or make their own decisions.
ANGEL BROKING made its debut into the financial world by servicing
Institutional clients, and proved its high scalability of operations by growing
exponentially over a short period of time. Now, powered by a top-notch research team
and a network of experts, they provide an array of retail broking services spanning entire
India.
Their strong support, technology-driven operations and business units of research,
distribution and advisory coalesce to provide you with a one-stop solution to cater to all
your broking and investment needs.
ANGEL is a member of the National Stock Exchange of India Ltd (NSE) and the
Bombay Stock Exchange Ltd (BSE) in the Capital Market and Derivatives (Futures &
Options) segment. They are Depository participants with Central Depository Services
India (CDSL) and National Securities Depository (India) Limited (NSDL).
Their customers have been participating in the booming commodities
market with their membership at the Multi Commodity Exchange of India (MCX) and
National Commodity & Derivatives Exchange (NCDEX) through
ANGLEBROKING.Com Ltd.
ANGEL TEAM EXPERTS
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Owing to the vision and expertise of their team of experts, ANGEL has
established itself as one of the premier financial services organization in India. ANGEL
professionals form the backbone of the organization, pooling together their expertise
from top financial service and broking houses.
A strong team of professional, experienced and qualified human
resources drawn from top financial service & broking houses form the back bone of their
sizeable infrastructure. High technology orientation, the company's scalability of
operations and the highest Level of service standards have ensured rapid growth in the
number of locations & the Clients serviced in a very short span of time.
LIST OF OFFICIALS
DINESH THAKKAR (CHAIRMAN & MD)
LALIT THAKKAR (DIRECTOR-RESEARCH).
AMIT MAJUMDAR (CHIEF STRATEGY OFFICER)
RAJIV PHADKE (EXECUTIVE DIRECTOR - HR & CORPORATE COMMUNICATIONS)
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VINAY AGRAWAL (EXECUTIVE DIRECTOR EQUITY BROKING)

NIKHIL DAXINI (EXECUTIVE DIRECTOR SALES& MARKETING)
HITUNGSHU DEBNATH (EXECUTIVE DIRECTOR DISTRIBUTION &WEALTH
MANAGEMENT)
MUDIT (EXECUTIVE DIRECTOR BUSINESS INTELLIGENCE & ANALYTICS )

ADIL KASAD (EXECUTIVE DIRECTOR & CFO)
SYAM (EXECUTIVE DIRECTOR - OPERATIONS)
KETAN SHAH (ASSOCIATE DIRECTOR - INFORMATION TECHNOLOGY)
PINKY KOTHARI (ASSOCIATE DIRECTOR SALES AND MARKETING)
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PRODUCTS & SERVICES

EQUITIES
Their experienced trading consultants and advanced trading tools will
provide the support you need to achieve your long-term goals via the stock markets. They
trade on the BSE, NSE and CN and their website has facilities such as live stock tickers,
news updates, and more, to help their clients stay in the know. They also provide NRI
specific services to meet the needs of their clients who live abroad.
COMMODITIES
Indian markets have recently thrown open a new avenue for investors and
traders to participate: COMMODITY DERIVATIVES. For those who want to diversify
their portfolios beyond shares, bonds and real estate, commodities are the best option.
Commodities actually offer immense potential to become a separate asset
class for market-savvy investors, arbitrageurs and speculators. They are also easy to
understand as far as fundamentals of demand and supply are concerned. Historically,
pricing in commodities futures has been less volatile compared with equity and bonds,
thus providing an efficient portfolio diversification option.
ANGEL now offers to investors a platform to trade in COMMODITY
FUTURES. As a member of the Multi Commodity Exchange of India Ltd. and of the
National Commodity and Derivative Exchange, they offer futures trading in 10
commodities (gold, silver, castor, Soya, canola mustard oil, crude palm oil, RBD
palmolein and cotton) NCDEX and in gold, silver and castor seed, rubber through
MCX
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DEPOSITORY SERVICES
They offer Depository facilities to facilitate a seamless transaction platform
as a part of their value-added services for their clients. ANGEL is a depository participant
with the Central Depository Services (India) Ltd. (CDSL) and National Securities
Depository Ltd. (NSDL) for trading and settlement of dematerialized shares.
PORTFOLIO MANAGEMENT SERVICES

ANGEL PMS will help you achieve your objective of preserving and
growing capital by conducting a thorough analysis of your investment needs, returns
expected and risk taking ability. Their focus is to craft a basket of Stocks, Bonds, and
Mutual Funds through strong research and corporate interface, keeping in mind your riskprofile in specific relation with the ever-changing marketing dynamic.
Professional Management- They offer professional management of your equity

portfolio with an aim to deliver consistent returns while controlling risk.
Continuous Monitoring- They recognize that portfolios need to be constantly

monitored and periodically churned to optimize the results.
Risk Control- The portfolios are managed through a strong research driven
investment process with complete transparency and highest standards of service.
Transparency- You will get regular account statements and performance reports
on a monthly basis/ That's not all; web-enabled access ensure that you are just a
click away from all information relating to your investment.
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Hassle Free Operation- Their Portfolio Management Service relieves you from
all the administrative hassles of your investments. They provide periodic reporting
on the performance and other aspects of your portfolio.
Dedicated Relationship Manager- Their Relationship Managers specialize in

providing personal investment management services to achieve your investment
objective.
MARKET RESEARCH
ANGEL BROKING is powered by a top-notch research team that

penetrates and investigates the market to provide you with reliable, relevant information
that helps you make intelligent investment decisions. Their commitment to keeping you
updated on the latest market conditions stems from their desire to give you the option to
invest in ways that are the most suitable to you.
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COMMODITY MARKET
INTRODUCTION
Commodities Futures trading! in India have a long history. The first
commodity futures market appeared in 1875. But the new standardized form of trading in
the Indian capital market is an attractive package for all the people who earn money
through speculation by trading into FUTURES. It is a well-known fact and should be
remembered that the trading in commodities through futures exchanges is merely, old
wine in a new bottle.
The trading in commodities was started with the first transaction that took
place between two individuals. They can relate this to the ancient method of trading i.e.,
BARTER SYSTEM. This method faced the initial hiccups due to the problems like: store
of value, medium of exchange, deferred payment, measure of wealth etc.. This led to the
invention of MONEY. As the market started to expand, the problem of scarcity piled up.
The farmers/traders then felt the need to protect themselves against the
fluctuations in the price for their produce. In the ancient times, the commodities traded
were the Agricultural Produce, which was exposed to higher risk i.e., the natural
calamities and had to face the price uncertainty. It was certain that during the scarcity, the
farmer realized higher prices and during the oversupply he had to loose his profitability.
On the other hand, the trader had to pay higher price during the scarcity and vice versa. It
was at this time that both joined hands and entered into a contract for the trade i.e.,
delivery of the produce after the harvest, for a price decided earlier. By this both had
reduced the future uncertainty.
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One stone still remained unturned- surety of honoring the contract on part
from either of the parties. This problem was settled in the year 1848, when a group of
traders in CHICAGO came forward to standardize the trading. They initiated the concept
of to-arrive contract and permitted the farmers to lock in the price upfront and deliver
the grain at a contracted date later. This trading was carried on a platform called
CHICAGO BOARD OF TRADE, one of the most popular commodities trading
exchanges today. It was this time that the trading in commodity futures picked up and
never looked back.
Although in the 19 th century only agricultural produce was traded as a
futures contract, but now, the commodities of global or at least domestic importance are
being traded over the commodity futures exchanges. This form of trading has proved
useful as a device for HEDGING and SPECULATION. The commodities that are traded
today are:
Agro-Based Commodities Wheat, Corn, Cotton, Oils, Oilseeds etc..
Soft Commodities.. Coffee, Cocoa, Sugar etc
Livestock. Live Cattle, Pork Bellies etc
Energy.. Crude Oil, Natural Gas, Gasoline etc
Precious Metals.. Gold, Silver, Platinum etc
Other Metals Nickel, Aluminum, Copper etc
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Structure of the commodity market.
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DERIVATIVES MARKET
INTRODUCTION
The derivative is a product whose value is derived form the value of one or
more variables/underlying assets called bases in a contractual manner. They have no
value of their own but derive it from the underlying asset that is being dealt with under
the derivative contract. Thus derivate contracts acquire their value from the spot prices of
the assets that are covered by the contract. The primary purpose of a derivative contract is
to transfer risk from one party to another they have established themselves as
irreplaceable tools to hedge against risks in the market. The underlying asset can be
equity, forex, commodity or any other asset.
The emergence of the market for derivative product, most notably
forwards, futures and options can be traced back to the willingness of the risk-averse
economic agents to guard themselves against the uncertainties resulting out of the
fluctuations in the underlying assets prices. It is because of this nature, that, the markets
[financial/commodities] are marked with a higher degree of volatility through the uses of
derivative products. The risk of the prices can be transferred fully or partially by, lockingin the asset prices in the form of futures or forwards.
As an instrument of risk management, these do not influence the
fluctuations in the prices of the underlying assets. Infact, by locking-in the assets prices,
derivative products minimize the impact of the fluctuations in the asset prices on the
profitability and cash-flow of the investors.
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The Indian derivatives market has a history of more than a century, but is
still in a nascent stage vis--vis the global derivatives market. Today they have an active
derivatives market in the segment of stocks and foreign currency, while the trading in the
commodities is just standardized. The OTC derivatives in India are well established and
the Indian capital markets have acquired the international flavor and the volumes in the
derivatives market in at a pace to climb up.
A contract bought by paying an upfront margin is calculated as value added
risk (VAR) basis. Which traces the volatility in the underlying assets (stock or
commodities) prices to arrive at margin that is reflected of this volatility? Stock futures
are linear and are absolutely similar to simple stocks i.e., ideally if the stock goes up and
payoff.
DERIVATIVES EXISTING IN INDIA

FINANCIAL DERIVATIVES
The term derivatives refer to a large number of financial instruments whose
value is derived from the underlying assets. Derivative instruments like the options and
futures facilitate the trading in financial contracts. The most important underlying
instruments in the market are in the form of Equity, treasury bills, and foreign exchange.
The trading in the financial derivatives has attracted the prominent players of the equity
markets.
The primary purpose of a derivative contract is to transfer risk from one party
to another i.e. risk is transferred from a party that wants to get rid of it to another party
i.e. willing to take it. The major players seen in the derivatives segment are the
SPECULATORS whose sole objective is to buy and sell for a profit alone. The
HEDGERS are the other breeds of players, who aim merely to have a hedge positions.
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They are risk free investors whose intention is to have a safety mechanism
and wish to protect their portfolio. Nevertheless, they are pursued as a cheap and efficient
way of moving risk within the economic system. But the world of derivatives is riddled
with jargons making it more awesome.
The trading in equity through the derivatives in India was introduced in
the year 2000 by the Securities and Exchange Board of India [SEBI] and this was
described as the Indias derivative explosion. Although this took a definite form in
2000 but the idea was initiated in the year 1995. it was then in the year 2000 that SEBI
permitted the trading the in the options on the platforms of Indias premier exchange
platforms i.e., the National Stock Exchange Of India limited [NSE] and The Bombay
Stock Exchange [BSE] in the individual securities. But the futures contracts took 17 long
months to get launched on November 09 2001.
The trading in options and futures in the individual stocks were permitted
to trade on the stable stocks only. The small and highly volatile stocks were an exemption
from the trade in derivatives. Futures and options are important tools that help the
investors to derive profit. The futures facilitate the investor to enter into a contract to
deliver the underlying security at a future date whereas, the options allow it to his
discretion as to whether he wants to buy (call) or sell (put) the contract.
The current trading behavior in the derivatives segment reveals that
single stock futures continues to account for a sizeable proportion. A recent report
indicates that the trading in the individual stock futures in the Indian exchanges has
reached global volumes. One possible reason for such a behavior of the trader could be
that futures closely resemble the erstwhile BADLA system.
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COMMODITY DERIVATIVES
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. It is
important to develop a vibrant, active and liquid commodity market. This would help
investors hedge their commodity risk, take speculative positions in commodities and
exploit arbitrage opportunities in the market.
The need for a futures market in the commodities, especially, in the primary
commodities was emphasized because such a market not only
provides ample
opportunities for effective management of price risk, but also, assists inefficient
discovery of prices which can serve as a reference for the trade in the physical
commodities in both the external as well as in the internal market.
India, a commodity based economy where two-third of the one billion

population depends on agricultural commodities, surprisingly has an under developed
commodity market. Unlike the physical market, futures markets trades in commodity are
largely used as risk management (hedging) mechanism on either physical commodity
itself or open positions in commodity stock.
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There was an effort to revive these markets but all went in vain due to
improper infrastructure and facilities. However, after India joined the WORLD TRADE
ORGANIZATION the need to protect the agricultural community against the price
fluctuations cropped up. The National agricultural policy 2000 was formulated and
proposes to expand the coverage of the futures market to minimize the volatility in the
commodities prices and hedging the risk arising out of the fluctuations in the prices. As a
result of this there is a standardized form of commodity futures trading in the country,
today and a lot number of people are active in the commodities exchanges, taking it to a
great high.
The active players in these exchanges are Traders, Speculators and the Hedgers.
It is said that now-a days the prices of the commodities in the Physical Market (Mandis)
is derived in accordance to the spot prices in the commodity exchanges.
Indian Derivatives Market . Looking Ahead

Clearly, in the nascent stage, the derivatives market in India is heading in the
right direction. In the terms of the number of contracts in a single commodity/stock it is
probably the largest market globally. It is no longer a market that can be ignored by any
of the serious participants. The Indian economy, now, is at the verge of greater expansion
the any other economies in the globe today. This has attracted a large number of
institutional investors, both the Indian as well as foreign, to invest in to the Indian
stocks and commodities, thereby bringing in a lot of forex reserves. As predicted by the
popular investment Gurus and the great Economists world wide, India will be a major
player in the global economy by the end of this decade. They can conclude that, with the
institutional participation set to increase and a broader product rollout inevitable, the
market can only widen and deepen further.
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TRADING INSTRUMENTS
Derivatives in the recent times have become very popular because of their
wide application. Before getting into the hard talks about the commodities trade, let us
know about the trading instruments in the derivatives, as they are similarly applicable to
the commodities derivatives.
There are 4 types of Derivatives instrument:
Forward contract
Future contract
Options contract
Swap
Futures and Options are actively used in many exchanges whereas; Forwards and Swaps
are mostly trade Over the Counter (OTC).
FORWARDS CONTRACT
A spot or cash market is the most commonly used for trading. A majority of
their day-to-day transactions are in the cash market. In addition to the cash purchase,
another way trading is by entering into a Forward contract. A Forward contract is an
agreement to buy or sell an asset on a specified date of a specified price. These contracts
are usually entered between a financial institution and its corporate clients or two
financial institutions themselves. In the context to the Commodity trading, prior to the
standardization, the trade was carried out as a forwards contract between the
Associations, Producers and Traders. Where the Association used to act as counter for the
trade.
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A forward contract has been in existence in the organized commodities

exchanges for quite sometimes. The first forward contract probably started in Japan in the
early 18th century, while the establishment of the
CHICAGO BOARD OF TRADE (CBOT) in 1848 led to the start of a formal
commodities exchange in the USA.
Forward contracts are very useful in HEDGING and SPECULATION. The
essential idea of entering into the forward contract is to Hedge the price thereto avoid the
price risk. By entering into a forward contract one is assured of the price at which the
goods/assets are bought and sold. The classic Hedging example would be that of an
exporter who expects to receive payment in foreign currency after three months. As he is
exposed to greater amount of risk in the fluctuations in the exchange rates, he can, with
the use of forwards, lock-in the rate today and reduce the uncertainty. Similarly, if a
speculator has the information of an upswing in the prices of the asset, he can go long on
the forward market instead of the cash market and book the profit when the target price is
achieved.
The forward contract is settled at the maturity date. The holder of the short position
delivers the assets to the holder of the long position on the maturity against a cash
payment that equals to the delivery price by the buyer. The price agreed in the forwards
contract is the DILIVERY PRICE. Since the delivery price is chosen at the time of
entering into the contract, the value of the contract becomes zero to both the parties and
costs nothing to either the holder of the long position or to the holder of the short
position.
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The salient features of a forwards contract are:

It is a bilateral contract and hence is exposed to counter-party risk.
Every contract is unique and is custom designed in the terms of: expiration date
and the asset type and quality.
The contract price is not available in the public domain.
On the expiration, the contract is to be settled by the delivery of the asset.
Of the party wishes to reverse the contract, he has to go to the same counter-party, which
may result o attract some charges.
FUTURES CONTRACT
Financial futures represent the most significant financial innovations of the
last twenty years. - As quoted by MERTON MILLER, a noble lauret 1999.
The father of financial derivatives is Leo Me lamed. The first exchange that
traded in the financial derivatives was INTERNATIONAL MONETARY MARKET,
wing of the Chicago Mercantile Exchange, Chicago, in the year 1972.
The futures market was designed to solve the problems, existing in the forwards market.
A financial future is an agreement between two parties to buy or sell a standard quantity
of a specified good/asset on a future date at an agreed price. Accordingly, future contracts
are promises: the person who initially sells the contract promises to deliver a specified
underlying asset to a designated delivery point during a certain month, called delivery
month. The underlying asset could, well be, a commodity, stock market index, individual
stock, currency, interest rates etc.. The party to the contract who determines to pay a price
for the goods is assumed to take a long position, while the other who agrees to sell is
assumed to be taking a short position.
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The futures contracts are standardized in the terms of:

Quantity of the underlying assets.
Quality of the underlying assets.
Date and month of the delivery.
Units of the price quotations and minimum price change, and
Location of the settlement.
It is due to the standardization that the futures contract has an edge with the
forward contract, in the terms of: Liquidity, safety and the security to honoring the
contract which is otherwise not secured in an OTC trading forwards contract.
In short, futures contract is an exchange-traded version of the usual forward

contract. There are however, significant differences between the two and the same
can be appreciated from the above discussion.
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Benefits to Industry from Futures trading:

Hedging the price risk associated with futures contractual commitments.
Spaced out purchases possible rather than large cash purchases and its storage.
Efficient price discovery prevents seasonal price volatility.
Greater flexibility, certainty and transparency in procuring commodities would
aid bank lending.
Facilitate informed lending.
Hedged positions of producers and processors would reduce the risk of default
faced by banks.
Lending for agricultural sector would go up with greater transparency in pricing
and storage.
Commodity Exchanges to act as distribution network to retail agri-finance from
Banks to rural households.
Provide trading limit finance to Traders in commodities Exchanges.
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OPTIONS CONTRACT
Options have existed over a long period but were traded over the counter
(OTC) only. These contracts are fundamentally different from that of futures and
forwards. In the recent years options have become fundamental to the working of global
capital markets. They are traded on a wide variety of underlying assets on both, the
exchanges and OTC. Options like the futures are also available on many traditional
products such as equities, stock indices, commodities and foreign exchange interest rates
etc., options are used as a derivate instrument only in financial capital market in India and
not in commodity derivatives. It is in the process in introduction.
Options, like futures, also speculative in nature. Options is a legal contract
which, facilitate the holder of the contract, the right but not the obligations to buy or sell
the underlying asset at the fixed rate on a future date. It should be highlighted that, unlike
that the futures and forward contract the options gives the buyer of the contract, the right
to enter into a contract and he doesnt have to necessarily exercise the right to give, take
the delivery. When a contract is made the buyer has to pay some money as a Premium
to the seller to acquire such a right.
Options are basically of two types.
Call options
Put options
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Call options:
A call options gives the buyer the right to buy the underlying asset at a strike
price specified in the option. The profit/loss depends on the expiration date of the contract
if the spot price exceeds the strike price the holder of the contract books a profit and viceversa. Higher the spot price more is the profit.
Put options:
A put option gives the buyer the right to sell the underlying asset at the strike
price specified in the option. The profit/loss that the buyer makes on the option depends
on the spot price of the underlying asset. If the spot price is below the strike price he
makes profit and vice-versa. If the spot price is higher than the strike price he will wait up
to the expiry or else book the profit early.
SWAPS:
Swaps were developed as a long-term price risk management instrument available
on the over-the-counter market. Swaps are private agreements between two parties to
exchange cash flows in the future according to a pre-arranged formula. These agreements
are used to manage risk in the financial markets and exploit the available opportunity for
arbitrage in the capital market.
A swap, generically, is an exchange. In the financial parlance it refers to an
exchange of a series of cash flows against another series of cash flows. Swaps are also
used in the asset/liability management to obtain cost-effective financing and to generate
higher risk-adjusted returns. With swaps, producers can effectively fix, i.e. lock in, the
prices they receive over the medium to long-term, and consumers can fix the prices they
have to pay. No delivery of the asset is involved; the mechanism of swaps is purely
financial.
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The swaps market originated in the late 1970s, when simultaneous loans were
arrange between British and the US entities to bypass regulatory barriers on the
movement of foreign currency .the land mark transaction between the World Bank and
the IBM in august 1981, paved the way for the development of a market that has grown
from a nominal volume in the early 1980s to an outstanding turnover of US $ 46.380tn
in 1999.
The swaps market offers several advantages like:

These agreements are undertaken privately while transactions using exchange
traded derivatives are public.
Since the swaps products are not standardized, counter parties can customize
cash-flow streams to suit their requirements
The swaps can be regarded as portfolios of forward contracts. The two commonly
used swaps are:
Interest rate swaps: These entail swapping only the interest related cash flows
between the parties in the same currency.
Currency swaps: These entail swapping both principal and interest between the
parties, with the cash flows in one direction being in a different currency than those in the
opposite direction.
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PARTICIPANTS IN THE DERIVATIVE MARKET

There are three major participants in the derivatives market. They are:
Hedgers
Speculators
Arbitragers
HEDGERS
He is the person who enters the derivatives market to lock-in their prices to
avoid exposure to adverse movements in the price of an asset. While such locking may
not be extremely profitable the extent of loss is known and can be minimized. They are in
the position where they face risk associated with the price of an asset. They use
derivatives to reduce or eliminate risk.
For example, a farmer may use futures or options to establish the price for
his crop long before he harvests it. Various factors affect the supply and demand for that
crop, causing prices to rise and fall over the growing season. The farmer can watch the
prices discovered in trading at the CBOT and, when they reflect the price he wants, will
sell futures contracts to assure him of a fixed price for his crop.
A perfect hedge is almost impossible. While hedging Basis risk could arise.
Basis = Spot price of asset to be hedged Futures price of the contract used. Basis risk
arises as a result of the following uncertainties:
The exact date when the asset will be bought or sold may not be known.
The hedge may require that the Futures contract be closed before expiration.
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PRICE
FUTURES PRICE
BASIS
SPOT PRICE
EXPIRY DATE TIME
SPECULATORS:
A speculator is a one who accepts the risk that hedgers wish to
transfer. A speculator takes positions on expectations of futures price movements and in
order to make a profit. In general a speculator buy futures contracts when he expect
futures prices to rise and sell futures contract when he expects futures prices to fall, but
has no desire to actually own the physical commodity.
Speculators wish to bet on the future movement in the price of an
asset. They use derivatives to get extra leverage. They take positions in the market and
assume risk to profit from fluctuations in the prices. Infact, the speculators consume the
information, make forecast about the prices and put their money in these forecast. By
taking positions, they are betting that the price would go up or they are betting it would
go down. Depending on their perception, they may long or short positions on the futures
or /and options, or may hold spread positions.
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ARBITRAGEURS
Simultaneous purchase of securities in one market where the price
thereof is low and sale thereof in another market, where the price thereof is
comparatively higher. These are done when the same securities are been quoted at
different prices in the two markets, with a view to make a profit and carried on with
the conceived intention to derive advantage from difference in prices of securities
prevailing in the two markets.
-As defined by The Institute of Chartered Accountants of India.
Arbitrageurs thrive on the market imperfections. They profit by trading on
given commodities, or items, that are in the business to take advantage of a discrepancy
between prices in two different markets. If, for example, they see the future prices of an
asset getting out of line with the cash price, they will take offsetting positions in the two
markets to lock in a profit.
Thus, the arbitrage involves making risk-less profit by simultaneously entering
into transactions in two or more markets. With the introduction of derivate trading the
scope of arbitrageurs activities extends to arbitrage over time i.e., he can buy securities
in an index today and sell the futures, maturing in the month or two.
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Hedgers Vs Speculators
Hedging is the key aspect of derivatives and also its basic economic purpose.
In the U.S., the Commodity Futures Trading Commission (CFTC), the futures
regulatory authority, while considering proposals for approval of a new
derivative product, particularly examines the ability of the product to provide
hedging. While the Committee has also emphasized the hedging aspect of
derivatives, it fully recognizes that the derivatives markets capacity to absorb
buying/selling by hedgers is directly dependent on the availability of
speculators to act as counter-parties to hedgers. Hedging will not be possible
if there are no speculators.
For the above reason, decisions about many aspects of derivatives trading,
e.g., contract size, design and duration, would have to strike a balance
between the needs of the hedgers and the necessity to attract an adequate
number of well-capitalized speculators who are prepared to take upon
themselves the price risk which hedgers want to give up. The fact is that a
futures market, to be able to operate and be liquid, should have both hedging
participation and speculative appeal. Some studies of futures markets in the
U.S. have shown that hedging activity accounts for about 50-60 per cent of
the markets total volume.
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TRADING OF COMMODITY DERIVATIVES IN INDIA

Trading of all the derivatives in India is carried over:
Exchanges
Over the counter
EXCHANGE TRADING
An asset (commodity/stock), when is traded over an organized exchange is it is
termed, to be traded on the Exchange. This type of trading is the general trading which
they see on the major exchanges world over. The settlement in the exchange trading is
highly standardized.
OVER THE COUNTER TRADING

An asset (commodity/stock) is traded over the counter usually because the
company is small and unable to meet listing requirements of the exchanges and facilitates
the trading in those areas where the exchanges are not located. Also known as unlisted the
assets are traded by brokers/dealers who negotiate directly with one another over
computer networks and by phone.
Instruments such as bonds do not trade on a formal exchange and are thus considered
over-the- counter securities. Most debt instruments are traded by investment banks
making markets for specific issues. If someone wants to buy or sell a bond, they call the
bank that makes the market in that asset.
Exchange Vs OTC Trading

The OTC derivatives markets have witnessed rather sharp growth over the
last few years, which have accompanied the modernization of commercial and investment
banking and globalization of financial activities. The recent developments in information
technology have contributed to a great extent to these developments. While both
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exchange-traded and OTC derivative contracts offer many benefits, the former have rigid
structures compared to the latter. It has been widely discussed that the highly leveraged
institutions and their OTC derivative positions were the main cause of turbulence in
financial markets in 1998. These episodes of turbulence revealed the risks posed to
market stability originating in features of OTC derivative instruments and markets.
The OTC derivatives markets have the following features compared to

exchange-traded derivatives:
The management of counter-party (credit) risk is decentralized and located within
individual institutions.
There are no formal centralized limits on individual positions, leverage, or
margining.
There are no formal rules for risk and burden-sharing,
There are no formal rules or mechanisms for ensuring market stability and
integrity, and for safeguarding the collective interests of market participants,
The OTC contracts are generally, not regulated by a regulatory authority and the
exchanges self-regulatory organization, although they are affected indirectly by
national legal systems, banking supervision and market surveillance.
COMMODITIES MARKET
Global Perspective
Oil accounts for 40 per cent of the world's total energy demand.
The world consumes about 76 million bbl/day of oil.
United States (20 million bbl/d), followed by China (5.6 million bbl/d) and Japan (5.4
million bbl/d) are the top oil consuming countries.
Balance recoverable reserve was estimated at about 142.7 billion tons (in 2002), of which
OPEC was 112 billion tons
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The major commodities trading exchanges globally are:

Chicago Board Of Trade (COBOT). U.S.A.
New York Mercantile Exchange (NYMEX). U.S.A.
Tokyo Commodity Exchange (TOCOM). Japan
International Petroleum Exchange (IPE).
London Metal Exchange (LME). United Kingdom
Sydney Futures Exchange (SFE). Australia
Brazilian Futures Exchange (BBF). Brazil
Winnipeg Commodity Exchange (WCE). Canada
Marche a Terme International de France (MATIF). France
Hong Kong Futures Exchange (HKFE). Hong Kong
New Zealand Futures & Options Exchange (NZFOE). New Zealand
Russian Commodity and Raw Materials Exchange. Russia
Singapore International Monetary Exchange (SIMEX). Singapore
South African Futures Exchange (SAFEX). South Africa
Dalian Commodity Exchange. China
Shanghai Metal Exchange (SME). China
Chicago Board Of Trade (CBOT)

The Chicago Board of Trade (CBOT), established in
1848, is a leading futures and options on futures
exchange. More than 3,600 CBOT members trade
50 different futures and options products at the
exchange
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through
open
auction
and/or
Page 42
electronically. Volume at the exchange in 2003 was a record breaking 454 million
contracts.
In its early history, the CBOT traded only agricultural commodities such as
corn, wheat, oats and soybeans. Futures contracts at the exchange evolved over the years
to include non-storable agricultural commodities and non-agricultural products like gold
and silver. The CBOT's first financial futures contract, launched in October 1975, was
based on Government National Mortgage Association mortgage-backed certificates.
Since that introduction, futures trading has been initiated in many financial instruments,
including U.S. Treasury bonds and notes, stock indexes, and swaps, to name but a few.
Another market innovation, options on futures, was introduced in 1982.
For more than 150 years, the primary method of trading at the CBOT was
open auction, which involved traders meeting face-to-face in trading pits to buy and sell
futures contracts. But to better meet the needs of a growing global economy, the CBOT
successfully launched its first electronic trading system in 1994. During the last decade,
as the use of electronic trading has become more prevalent, the exchange has upgraded its
electronic trading system several times. Most recently, on January 1, 2004, the CBOT
debuted its new electronic platform powered by the cutting-edge trading technology. As
of 1st January, 2004, the Chicago Mercantile Exchange is providing clearing and related
services for all CBOT products
New York Mercantile Exchange (NYMEX)

The NYMEX in its current form was created in 1994 by the merger of the
former New York Mercantile Exchange and the Commodity Exchange of New York
(COMEX). Together the represent one of the world's largest markets in commodities
trading.
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It deals in futures (and options) in oil products, such as crude oil, heating oil,
leaded regular gasoline, natural gas, propane and in rare metals, such as platinum and
palladium. It also deals in gold and silver, aluminum and copper, sharing with the London
Metal Exchange a dominant role in the world metal trading.
London Metals Exchange

The London Metal Exchange is the world's premier non-ferrous metals market
with highly liquid contracts and a worldwide reputation. It is innovative while
maintaining its traditional strengths and remains close to its core users by ensuring its
contracts continue to meet the high expectations of industry. As a result, it is highly
successful with a turnover in excess of US$3,000 billion per annum. It also contributes to
the UKs invisible earnings to the sum of more than 250 million in overseas earnings
each year.
The origins of the London Metal Exchange can be traced as far back as the
opening of the Royal Exchange in 1571. This is where metal traders first began to meet
on a regular basis. However, it was in 1877 that the London Metal Market and Exchange
Company were formed as a direct result of Britain's industrial revolution of the 19th
century. This led to a massive increase in the UKs consumption of metal, which required
the import of enormous tonnages from abroad. Merchant ventures were investing large
sums of money in this activity and were exposed to great risk, not only because the
voyages were hazardous but also because the cargoes could lose value if there was a fall
in price during the time it took for the metal to reach Britain.
INDIAN PERSPECTIVE
There are three major exchanges for the commodity trading in India. They are:
The National Commodities and Derivatives Exchange Ltd. (NCDEX)
Multi Commodities Exchange of India Ltd. (MCX)
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National Multi-Commodity Exchange Ltd. (NMCE)
National Commodity & Derivatives Exchange Limited (NCDEX )

The National Commodities and Derivatives Exchange Ltd is a
professionally managed online multi commodity exchange
promoted by ICICI Bank Limited (ICICI Bank), Life
Insurance Corporation of India (LIC), National Bank for
Agriculture and Rural Development (NABARD) and National
Stock Exchange of India Limited (NSE). Punjab National
Bank (PNB), CRISIL Limited (formerly the Credit Rating
Information Services of India Limited), Indian Farmers Fertilizer Cooperative Limited
(IFFCO) and Canara Bank
by subscribing to the equity shares have joined the initial
promoters as shareholders of the Exchange. NCDEX is the only commodity exchange in

the country promoted by national level institutions. This unique parentage enables it to
offer a bouquet of benefits, which are currently in short supply in the commodity
markets. The institutional promoters of NCDEX are prominent players in their respective
fields and bring with them institutional building experience, trust, nationwide reach,
technology and risk management skills.
NCDEX is a public limited company incorporated on April 23, 2003 under the
Companies Act, 1956.
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National Commodities and Derivatives Exchange, NCDEX

TIC
UNIT
OF
YIELD/TIC
UNIT OF YIELD/Re.
SIZE
TRADING
COMMODITY PRICE
or
TIC
TRADING MOVEMENT or
SESSION
QUOTATION
VALUE
TIC
PRECIOUS METALS
GOLD
10gm
100gm
10.00
1.00 10.00
10:00AM-4:00PM
&
5:00PM11:00PM
KILO GOLD
10gm
1000gm
100.00
1.00 100.00
10:00AM-4:00PM
&
5:00PM11:00PM
SILVER
1KG
5KG
5.00
1.00 5.00
10:00AM-4:00PM
&
5:00PM11:00PM
30.00
1.00 30.00
10:00AM-4:00PM
&
5:00PM11:00PM
MEGA
SILVER
1KG
30KG
AGRICULTURAL PRODUCTS
SOYA
1QT
10QT
10.00
0.05 0.50
10:00AM-4:00PM
&
5:00PM11:00PM
SOYA OIL
10KG
10000KG
1000.00
0.10 100.00
10:00AM-4:00PM
&
5:00PM11:00PM
10:00AM-4:00PM
&
5:00PM11:00PM
COTTON-M
1QT
11 bales
18.70
0.05 0.935
COTTON-L
1QT
11 bales
18.70
0.05 0.935
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10:00AM-4:00PM
&
5:00PM-
Page 46
11:00PM
MUSTARD
10KG
1000KG
100.00
0.05 5.00
10:00AM-4:00PM
&
5:00PM11:00PM
MUSTARD
OIL
20KG
1000KG
50.00
0.05 2.50
10:00AM-4:00PM
&
5:00PM11:00PM
PALMOLEIN
OIL CRUDE
10KG
1000KG
100.00
0.05 5.00
10:00AM-4:00PM
&
5:00PM11:00PM
0.05 5.00
10:00AM-4:00PM
&
5:00PM11:00PM
PALMOLEIN
OIL RBD
10KG
1000KG
100.00
PEPPER
1QT
1000KG
10.00
1.00 10.00
10:00AM-4:00PM
&5:00PM11:00PM
CHANA
1QT
10000KG
100.00
1.00 100.00
10:00AM-4:00PM
&
5:00PM11:00PM
GAUR SEEDS 1QT
10000KG
100.00
1.00 100.00
10:00AM-4:00PM
&
5:00PM11:00PM
1000KG
10.00
1.00 10.00
10:00AM-4:00PM
&
5:00PM11:00PM
INDUSTRIAL PRODUCT
RUBBER
1QT
Multi Commodities Exchange Of India Ltd (MCX)
MCX an independent and de-mutulised multi commodity

exchange has permanent recognition from Government of India
for facilitating online trading, clearing and settlement operations
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for commodity futures markets across the country. Key shareholders of MCX are
Financial Technologies (India) Ltd., State Bank of India, NABARD, NSE, HDFC Bank,
State Bank of Indore, State Bank of Hyderabad, State Bank of Saurashtra, SBI Life
Insurance Co. Ltd., Union Bank of India, Bank Of India, Bank Of Baroda, Canara Bank,
Corporation Bank.
Head quartered in Mumbai, MCX is led by an expert management team with
deep domain knowledge of the commodity futures markets. Through the integration of
dedicated resources, robust technology and scalable infrastructure, since inception MCX
has recorded many first to its credit.
Inaugurated in November 2003 by Mr. Mukesh Ambani, Chairman &
Managing Director, Reliance Industries Ltd, MCX offers futures trading in the
following commodity categories:
Agri Commodities, Bullion, Metals- Ferrous & Non-ferrous, Pulses, Oils &
Oilseeds, Energy, Plantations, Spices
MCX has built strategic alliances with some of the largest players in
commodities eco-system, namely, Bombay Bullion Association, Bombay Metal
Exchange, Solvent Extractors' Association of India, Pulses Importers Association,
Shetkari Sanghatana, United Planters Association of India and India Pepper and Spice
Trade Association.
Today MCX is offering spectacular growth opportunities and advantages to a
large cross section of the participants including Producers / Processors, Traders,
Corporate, Regional Trading Centers, Importers, Exporters, Cooperatives, Industry
Associations, amongst others MCX being nation-wide commodity exchange, offering
multiple commodities for trading with wide reach and penetration and robust
infrastructure, is well placed to tap this vast potential.
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COMMODITIES
Gold, Gold HNI, Gold M, I-Gold, Silver, Silver HNI,
Silver M
Castor Oil, Castor Seeds,
Castor Seeds (Disa), Cottonseed,
Crude Palm Oil, Groundnut Oil,
Kapasia Khalli (Cottonseed Oilcake), Mustard Seed
(Hapur),Mustard Seed (Jaipur),
RBD Palmolein, Refined Soy
Oil, Sesame Seed, Soyameal Soya Seed
Cardamom, Jeera, Pepper, Red Chilli, Turmeric
Aluminium, Copper, Nickel, Sponge Iron, SteelFlat,
Steel Long (Bhavnagar),
Steel Long (Gobindgarh), Tin
Cotton Long Staple ,
Cotton Medium Staple,
Cotton Short Staple, Kapas
Chana, Masur, Tur, Urad, Yellow Peas,
Multi-Commodity Exchange, MCX

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UNIT
OF
UNIT OF YIELD/Re.
COMMODITY PRICE
TRADING MOVEMENT
QUOTATION
YIELD/TIC
TRADING
or
TIC
SESSION
VALUE
PRECIOUS METALS
GOLD-M
10gm
100gm
10.00
1.00 10.00
10:00AM-4:00PM
&
5:00PM11:00PM
GOLD
10gm
1000gm
100.00
1.00 100.00
10:00AM-4:00PM
&
5:00PM11:00PM
SILVER-M
1KG
5KG
5.00
1.00 5.00
10:00AM-4:00PM
&
5:00PM11:00PM
SILVER
1KG
30KG
30.00
1.00 30.00
10:00AM-4:00PM
&
5:00PM11:00PM
AGRICULTURAL PRODUCTS
SOYA
1QT
10QT
10.00
0.05 0.50
10:00AM-4:00PM
&
5:00PM11:00PM
SOYA OIL
10KG
1000KG
100.00
0.05 5.00
10:00AM-4:00PM
&
5:00PM11:00PM
PALMOLEIN
OIL CRUDE
10KG
1000KG
100.00
0.05 5.00
10:00AM-4:00PM
PALMOLEIN
OIL RBD
10KG
1000KG
100.00
0.05 5.00
10:00AM-4:00PM
CASTOR
100KG
1MT
10.00
0.25 2.50
10:00AM-4:00PM
CASTOR OIL 10KG
1MT
100.00
0.10 10.00
10:00AM-4:00PM
GROUND
NUT OIL
10KG
1MT
100.00
0.10 10.00
10:00AM-4:00PM
GAUR SEED
100KG
5MT
50.00
1.00 50.00
10:00AM-4:00PM
BLACK
PEPPER
100KG
1MT
10.00
1.00 10.00
10:00AM-4:00PM
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KAPAS
20KG
4MT
200.00
0.10 20.00
10:00AM-4:00PM
STEEL LONG 1MT
25MT
25.00
0.50 12.50
10:00AM-4:00PM
STEEL FLAT
25MT
25.00
0.50 12.50
10:00AM-4:00PM
INDUSTRIAL METALS
1MT
COPPER
1KG
1MT
1000.00
0.05 50.00
10:00AM-4:00PM
&
5:00PM11:15PM
NICKEL
1KG
250KG
250.00
0.50 125.00
10:00AM-4:00PM
&
5:00PM11:15PM
TIN
1KG
500KG
500.00
0.25 125.00
10:00AM-4:00PM
&
5:00PM11:15PM
The National Multi Commodity Exchange of India ltd.

The
first
state-of-the-art
de-mutualized
multi-
commodity Exchange, NMCE commenced futures

trading in 24 commodities on 26th November, 2002
on a national scale and the basket of commodities has grown
substantially since then to include cash crops, food grains,
plantations, spices, oil seeds, metals & bullion among others. NMCE
was the first Exchange to take up the issue of differential treatment of speculative loss. It
was also the first Exchange to enroll participation of high net-worth corporate securities
brokers in commodity derivatives market. NMCE has also made immense contribution in
raising awareness about and catalyzing implementation of policy reforms in the
commodity sector.. It was the Exchange, which showed a way to introduce warehouse
receipt system within existing legal and regulatory framework. It was the first Exchange
to complete the contractual groundwork for dematerialization of the warehouse receipts.
Innovation is the way of life at NMCE.
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National Multi Commodity Exchange of India Ltd. (NMCE), promoted by commodityrelevant public institutions, viz., Central Warehousing Corporation (CWC), National
Agricultural Cooperative Marketing Federation of India (NAFED), Gujarat AgroIndustries Corporation Limited (GAICL), Gujarat State Agricultural Marketing Board
(GSAMB), National Institute of Agricultural Marketing (NIAM), and Neptune Overseas
Limited (NOL). The Punjab National Bank (PNB) took equity of the Exchange to
establish that linkage. Even today, NMCE is the only Exchange in India to have such
investment and technical support from the commodity relevant institutions. These
institutions are represented on the Board of Directors of the Exchange and also on various
committees set up by the Exchange. The day-to-day operations of the Exchange are
managed by the experienced and qualified professionals with impeccable integrity and
expertise. None of them have any trading interest.
Vision
National Multi-Commodity Exchange of India Limited is committed to
provide world class services of on-line screen based Futures Trading of permitted
commodities and efficient Clearing and guaranteed settlement, while complying with
Statutory / Regulatory requirements. They shall strive to ensure continual improvement
of customer services and remain quality leader amongst all commodity exchanges.
Mission
Continuous improvement in Customer Satisfaction.
Improving efficiency of marketing through on-line trading in Dematerialization form.
Minimizing of settlement risks.
Improving efficiency of operations by providing best infrastructure.
Rationalizing the transaction fees to optimum level.
Implementing best quality standards and testing in tune with trade practices.
Improving facilities for structured finance.
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Turn over of the Indian commodity futures market

Turnover on Commodity Futures Markets
(Rs. In Crores)
Exchange
2007-08
2008-09 FIRST Half
NCDEX
1490
54011
NBOT
53014
51038
MCX
2456
30695
NMCE
23842
7943
ALL EXCHANGES
129364
170720
Volumes in Commodity Derivatives Worldwide
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ANALYSIS AND INTERPRETATION

The collected information is analyzed, tabulated and interpreted using statistical tools.
Based on the frequency table and pie charts developed for the option, they can safely
analyze the data. They can draw inference about the options and correlation that exists
between any two categories.
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QUESTIONAIRE
1. Are you familiar with ANGEL?
A. Yes
B. No
2. Are you interested in Opening Account with ANGEL?

A. Yes
B. No
C. Existing Client
3. What type of business you carry?

A. Jewelers
C. Manufacturing unit
B. Kirana merchant
D. Others
4. For how many years you have been doing this business?
A. 1-5 years
C. 10-20 years
B. 5-10 years
D. Above 20 years
5. Do you invest in any of these following?

A. Equities
D. IPOs
B. Commodities
E. FDs
C. Mutual Funds
6. How much do you like to invest per month?

A. Less then 10000
C. 50000-100000
B. 10000-50000
D. Above 10000
7. In which type of Investment you are interested?

A. Long Term Investment
C. Both A & B
HASVITA PG COLLEGE
B. Short Term Investment
Page 57
8. How much you know about Commodities Market?

A. fully
B. partly
9. Do you carry out Trading in Commodities Market?

A. Yes
C. Done & left
B. No
D. Planning to do in Future
10. If Done & Left why?

A. Due to Losses
B. Settlement Problem
C. Companys services
D. Other Reasons
E. NA
11. If yes with which Company you Trade?
A. ANGEL
C. India bulls
E. PCS
B. Kotak
D. Anagram
F. Others
G. NA
12. How do you feel about this market?

A. Very Good
C. Average
B. Good
D. Bad
E. NA
13. In which type of Commodities do you invest?

A. Bullion
D. Metals
G. Cereals
I. NA
B. Oil & Oil Seeds

E. Fiber
H. Energy
C. Spices
F. Pulses
I. Others
14. Do you know that trading in Commodities Futures is More Beneficial & More
Leveraging?
A. Yes
HASVITA PG COLLEGE
B. No
C. NA
Page 58
15. Are you willing to take more risk in Commodities trading as the returns highly
& more leveraging also?
A. Yes
B. No
C. NA
16. Is this Markets Risky then compared to Stock & Bond Markets?
A. Yes
B. No
C. NA
17. Which type of following Services do you prefer from a Financial?

Advisory Institution?
A. Telephone Services
C. Online services
B. Postal Services
D. Personal Services
18. How often you need Research Report on Commodities?

A. Daily
D. Quarterly
B. Weekly
E. Half yearly
C. Monthly
F. Annually
G.NA
19 How often you need Your Account Updates?

A. Once in a day
C. Once in a week
B. Twice in a day
D. Twice in a week
E, NA
20. Please tell Your Expectation from a Commodities Advisory Concern?

Expectations:
A. Right Advice
C. Research Inputs
E. Reliability
G. Advertisement
HASVITA PG COLLEGE
B. Speed of Transaction
D. Reputation
F. Investor Facilitation
H. Easy Procedure
Page 59
TABULATION SHEET
Name1
1
A
2
A
3
A
4
A
5
A
6
A
7
A
8
A
9
A
10 A
11 C
12 C
13 C
14 C
15 C
16 D
17 D
18 D
19 D
20 D
21 D
22 D
23 D
24 D
25 D
2
A
A
B
B
B
C
C
C
D
D
B
B
C
C
C
B
B
A
A
C
B
B
B
B
A
3 4
A C
A C
A,B D
A,B D
B C
B C
B D
B D
A,OB
B C
A B
A B
B C
A B
D B
A A
A,DB
D B
D B
A B
A B
A,B C
B B
B B
B C
5
A
B
A
C
A
A
A
A
C
B
B
A
A
B
B
B
A
C
C
A
B
C
B
A
A
6
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
B
A
B
A
A
A
A
A
A
A
7
C
B
A
A
A
A
A
A
B
A
C
A
A
B
D
B
B
B
D
D
A
A
A
A
A
HASVITA PG COLLEGE
8
A
NA
NA
NA
NA
NA
NA
NA
NA
NA
A
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
9
NA
NA
A
A
A
A
C
C
NA
E
NA
D
E
NA
NA
NA
NA
NA
NA
NA
A
A
A
A
B
10
D
D
B
B
B
B
B
C
C
C
D
B
B
NA
B
NA
C
NA
B
B
B
C
B
B
B
11
12
NA A
NA B
A,B A
A,B A
A,H A
A,B A
A
A
A
A
NA A
A
A
NA A
A,B,DA
B,H A
NA B
B,H B
NA NA
NA A
NA NA
A
A
A
A
B,G A
A,H A
B,H A
H
A
H
A
13
B
B
A
A
A
B
B
A
B
B
B
B
B
B
B
NA
B
NA
A
A
A
B
A
A
A
14 15 16
A A NA
A A,D NA
A A,D A
A A A
A A A
A A,D A
A A,D A
A A,D A
A A,B B
A A A
A A NA
A A,D C
A A,D B
NA A,D NA
A A,D C
NA A NA
B A NA
NA A,D NA
A A NA
B D NA
A A,D B
A A A
A A B
A A C
A A C
17 18
19
NA A,B,HA
C B,F A
B A,B,HA
B B,E,F A
B B,E,F A
B A,B,HA
B A,B,HA
B A,B,HA
NA A,B,HA
B B,F,H A
NA A,H A
B A,F,H A
A A,H A
NA A,B,HA
NA A,B,HA
NA A,B,HA
NA A,B A
NA A,B,F A
NA A,B,HA
NA A,H A
B A,B A
B B,D A
B B,E,F A
A D,E A
A F,H A
Page 60
20
B
A
C
C
C
C
B
B
C
B
A
B
B
B
A
B
C
B
A
B
C
C
C
C
B
HASVITA PG COLLEGE
Page 61
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
D
D
D
D
D
B
B
B
B
B
B
B
B
B
B
B
B
B
B
B
B
B
B
B
B
A
C
C
C
D
C
B
B
B
C
C
C
D
D
D
B
C
C
B
C
C
C
D
D
C
A,B C
B
B
B
B
A,B C
A,B,DD
B
C
B
B
A
B
B
B
B
B
B
C
A
C
B
C
B
D
B
D
A,B B
A,D,BC
A,D B
A,C C
A,C C
B
B
B
B
B
C
B
B
B
B
C
A
A
C
C
A
A
A
B
B
B
A
A
C
C
A
C
C
C
C
A
B
C
C
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
B
B
A
A
A
A
A
HASVITA PG COLLEGE
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
C
C
C
C
C
A
A
A
A
A
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
D
C
A
B
D
NA
NA
NA
NA
NA
C
D
D
E
F
B
A
A
A
A
B
C
C
E
E
NA
NA
NA
NA
NA
D
D
D
D
A
C
C
B
B
B
C
B
B
B
B
C
B
B
B
A
D
D
D
D
D
B
B
B
C
B
B,E A
B,C A
B,D A
A,B A
A,B,HA
H
A
B
A
B
A
B
A
H
A
H
A
F
A
F
A
I
A
I
A
NA A
NA A
NA A
NA A
NA B
F,G A
B,C A
B,I A
H,I A
F,I
A
B
B
A
B
A
B
A
A
A
B
B
A
B
A
B
B
B
B
B
B
A
B
A
A
B
A
A
A
A
A
A
A
A
A
A
A
B
B
B
B
A
A
A
A
A
A
A
A
B
B
D B
D B
A,D A
A,D A
A,D A
A B
A,D B
D B
D B
A,D C
A,D C
A,B C
A,B A
B B
B,D C
A NA
D NA
B NA
B NA
B NA
A B
A,B C
B C
A,B B
B C
B B,F,H A
B A,B,HA
B B,H A
B A,B A
B B,F,H A
B A,B,HA
B A,B A
B B,H A
B F,H A
B D,E A
B F,H A
A A,B,F A
B A,B,DA
A B,C A
A B,D A
NA B.D A
NA A,C A
NA A,B,DA
NA A,B,HA
NA A,B,HA
B B,F,H A
B B,F,H A
A B,F,H A
B A,B,DA
B A,B,F A
Page 62
B
B
B
A
A
B
C
C
C
C
B
B
B
A
B
C
B
B
B
B
B
B
B
B
C
1. Are you familiar with ANGEL?
YES
50
NO
INTERPRETATION:
All the investors are familiar with ANGEL COMMODITIES MARKET.
HASVITA PG COLLEGE
Page 63
2. Are you interested in Opening Account with ANGEL?

YES
NO
EXISTING CLIENT
7
27
16
INTERPRETATION:
Out of 50 investors 14% of the investors said yes, 54% said No, and the existing
account holders are in ANGEL are 32%.
HASVITA PG COLLEGE
Page 64
3. What Type of business you carry?

Jewelers
10
Kirana merchant
20
Manufacturing unit
Others
5
15
Series1
er
s
O
th
tu
ac
an
uf
M
Ki
ra
na
er
rin
g
ch
an
un
it
25
20
15
10
5
0
Je
w
el
er
s
No.
Type of Investors
Investors
INTERPRETATION:
Out of 50 Investors, there are 10 Jewelers, 20 Kirana Merchants, 5 Manufacturing
units & 15 other group of people which includes Businessman & Professionals. With this
the researcher has analyzed that in Commodities Market the major share is of Kirana
Merchants.
HASVITA PG COLLEGE
Page 65
4. For how many years you have been doing this business?
1-5 years
5-10 years
20
10-20 years
Above 20 years
17
7
INTERPRETATION:
Out of 50 investors there are many investors doing their business from below 10
years.
HASVITA PG COLLEGE
Page 66
5. Do you invest in any of these Investments?
EQUITIES
COMMODITIES
28
MUTUAL FUND
IPOS
FDS
EQUITIES & COMMODITIES
EQUITIES & MUTUALFUND
EQUITIES & IPOS
EQUITIES,COMMODITIES,IPOS
2
50
EQUITIES
6
COMMODITIES
MUTUAL FUND
6
IPO'S
FD'S
EQUITIES &
COMMODITIES
EQUITIES & MUTUAL
FUND
EQUITIES & IPO'S
0
28
EQUITIES,COMMODITI
ES,IPO'S
INTERPRETATION:
Out of 50 investors major investment contribution is from commodities i.e., 56%
HASVITA PG COLLEGE
Page 67
6. How much do you like to invest per month?
Less then 10000
10000-50000
24
50000-100000
Above 100000
18
7
INTERPRETATION:
Out of 50 investors Majority of the investor investing 10000 to 50000 per month.
Mostly in commodities i.e., 48%.
HASVITA PG COLLEGE
Page 68
7. In which type of Investment you are interested?
Long Term Investment
22
Short Term Investment
12
Both A & B
16
INTERPRETATION:
Out of 50 investors majority of the investors are interested in long term
investment process i.e., 44%. Because the Risk involved in it is very low.
HASVITA PG COLLEGE
Page 69
8. Do You Know About Commodity Market?
FULLY
46
PARTLY
INTERPRETATION:
Out of 50 Investors, 92% know about Commodities Market were as 8% do not
know what is Commodities Market, which is very less which can be ignored.
HASVITA PG COLLEGE
Page 70
9. Do you carry out Trading in Commodities Market?
YES
36
NO
Done & left
Planning to do in Future
3
50
INTERPRETATION:
72% of Investors does trading in Commodities Market were as 6% Investors are
Planning to do in Future.
HASVITA PG COLLEGE
Page 71
10. If Done & Left why?
Due to Losses
Settlement Problem
Companys services
Other Reasons
NA
43
50
50
45
40
35
30
25
20
15
10
5
0
Series1
Due to
Losses
Settlement Companys
Other
Problem
services Reasons
NA
INTERPRETATION:
Majority of the Investors trade in the Commodities Market but few Done & Left
due to Losses & Settlement Problems.
HASVITA PG COLLEGE
Page 72
11. Which Company you Trade with?
ANGEL
Kotak
India bulls
Anagram
PCS
Others
NA
13
3
5
7
5
3
14
ANGEL
Kotak
India bulls
Anagram
PCS
Others
NA
INTERPRETATION:
Out of 50 Investors, 13 Investors does their trading from Angel Commodities
Broking Ltd, 7 from Anagram, 5 from India Bulls, 5 from PCS Broking, 3 from Other
Private Security & 14 Investors do not deal in Commodities Market.
HASVITA PG COLLEGE
Page 73
12. How do you feel about this market?
VERY GOOD
GOOD
28
AVERAGE
10
BAD
NA
30
25
20
15
Series1
10
5
0
VERY
GOOD
GOOD
AVERAGE
BAD
NA
INTERPRETATION:
Majority of the Investors says that Commodities Market is good.
HASVITA PG COLLEGE
Page 74
13. In which type of Commodities do you invest?

Bullion
Oil & Oil Seeds
6
8
Spices
Metals
Fiber
Pulses
Cereals
Energy
Others
Na
2
2
1
4
5
7
5
14
50
Investors Investment in different types of commodities
10%
14%
24%
10%
8%
8%
2%
4%
4%
16%
Bullion
Oil & Oil Seeds
Spices
Metals
Fiber
Pulses
Cereals
Energy
Others
na
INTERPRETATION:
The above chart shows that different Group of People Invest in different type of
Products.
HASVITA PG COLLEGE
Page 75
14. Do you know that trading in Commodities Futures is More Beneficial & More
Leveraging?
YES
NO
NA
43
4
3
50
45
40
35
30
25
20
Series1
43
15
10
5
0
YES
NO
NA
INTERPRETAION:
86% of Investors knows that Trading in Commodities Future is More Beneficial
& More Leveraging.
HASVITA PG COLLEGE
Page 76
15. Are you willing to take more risk in Commodities trading as the returns highly
& more leveraging also?
YES
NO
NA
34
13
3
INTERPRETATION:
Out of 50 investors 68% of the people are willing to invest in commodities market
because they are more leveraged than equities.
HASVITA PG COLLEGE
Page 77
16 Is these Markets less Risky then compared to Stock & Bond Markets?
YES
NO
NA
39
8
3
INTERPRETATION:
Out of 50 investors 39 members i.e., 78% of investors are willing to investment in
commodities market because they are less risky than other market.
HASVITA PG COLLEGE
Page 78
17. Which type of following Services do you prefer from a Financial

Advisory Institution?
TELEPHONE SERVICES
POSTAL SERVICES
ONLINE SERVICES
PERSONAL SERVICES
TELEPHONE& PERSONAL SERVICES
TELEPHONE& POSTAL SERVICES
POSTAL& PERSONAL SERVICES
10%
15
6
0
6
17
5
1
TELEPHONE
SERVICES
2%
POSTAL SERVICES
30%
ONLINE SERVICES
PERSONAL SERVICES
34%
12%
12%
0%
TELEPHONE&
PERSONAL SERVICES
TELEPHONE& POSTAL
SERVICES
POSTAL& PERSONAL
SERVICES
INTERPRETATION:
Majority of Investors Believe in Telephone & Personal Services.
HASVITA PG COLLEGE
Page 79
18. How often you need Research Report on Commodities?
DAILY
12
Weekly
MONTHLY
QUARTERLY
HALF YEARLY
ANNUAL
NA
13
11
0
0
0
14
28%
24%
DAILY
Weekly
MONTHLY
QUARTERLY
HALF YEARLY
0%
0%
22%
0%
26%
ANNUAL
NA
INTERPRETATION:
It is a data collected from various sources. It refers that Investors prefer for Daily &
weekly reports on Commodities Research.
HASVITA PG COLLEGE
Page 80
19. How often you need Your Account Updates?
Once in a day
Twice in a day
Once in a week
Twice in a week
NA
6
27
1
0
15
INTERPRETATION:
Out of 50 investors most of the investors want to update their accounts twice a
day.
HASVITA PG COLLEGE
Page 81
20. Please tell Your Expectation from a Commodities Advisory Concern?

Expectations:
A. Right Advice
C. Research Inputs
E. Reliability
G. Advertisement
B. Speed of Transaction
D. Reputation
F. Investor Facilitation
H. Easy Procedure
INTERPRETATION:
Out of 50 members 13 members are on research inputs i.e,
26%are willing to expect a commodities advisory council.
HASVITA PG COLLEGE
Page 82
CONCLUSION
1. Commodities market, contrary to the beliefs of many people has been in existence in
India through the ages. However the recent attempt by the Government to permit Multicommodity National levels exchanges has indeed given it, a shot in the arm.
2. Commodity includes all kinds of goods. FCRA defines goods as every kind of
movable property other than actionable claims, money and securities. Futures trading
are organized in such goods or commodities as are permitted by the Central Government.
3. Firstly, the price movements are more predictable, purely based on demand and supply
of that commodity, unlike in other markets where price manipulations are very much
possible, hence the investor is fixed. To that extent market price risk is reduced.
4. Secondly, the markets are working virtually round the clock, (NCDEX works from
10:00 AM to 4:00 PM and next session from 7:00 PM to 11:00PM) so any drastic news is
digested.
5. The future contracts available on a wide spectrum of commodities like Gold, Silver,
Cotton, Steel, Soya oil, Soya beans, Wheat, Sugar, Channa etc., provide excellent
opportunities for hedging the risks of the formers ,importers, exporters, traders and large
scale consumer.
HASVITA PG COLLEGE
Page 83
SUGGESTIONS
Investors should explore the possibility of investing in mutual fund schemes
devoted to commodities market as the present day equity markets are at all time
lows.
If Government takes this commodity market to increase awareness among
farmers, they would be able to get better returns for their produce.
HASVITA PG COLLEGE
Page 84
BIBLOGRAPHY
BOOKS
AUTHORS
Financial management
Prasanna Chandra
Security analysis & Portfolio Management
Punithavathy Pandian
Derivatives core module
NCFM Material
ANGEL LEARNING CENTRE

www.anagram.com
www.anagramcommodities.com
www.ncdex.com
www.mcx.com
www.derivativesindia.com
www.angelbroking.com
HASVITA PG COLLEGE
Page 85

Perception

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Perception

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INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

MEANING OF STOCK EXCHANGES

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

It is an association of member brokers of the purpose of self-regulation and

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

REGULATION OF STOCK EXCHANGES

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

NATURE AND FUNCTIONS OF STOCK EXCHANGE

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

OBJECTIVE OF THE STUDY

To study about major exchanges trading in Indian commodity market.

To understand the basics of commodity market and to discover the emerging

To emphasize trading and settlement mechanism for commodities in Indian stock

To identify the working procedure of the commodity trading practices in India.

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

SCOPE OF THE STUDY

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

OBJECTIVES OF THE STUDY

CODING AND TABULATION

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

SAMPLE TOOLS USED

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

LIMITATIONS OF THE STUDY

The size of sample was only 50.

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

ABOUT ANGEL BROKING

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

VINAY AGRAWAL (EXECUTIVE DIRECTOR EQUITY BROKING)

MUDIT (EXECUTIVE DIRECTOR BUSINESS INTELLIGENCE & ANALYTICS )

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

PRODUCTS & SERVICES

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

PORTFOLIO MANAGEMENT SERVICES

Professional Management- They offer professional management of your equity

Continuous Monitoring- They recognize that portfolios need to be constantly

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

Dedicated Relationship Manager- Their Relationship Managers specialize in

ANGEL BROKING is powered by a top-notch research team that

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

Structure of the commodity market.

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

DERIVATIVES EXISTING IN INDIA

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

India, a commodity based economy where two-third of the one billion

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

Indian Derivatives Market . Looking Ahead

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

A forward contract has been in existence in the organized commodities

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

The salient features of a forwards contract are:

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

The futures contracts are standardized in the terms of:

In short, futures contract is an exchange-traded version of the usual forward

INVESTORS PERCEPTION ON COMMODITIES MARKET IN INDIA

Benefits to Industry from Futures trading: