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Table Of Contents

Introduction to derivatives
1.1 Derivatives defined
1.2 Products, participants and functions
1.3 Derivatives markets
1.3.1 Spot versus forward transaction
1.3.2 Exchange traded versus OTC derivatives
1.3.3 Some commonly used derivatives
Commodity derivatives
2.1 Difference between commodity and financial derivatives
2.1.1 Physical settlement
2.1.3 Quality of underlying assets
2.2 Global commodities derivatives exchanges
2.2.1 Africa
2.2.2 Asia
2.2.3 Latin America
2.3 Evolution of the commodity market in India
2.3.1 The Kabra committee report
2.3.2 Latest developments
The NCDEX platform
3.1 Structure of NCDEX
3.1.2 Governance
3.2 Exchange membership
3.2.1 Trading cum clearing members (TCMs)
3.2.2 Professional clearing members (PCMs)
3.3 Capital requirements
3.4 The NCDEX system
3.4.2 Clearing
3.4.3 Settlement
Commodities traded on the NCDEX platform
4.1 Agricultural commodities
4.1.2 Crude palm oil
4.1.3 RBD Palmolein
4.2 Precious metals
Instruments available for trading
5.1 Forward contracts
5.1.1 Limitations of forward markets
5.2 Introduction to futures
Table 5.1 Distinction between futures and forwards
5.2.1 Distinction between futures and forwards contracts
5.2.2 Futures terminology
5.3 Introduction to options
5.3.1 Option terminology
5.4.1 Payoff for buyer of asset: Long asset
5.4.2 Payoff for seller of asset: Short asset
5.5 Payoff for futures
5.5.1 Payoff for buyer of futures: Long futures
Figure 5.1 Payoff for a buyer of gold
Figure 5.2 Payoff for a seller of gold
Figure 5.3 Payoff for a buyer of gold futures
5.5.2 Payoff for seller of futures: Short futures
Figure 5.4 Payoff for a seller of cotton futures
5.6 Payoff for options
5.6.1 Payoff for buyer of call options: Long call
Figure 5.5 Payoff for buyer of call option on gold
5.6.2 Payoff for writer of call options: Short call
5.6.3 Payoff for buyer of put options: Long put
Figure 5.6 Payoff for writer of call option on gold
5.6.4 Payoff for writer of put options: Short put
Figure 5.7 Payoff for buyer of put option on long staple cotton
5.7 Using futures versus using options
Figure 5.8 Payoff for writer of put option on long staple cotton
6.1 Investment assets versus consumption assets
6.2 The cost of carry model
6.2.1 Pricing futures contracts on investment commodities
6.2.2 Pricing futures contracts on consumption commodities
6.3 The futures basis
Using commodity futures
7.1.1 Basic principles of hedging
Figure 7.1 Payoff for buyer of a short hedge
7.1.3 Long hedge
Figure 7.2 Payoff for buyer of a long hedge
7.1.5 Advantages of hedging
7.1.6 Limitation of hedging: basis Risk
7.2 Speculation
7.2.1 Speculation: Bullish commodity, buy futures
7.2.2 Speculation: Bearish commodity, sell futures
7.3.1 Overpriced commodity futures: buy spot, sell futures
7.3.2 Underpriced commodity futures: buy futures, sell spot
Trading
8.1 Futures trading system
8.2 Entities in the trading system
8.2.1 Guidelines for allotment of client code
8.3 Contract specifications for commodity futures
8.4 Commodity futures trading cycle
Table 8.2 Gold futures contract specification
8.5 Order types and trading parameters
8.5.1 Permitted lot size
8.5.2 Tick size for contracts
8.5.3 Quantity freeze
8.5.4 Base price
8.5.5 Price ranges of contracts
8.5.6 Order entry on the trading system
8.6 Margins for trading in futures
Clearing and settlement
9.1.1 Clearing mechanism
9.1.2 Clearing banks
9.1.3 Depository participants
9.2.1 Settlement mechanism
Table 9.1 MTM on a long position in cotton futures
Table 9.2 MTM on a short position in cotton futures
9.2.2 Settlement methods
9.2.3 Entities involved in physical settlement
9.3 Risk management
9.4 Margining at NCDEX
9.4.2 Initial margin
9.4.3 Computation of initial margin
Table 9.5 Exposure limit as a multiple of liquid net worth
9.4.5 Effect of violation
Table 9.6 Number of days for physical settlement on various commodities
Regulatory framework
10.1 Rules governing commodity derivatives exchanges
10.2 Rules governing intermediaries
10.2.2 Clearing
10.3 Rules governing investor grievances, arbitration
10.3.1 Procedure for arbitration
10.3.2 Hearings and arbitral award
Implications of sales tax
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Commodities-Mkt-Module

Commodities-Mkt-Module

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Published by Hrushikesh Rout

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Published by: Hrushikesh Rout on Mar 04, 2011
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