COMMODITY

MARKET

INDEX
1
Chapter
No
Topic Page
No.
1 Introduction to Commodity Market 04
2 History of Evolution of Commodity
Markets
08
3 India and the Commodity Market 10
4 International Commodity Exchanes 1!
! Ho" Commodity Market #orks$ 1%
& Ho" to Invest in a Commodity
Market
1'
% Current (cenario in Indian
Commodity Market
23
8 Commodities 28
' )nalysis 38
)**)+,-.E 4%
(ummary !!
/i0liora1hy !&
Chapter 1

2
Introduction to Commodity Market
What is Commodity?
)ny 1roduct that can 0e used for commerce or an article
of commerce "hich is traded on an authori2ed commodity exchane is
kno"n as commodity3 ,he article should 0e mova0le of value4
somethin "hich is 0ouht or sold and "hich is 1roduced or used as
the su05ect or 0arter or sale3 In short commodity includes all kinds of
oods3 Indian 6or"ard Contracts 7.eulation8 )ct 76C.)84 1'!2
defines 9oods: as 9every kind of mova0le 1ro1erty other than
actiona0le claims4 money and securities:3
In current situation4 all oods and 1roducts of agricultural
7includin 1lantation84 mineral and fossil oriin are allo"ed for
commodity tradin reconi2ed under the 6C.)3 ,he national
commodity exchanes4 reconi2ed 0y the Central ;overnment4 1ermits
commodities "hich include 1recious 7old and silver8 and non<ferrous
metals4 cereals and 1ulses4 inned and un<inned cotton4 oilseeds4 oils
and oilcakes4 ra" 5ute and 5ute oods4 suar and ur4 1otatoes and
onions4 coffee and tea4 ru00er and s1ices3 Etc3
What is a commodity echange?
) commodity exchane is an association or a com1any or any
other 0ody cor1orate orani2in futures tradin in commodities for
"hich license has 0een ranted 0y reulatin authority3
What is Commodity !utures?
) Commodity futures is an areement 0et"een t"o 1arties to
0uy or sell a s1ecified and standardi2ed =uantity of a commodity at a
certain time in future at a 1rice areed u1on at the time of enterin
into the contract on the commodity futures exchane3
,he need for a futures market arises mainly due to the
hedin function that it can 1erform3 Commodity markets4 like any
other financial instrument4 involve risk associated "ith fre=uent 1rice
volatility3 ,he loss due to 1rice volatility can 0e attri0uted to the
follo"in reasons>
Consumer Preferences" # In the short<term4 their influence on 1rice
volatility is small since it is a slo" 1rocess 1ermittin manufacturers4
dealers and "holesalers to ad5ust their inventory in advance3
Changes in supply" # ,hey are a0ru1t and un1redicta0le 0rinin
a0out "ild fluctuations in 1rices3 ,his can es1ecially noticed in
aricultural commodities "here the "eather 1lays a ma5or role in
3
affectin the fortunes of 1eo1le involved in this industry3 ,he futures
market has evolved to neutrali2e such risks throuh a mechanism?
namely hedin3
The o$%ecti&es of Commodity futures" #
Hedin "ith the o05ective of transferrin risk related to the
1ossession of 1hysical assets throuh any adverse moments in
1rice3 @i=uidity and Arice discovery to ensure 0ase minimum
volume in tradin of a commodity throuh market information
and demand su11ly factors that facilitates a reular and
authentic 1rice discovery mechanism3
Maintainin 0uffer stock and 0etter allocation of resources as it
auments reduction in inventory re=uirement and thus the
ex1osure to risks related "ith 1rice fluctuation declines3
.esources can thus 0e diversified for investments3
Arice sta0ili2ation alon "ith 0alancin demand and su11ly
1osition3 6utures tradin leads to 1redicta0ility in assessin the
domestic 1rices4 "hich maintains sta0ility4 thus safeuardin
aainst any short term adverse 1rice movements3 @i=uidity in
Contracts of the commodities traded also ensures in maintainin
the e=uili0rium 0et"een demand and su11ly3
6lexi0ility4 certainty and trans1arency in 1urchasin commodities
facilitate 0ank financin3 Aredicta0ility in 1rices of commodity
"ould lead to sta0ility4 "hich in turn "ould eliminate the risks
associated "ith runnin the 0usiness of tradin commodities3
,his "ould make fundin easier and less strinent for 0anks to
commodity market 1layers3

'enefits of Commodity !utures Markets"#
,he 1rimary o05ectives of any futures exchane are authentic
1rice discovery and an efficient 1rice risk manaement3 ,he
0eneficiaries include those "ho trade in the commodities 0ein offered
in the exchane as "ell as those "ho have nothin to do "ith futures
tradin3 It is 0ecause of 1rice discovery and risk manaement throuh
the existence of futures exchanes that a lot of 0usinesses and
services are a0le to function smoothly3
(. Price )isco&ery"#/ased on in1uts reardin s1ecific market
information4 the demand and su11ly e=uili0rium4 "eather
forecasts4 ex1ert vie"s and comments4 inflation rates4
;overnment 1olicies4 market dynamics4 ho1es and fears4 0uyers
and sellers conduct tradin at futures exchanes3 ,his
4
transforms in to continuous 1rice discovery mechanism3 ,he
execution of trade 0et"een 0uyers and sellers leads to
assessment of fair value of a 1articular commodity that is
immediately disseminated on the tradin terminal3
*. Price +isk Management" # Hedin is the most common
method of 1rice risk manaement3 It is stratey of offerin 1rice
risk that is inherent in s1ot market 0y takin an e=ual 0ut
o11osite 1osition in the futures market3 6utures markets are
used as a mode 0y heders to 1rotect their 0usiness from
adverse 1rice chane3 ,his could dent the 1rofita0ility of their
0usiness3 Hedin 0enefits "ho are involved in tradin of
commodities like farmers4 1rocessors4 merchandisers4
manufacturers4 ex1orters4 im1orters etc3
,. Import# -port competiti&eness" # ,he ex1orters can hede
their 1rice risk and im1rove their com1etitiveness 0y makin use
of futures market3 ) ma5ority of traders "hich are involved in
1hysical trade internationally intend to 0uy for"ards3 ,he
1urchases made from the 1hysical market miht ex1ose them to
the risk of 1rice risk resultin to losses3 ,he existence of futures
market "ould allo" the ex1orters to hede their 1ro1osed
1urchase 0y tem1orarily su0stitutin for actual 1urchase till the
time is ri1e to 0uy in 1hysical market3 In the a0sence of futures
market it "ill 0e meticulous4 time consumin and costly 1hysical
transactions3
.. Predicta$le Pricing" # ,he demand for certain commodities is
hihly 1rice elastic3 ,he manufacturers have to ensure that the
1rices should 0e sta0le in order to 1rotect their market share
"ith the free entry of im1orts3 6utures contracts "ill ena0le
1redicta0ility in domestic 1rices3 ,he manufacturers can4 as a
result4 smooth out the influence of chanes in their in1ut 1rices
very easily3 #ith no futures market4 the manufacturer can 0e
cauht 0et"een severe short<term 1rice movements of oils and
necessity to maintain 1rice sta0ility4 "hich could only 0e 1ossi0le
throuh sufficient financial reserves that could other"ise 0e
utili2ed for makin other 1rofita0le investments3
/. 'enefits for farmers01griculturalists" < Arice insta0ility has a
direct 0earin on farmers in the a0sence of futures market3
,here "ould 0e no need to have lare reserves to cover aainst
unfavora0le 1rice fluctuations3 ,his "ould reduce the risk
1remiums associated "ith the marketin or 1rocessin marins
5
ena0lin more returns on 1roduce3 (torin more and 0ein more
active in the markets3 ,he 1rice information accessi0le to the
farmers determines the extent to "hich tradersB1rocessors
increase 1rice to them3 (ince one of the o05ectives of futures
exchane is to make availa0le these 1rices as far as 1ossi0le4 it
is very likely to 0enefit the farmers3 )lso4 due to the time la
0et"een 1lannin and 1roduction4 the market<determined 1rice
information disseminated 0y futures exchanes "ould 0e crucial
for their 1roduction decisions3
2. Credit accessi$ility" # ,he a0sence of 1ro1er risk manaement
tools "ould attract the marketin and 1rocessin of commodities
to hih<risk ex1osure makin it risky 0usiness activity to fund3
Even a small movement in 1rices can eat u1 a hue 1ro1ortion of
ca1ital o"ned 0y traders4 at times makin it virtually im1ossi0le
to 1ay0ack the loan3 ,here is a hih deree of reluctance amon
0anks to fund commodity traders4 es1ecially those "ho do not
manae 1rice risks3 If in case they do4 the interest rate is likely
to 0e hih and terms and conditions very strinent3 ,his 1osses
a hue o0stacle in the smooth functionin and com1etition of
commodities market3 Hedin4 "hich is 1ossi0le throuh futures
markets4 "ould cut do"n the discount rate in commodity
lendin3
3. Impro&ed product 4uality" < ,he existence of "arehouses for
facilitatin delivery "ith radin facilities alon "ith other related
0enefits 1rovides a very stron reason to u1rade and enhance
the =uality of the commodity to rade that is acce1ta0le 0y the
exchane3 It ensures uniform standardi2ation of commodity
trade4 includin the terms of =uality standard> the =uality
certificates that are issued 0y the exchane<certified "arehouses
have the 1otential to 0ecome the norm for 1hysical trade3

Chapter *
5istory of -&olution of commodity markets

6
Commodities future tradin "as evolved from need of
assured continuous su11ly of seasonal aricultural cro1s3 ,he conce1t
of orani2ed tradin in commodities evolved in Chicao4 in 18483 /ut
one can trace its roots in Ca1an3 In Ca1an merchants used to store .ice
in "arehouses for future use3 ,o raise cash "arehouse holders sold
recei1ts aainst the stored rice3 ,hese "ere kno"n as 9rice tickets:3
Eventually4 these rice tickets 0ecome acce1ted as a kind of commercial
currency3 @atter on rules came in to 0ein4 to standardi2e the tradin
in rice tickets3 In 1'
th
century Chicao in -nited (tates had emered
as a ma5or commercial hu03 (o that "heat 1roducers from Mid<"est
attracted here to sell their 1roduce to dealers D distri0utors3 Eue to
lack of orani2ed storae facilities4 a0sence of uniform "eihin D
radin mechanisms 1roducers often confined to the mercy of dealers
discretion3 ,hese situations lead to need of esta0lishin a common
meetin 1lace for farmers and dealers to transact in s1ot rain to
deliver "heat and receive cash in return3
;radually sellers D 0uyers started makin commitments to
exchane the 1roduce for cash in future and thus contract for 9futures
tradin: evolved3 #here0y the 1roducer "ould aree to sell his
1roduce to the 0uyer at a future delivery date at an areed u1on 1rice3
In this "ay 1roducer "as a"are of "hat 1rice he "ould fetch for his
1roduce and dealer "ould kno" a0out his cost involved4 in advance3
,his kind of areement 1roved 0eneficial to 0oth of them3 )s if dealer
is not interested in takin delivery of the 1roduce4 he could sell his
contract to someone "ho needs the same3 (imilarly 1roducer "ho not
intended to deliver his 1roduce to dealer could 1ass on the same
res1onsi0ility to someone else3 ,he 1rice of such contract "ould
de1endent on the 1rice movements in the "heat market3 @atter on 0y
makin some modifications these contracts transformed in to an
instrument to 1rotect involved 1arties aainst adverse factors such as
unex1ected 1rice movements and unfavora0le climatic factors3 ,his
1romoted traders entry in futures market4 "hich had no intentions to
0uy or sell "heat 0ut "ould 1urely s1eculate on 1rice movements in
market to earn 1rofit3
,radin of "heat in futures 0ecame very 1rofita0le "hich
encouraed the entry of other commodities in futures market3 ,his
created a 1latform for esta0lishment of a 0ody to reulate and
su1ervise these contracts3 ,hatFs "hy Chicao /oard of ,rade 7C/G,8
"as esta0lished in 18483 In 18%0 and 1880s the *e" Hork Coffee4
Cotton and Aroduce Exchanes "ere 0orn3 )ricultural commodities
"ere mostly traded 0ut as lon as there are 0uyers and sellers4 any
commodity can 0e traded3 In 18%24 a rou1 of Manhattan dairy
merchants ot toether to 0rin chaotic condition in *e" Hork market
to a system in terms of storae4 1ricin4 and transfer of aricultural
7
1roducts3 In 1'334 durin the ;reat Ee1ression4 the Commodity
Exchane4 Inc3 "as esta0lished in *e" Hork throuh the merer of
four small exchanes I the *ational Metal Exchane4 the .u00er
Exchane of *e" Hork4 the *ational .a" (ilk Exchane4 and the *e"
Hork Hide Exchane3
,he larest commodity exchane in -() is Chicao /oard
of ,rade4 ,he Chicao Mercantile Exchane4 the *e" Hork Mercantile
Exchane4 the *e" Hork Commodity Exchane and *e" Hork Coffee4
suar and cocoa Exchane3 #orld"ide there are ma5or futures tradin
exchanes in over t"enty countries includin Canada4 Enland4 India4
6rance4 (ina1ore4 Ca1an4 )ustralia and *e" Jealand3


Chapter 3
India and the commodity market
8


Hitory o! Commodity Market in India"#
,he history of orani2ed commodity derivatives in India
oes 0ack to the nineteenth century "hen Cotton ,rade )ssociation
started futures tradin in 18%!4 a0out a decade after they started in
Chicao3 Gver the time datives market develo1ed in several
commodities in India3 6ollo"in Cotton4 derivatives tradin started in
oilseed in /om0ay 71'0084 ra" 5ute and 5ute oods in Calcutta 71'1284
#heat in Ha1ur 71'138 and /ullion in /om0ay 71'2083
Ho"ever many feared that derivatives fuelled unnecessary
s1eculation and "ere detrimental to the healthy functionin of the
market for the underlyin commodities4 resultin in to 0annin of
commodity o1tions tradin and cash settlement of commodities futures
after inde1endence in 1'!23 ,he 1arliament 1assed the 6or"ard
Contracts 7.eulation8 )ct4 1'!24 "hich reulated contracts in
Commodities all over the India3 ,he act 1rohi0ited o1tions tradin in
;oods alon "ith cash settlement of for"ard trades4 renderin a
crushin 0lo" to the commodity derivatives market3 -nder the act only
those associationsBexchanes4 "hich are ranted reorani2ation from
the ;overnment4 are allo"ed to orani2e for"ard tradin in reulated
commodities3 ,he act envisaes three tire reulations> 7i8 Exchane
"hich orani2es for"ard tradin in commodities can reulate tradin
on day<to<day 0asis? 7ii8 6or"ard Markets Commission 1rovides
reulatory oversiht under the 1o"ers deleated to it 0y the central
;overnment3 7iii8 ,he Central ;overnment< Ee1artment of Consumer
)ffairs4 Ministry of Consumer )ffairs4 6ood and Au0lic Eistri0ution< is
the ultimate reulatory authority3
,he commodities future market remained dismantled
and remained dormant for a0out four decades until the ne"
millennium "hen the ;overnment4 in a com1lete chane in a 1olicy4
started actively encourain commodity market3 )fter @i0erali2ation
and ;lo0ali2ation in 1''04 the ;overnment set u1 a committee 71''38
to examine the role of futures tradin3 ,he Committee 7headed 0y
Arof3 K3*3 Ka0ra8 recommended allo"in futures tradin in 1%
commodity rou1s3 It also recommended strenthenin 6or"ard
Markets Commission4 and certain amendments to 6or"ard Contracts
7.eulation8 )ct 1'!24 1articularly allo"in o1tion tradin in oods
and reistration of 0rokers "ith 6or"ard Markets Commission3 ,he
;overnment acce1ted most of these recommendations and futuresF
tradin "as 1ermitted in all recommended commodities3 It is timely
decision since internationally the commodity cycle is on u1s"in and
the next decade 0ein touched as the decade of Commodities3
9
Commodity exchane in India 1lays an im1ortant role "here the 1rices
of any commodity are not fixed4 in an orani2ed "ay3 Earlier only the
0uyer of 1roduce and its seller in the market 5uded u1on the 1rices3
Gthers never had a say3
,oday4 commodity exchanes are 1urely s1eculative in
nature3 /efore discoverin the 1rice4 they reach to the 1roducers4 end<
users4 and even the retail investors4 at a rassroots level3 It 0rins a
1rice trans1arency and risk manaement in the vital market3 ) 0i
difference 0et"een a ty1ical auction4 "here a sinle auctioneer
announces the 0ids and the Exchane is that 1eo1le are not only
com1etin to 0uy 0ut also to sell3 /y Exchane rules and 0y la"4 no
one can 0id under a hiher 0id4 and no one can offer to sell hiher
than someone elseFs lo"er offer3 ,hat kee1s the market as efficient as
1ossi0le4 and kee1s the traders on their toes to make sure no one ets
the 1urchase or sale 0efore they do3 (ince 20024 the commodities
future market in India has ex1erienced an unex1ected 0oom in terms
of modern exchanes4 num0er of commodities allo"ed for derivatives
tradin as "ell as the value of futures tradin in commodities4 "hich
crossed L 1 trillion mark in 200&3 (ince 1'!2 till 2002 commodity
datives market "as virtually non< existent4 exce1t some nelii0le
activities on G,C 0asis3
In India there are 2! reconi2ed future exchanes4 of
"hich there are three national level multi<commodity exchanes3 )fter
a a1 of almost three decades4 ;overnment of India has allo"ed
for"ard transactions in commodities throuh Gnline Commodity
Exchanes4 a modification of traditional 0usiness kno"n as )dhat and
Mayda Mya1ar to facilitate 0etter risk coverae and delivery of
commodities3 ,he three exchanes are> *ational Commodity D
Eerivatives Exchane @imited 6NC)-78 Mum0ai4 Multi Commodity
Exchane of India @imited 6MC78 Mum0ai and *ational Multi<
Commodity Exchane of India @imited 6NMC-I98 )hmeda0ad3,here
are other reional commodity exchanes situated in different 1arts of
India3

9egal frame:ork for regulating commodity futures in India"#
,he commodity futures traded in commodity exchanes
are reulated 0y the ;overnment under the 6or"ard Contracts
.eulations )ct4 1'!2 and the .ules framed there under3 ,he reulator
for the commodities tradin is the 6or"ard Markets Commission4
situated at Mum0ai4 "hich comes under the Ministry of Consumer
)ffairs 6ood and Au0lic Eistri0ution
10
!or:ard Markets Commission 6!MC8"#
It is statutory institution set u1 in 1'!3 under 6or"ard
Contracts 7.eulation8 )ct4 1'!23 Commission consists of minimum
t"o and maximum four mem0ers a11ointed 0y Central ;ovt3 Gut of
these mem0ers there is one nominated chairman3 )ll the exchanes
have 0een set u1 under overall control of 6or"ard Market Commission
76MC8 of ;overnment of India3
Nationa$ Commoditie % Deri&ati&e E'chan(e )imited *NCDEX+
*ational Commodities D Eerivatives Exchane @imited
7*CEE+8 1romoted 0y ICICI /ank @imited 7ICICI /ank84 @ife Insurance
Cor1oration of India 7@IC84 *ational /ank of )riculture and .ural
Eevelo1ment 7*)/).E8 and *ational (tock Exchane of India @imited
7*(C83 Aun5a0 *ational /ank 7A*/84 Credit .attin Information (ervice
of India @imited 7C.I(I@84 Indian 6armers 6ertili2er Coo1erative
@imited 7I66CG84 Canara /ank and ;oldman (achs 0y su0scri0in to
the e=uity shares have 5oined the 1romoters as a share holder of
exchane3 *CEE+ is the only Commodity Exchane in the country
1romoted 0y national level institutions3
*CEE+ is a 1u0lic limited com1any incor1orated on 23
)1ril 20033 *CEE+ is a national level technoloy driven on line
Commodity Exchane "ith an inde1endent /oard of Eirectors and
1rofessionals not havin any vested interest in Commodity Markets3
It is committed to 1rovide a "orld class commodity exchane 1latform
for market 1artici1ants to trade in a "ide s1ectrum of commodity
derivatives driven 0y 0est lo0al 1ractices4 1rofessionalism and
trans1arency3
*CEE+ is reulated 0y 6or"ard Markets Commission
76MC83 *CEE+ is also su05ected to the various la"s of land like the
Com1anies )ct4 (tam1 )ct4 Contracts )ct4 6or"ard Contracts
.eulation )ct and various other leislations3
*CEE+ is located in Mum0ai and offers facilities to its
mem0ers in more than !!0 centers throuh out India3 *CEE+
currently facilitates tradin of !% commodities3
Commoditie Traded at NCDEX"#
'ullion"#
;old K;4 (ilver4 /rent
Minerals"#
Electrolytic Co11er Cathode4 )luminum Inot4 *ickel
Cathode4 Jinc Metal Inot4 Mild steel Inots
;il and ;il seeds"#
11
Cotton seed4 Gil cake4 Crude Aalm Gil4 ;roundnut 7in shell84
;roundnut ex1eller Gil4 Cotton4 Mentha oil4 ./E Aamolein4 .M
seed oil cake4 .efined soya oil4 .a1e seeds4 Mustard seeds4
Caster seed4 Hello" soy0ean4 Meal
Pulses"#
-rad4 Hello" 1eas4 Chana4 ,ur4 Masoor4
<rain"#
#heat4 Indian Ausa /asmati .ice4 Indian 1ar0oiled .ice 7I.<
3&BI.<&484 Indian ra" .ice 7AarmalA.<10&84 /arley4 Hello"
red mai2e
=pices"#
Ceera4 ,urmeric4 Ae11er
Plantation"#
Cashe"4 Coffee )ra0ica4 Coffee .o0usta
!i$ers and other"#
;uar ;um4 ;uar seeds4 ;uar4 Cute sackin 0as4 Indian 28
mm cotton4 Indian 31mm cotton4 @emon4 ;rain /old4 Medium
(ta1le4 Mul0erry4 ;reen Cottons4 4 4 Aotato4 .a" Cute4
Mul0erry ra" (ilk4 M<%'% Ka1as4 (uar4 Chilli @C)334
-nergy"#
Crude Gil4 6urnace oil

M,$ti Commodity E'chan(e o! India )imited *MCX+
Multi Commodity Exchane of India @imited 7MC+8 is an
inde1endent and de<mutuli2ed exchane "ith 1ermanent
reorani2ation from ;overnment of India4 havin Head Nuarter in
Mum0ai3 Key share holders of MC+ are 6inancial ,echnoloies 7India8
@imited4 (tate /ank of India4 -nion /ank of India4 Cor1oration /ank of
India4 /ank of India and Cnnara /ank3 MC+ facilitates online tradin4
clearin and settlement o1erations for commodity futures market
across the country3
MC+ started of trade in *ov 2003 and has 0uilt strateic
alliance "ith /om0ay /ullion )ssociation4 /om0ay Metal Exchane4
(olvent Extractors )ssociation of India4 1ulses Im1orters )ssociation
and (hetkari (anhatana3
MC+ deals "it a0out 100 commodities3
Commoditie Traded at MCX"#
'ullion"#
;old4 (ilver4 (ilver Coins4
Minerals"#
)luminum4 Co11er4 *ickel4 IronBsteel4 ,in4 Jinc4 @ead
;il and ;il seeds"#
12
Castor oilBcastor seeds4 Crude Aalm oilB ./E Aamolein4
;roundnut oil4 MustardB .a1eseed oil4 (oy seedsB(oy
mealB.efined (oy Gil4 Coconut Gil Cake4 Co1ra4 (unflo"er oil4
(unflo"er Gil cake4 ,amarind seed oil4
Pulses"#
Chana4 Masur4 ,ur4 -rad4 Hello" 1eas
<rains"#
.iceB /asmati .ice4 #heat4 Mai2e4 /a5ara4 /arley4
=pices"#
Ae11er4 .ed Chili4 Ceera4 Cardamom4 Cinnamon4 Clove4
;iner4
Plantation"#
Cashe" Kernel4 .u00er4 )reca nut4 /etel nuts4 Coconut4
Coffee4
!i$er and others"#
Ka1as4 Ka1as Khalli4 Cotton 7lon sta1le4 medium sta1le4
short sta1le84 Cotton Cloth4 Cotton Harn4 ;aur seed and
;uarum4 ;ur and (uar4 Khandsari4 Mentha Gil4 Aotato4 )rt
(ilk Harn4 Chara or /erseem4 .a" Cute4 Cute ;oods4 Cute
(ackin4
Petrochemicals"#
Hih Eensity Aolyethylene 7HEAE84 Aoly1ro1ylene 7AA84 Aoly
Minyl Chloride 7AMC8
-nergy"#
/rent Crude Gil4 Crude Gil4 6urnace Gil4 Middle East (our
Crude Gil4 *atural ;as
Nationa$ M,$ti Commodity E'chan(e o! India )imited
*NMCEI)+
*ational Multi Commodity Exchane of India @imited
7*MCEI@8 is the first de<mutualised Electronic Multi Commodity
Exchane in India3 Gn 2!
th
Culy 2001 it "as ranted a11roval 0y
;overnment to orani2e tradin in edi0le oil com1lex3 It is 0ein
su11orted 0y Central "arehousin Cor1oration @imited4 ;u5arat
(tate )ricultural Marketin /oard and *e1tune Gverseas
@imited3 It ot reorani2ation in Gct 20023 *MCEI@ Head Nuarter
is at )hmeda0ad3
Chapter -
13
INT-+N1TI;N19 C;MM;)IT> -7C51N<-=


6uturesF tradin is a result of solution to a 1ro0lem related
to the maintenance of a year round su11ly of commoditiesB 1roducts
that are seasonal as is the case of aricultural 1roduce3 ,he -nited
(tates4 Ca1an4 -nited Kindom4 /ra2il4 )ustralia4 (ina1ore are homes
to leadin commodity futures exchanes in the "orld3
The Ne: >ork Mercantile -change 6N>M-78"#
,he *e" Hork Mercantile Exchane is the "orldFs 0iest
exchane for tradin in 1hysical commodity futures3 It is a 1rimary
tradin forum for enery 1roducts and 1recious metals3 ,he exchane
is in existence since last 132 years and 1erforms trades trouh t"o
divisions4 the *HME+ division4 "hich deals in enery and 1latinum and
the CGME+ division4 "hich trades in all the other metals3
Commodities traded" # @iht s"eet crude oil4 *atural ;as4 Heatin
Gil4 ;asoline4 ./G/ ;asoline4 Electricity Aro1ane4 ;old4 (ilver4 Co11er4
)luminum4 Alatinum4 Aalladium4 etc3
9ondon Metal -change"#
,he @ondon Metal Exchane 7@ME8 is the "orldFs
1remier non<ferrous market4 "ith hihly li=uid contracts3 ,he exchane
"as formed in 18%% as a direct conse=uence of the industrial
revolution "itnessed in the 1'
th
century3 ,he 1rimary focus of @ME is in
1rovidin a market for 1artici1ants from non<ferrous 0ased metals
related industry to safeuard aainst risk due to movement in 0ase
metal 1rices and also arrive at a 1rice that sets the 0enchmark
lo0ally3 ,he exchane trades 24 hours a day throuh an inter office
tele1hone market and also throuh a electronic tradin 1latform3 It is
famous for its o1en<outcry tradin 0et"een rin dealin mem0ers that
takes 1lace on the market floor3
Commodities traded"# )luminum4 Co11er4 *ickel4 @ead4 ,in4 Jinc4
)luminum )lloy4 *orth )merican (1ecial )luminum )lloy 7*)())C84
Aoly1ro1ylene4 @inear @o" Eensity Aolyethylene4 etc3
The Chicago 'oard of Trade"#
,he first commodity exchane esta0lished in the "orld
"as the Chicao /oard of ,rade 7C/G,8 durin 1848 0y rou1 of
Chicao merchants "ho "ere keen to esta0lish a central market 1lace
for trade3 Aresently4 the Chicao /oard of ,rade is one of the leadin
exchanes in the "orld for tradin futures and o1tions3 More than !0
contracts on futures and o1tions are 0ein offered 0y C/G, currently
14
throuh o1en outcry andBor electronically3 C/G, initially dealt only in
)ricultural commodities like corn4 "heat4 non stora0le aricultural
commodities and non<aricultural 1roducts like old and silver3
Commodities Traded" < Corn4 (oy0ean4 Gil4 (oy0ean meal4 #heat4
Gats4 Ethanol4 .ouh .ice4 ;old4 (ilver etc3
Tokyo Commodity -change 6T;C;M8"#
,he ,okyo Commodity Exchane 7,GCGM8 is the second
larest commodity futures exchane in the "orld3 It trades in to
metals and enery contracts3 It has made ra1id advancement in
commodity tradin lo0ally since its ince1tion 20 years 0ack3 Gne of
the 0iest reasons for that is the initiative ,GCGM took to"ards
esta0lishin )sia as the 0enchmark for 1rice discovery and risk
manaement in commodities like the Middle East Crude Gil3 ,GCGMFs
recent tie u1 "ith the MC+ to ex1lore coo1eration and 0usiness
o11ortunities is seen as one of the ste1s to"ards 1rovidin 1latform
for futures 1rice discovery in )sia for )sian 1layers in Crude Gil since
the demand<su11ly situation in -3(3 that drives *HME+ is different
from demand<su11ly situation in )sia3 In Can 20034 in a ma5or
overhaul of its com1uteri2ed tradin system4 ,GCGM fortified its
clearin system in Cune 0y 0ein first commodity exchane in Ca1an to
introduce an in<house clearin system3 ,GCGM launched o1tions on
old futures4 the first o1tion contract in Ca1anese market4 in May
20043
Commodities traded" # ;asoline4 Kerosene4 Crude Gil4 ;old4 (ilver4
Alatinum4 )luminum4 .u00er4 etc
Chicago Mercantile -change"#
,he Chicao Mercantile Exchane 7CME8 is the larest
futures exchane in the -( and the larest futures clearin house in
the "orld for futures and o1tions tradin3 6ormed in 18'8 1rimarily to
trade in )ricultural commodities4 the CME introduced the "orldFs first
financial futures more than 30 years ao3 ,oday it trades heavily in
interest rates futures4 stock indices and forein exchane futures3 Its
1roducts often serves as a financial 0enchmark and "itnesses the
larest o1en interest in futures 1rofile of CME consists of livestock4
dairy and forest 1roducts and ena0les small family farms to lare )ri<
0usiness to manae their 1rice risks3 ,radin in CME can 0e done
either throuh 1it tradin or electronically3
Commodities Traded" # /utter milk4 Eiammonium 1hos1hate4 6eeder
cattle4 fro2en 1ork 0ellies4 @ean Hos4 @ive cattle4 *on<fat Ery Milk4
-rea4 -rea )mmonium *itrate4 etc
Chapter .
15

Ho/ Commodity market /ork0
,here are t"o kinds of trades in commodities3 ,he first is the
s1ot trade4 in "hich one 1ays cash and carries a"ay the oods3 ,he
second is futures trade3 ,he under1innin for futures is the "arehouse
recei1t3 ) 1erson de1osits certain amount of say4 ood + in a "are
house and ets a "arehouse recei1t3 #hich allo"s him to ask for
1hysical delivery of the ood from the "arehouse3 /ut some one
tradin in commodity futures need not necessarily 1osses such a
recei1t to strike a deal3 ) 1erson can 0uy or sale a commodity future
on an exchane 0ased on his ex1ectation of "here the 1rice "ill o3
6utures have somethin called an ex1iry date4 0y "hen the 0uyer or
seller either closes 7s=uare off8 his account or iveBtake delivery of the
commodity3 ,he 0roker maintains an account of all dealin 1arties in
"hich the daily 1rofit or loss due to chanes in the futures 1rice is
recorded3 (=uirin off is done 0y takin an o11osite contract so that
the net outstandin is nil3
6or commodity futures to "ork4 the seller should 0e a0le to
de1osit the commodity at "arehouse nearest to him and collect the
"arehouse recei1t3 ,he 0uyer should 0e a0le to take 1hysical delivery
at a location of his choice on 1resentin the "arehouse recei1t3 /ut at
1resent in India very fe" "arehouses 1rovide delivery for s1ecific
commodities3
6ollo"in diaram ives a fair idea a0out "orkin of the
Commodity market3
16
,oday Commodity tradin system is fully com1uteri2ed3
,raders need not visit a commodity market to s1eculate3 #ith online
commodity tradin they could sit in the confines of their home or office
and call the shots3
,he commodity tradin system consists of certain
1rescri0ed ste1s or staes as follo"s>
I3 ,radin> < )t this stae the follo"in is the system im1lemented<
< Grder receivin
< Execution
< Matchin
< .e1ortin
< (urveillance
< Arice limits
< Aosition limits
II3 Clearin> < ,his stae has follo"in system in 1lace<
< Matchin
< .eistration
< Clearin
< Clearin limits
< *otation
< Marinin
< Arice limits
< Aosition limits
< Clearin house3
III3 (ettlement> < ,his stae has follo"in system follo"ed as follo"s<
< Markin to market
< .ecei1ts and 1ayments
< .e1ortin
< Eelivery u1on ex1iration or maturity3

17
Chapter 1

Ho/ to in&et in a Commodity Market0
With :hom in&estor can transact a $usiness?
)n investor can transact a 0usiness "ith the a11roved clearin
mem0er of 1reviously mentioned Commodity Exchanes3 ,he investor
can ask for the details from the Commodity Exchanes a0out the list of
a11roved mem0ers3
What is Identity Proof?
#hen investor a11roaches Clearin Mem0er4 the mem0er "ill ask
for identity 1roof3 6or "hich +erox co1y of any one of the follo"in can
0e iven
a8 A)* card *um0er
08 Erivin @icense
c8 Mote IE
d8 Aass1ort
What statements should $e gi&en for 'ank Proof?
,he front 1ae of /ank Aass /ook and a canceled che=ue of a
concerned 0ank3 Gther"ise the /ank (tatement containin details can
0e iven3
What are the particulars to $e gi&en for address proof?
In order to ascertain the address of investor4 the clearin mem0er
"ill insist on +erox co1y of .ation card or the Aass /ookB /ank
(tatement "here the address of investor is iven3
What are the other forms to $e signed $y the in&estor?
,he clearin mem0er "ill ask the client to sin
a8 Kno" your client form
08 .isk Eiscloser Eocument
,he a0ove thins are only 1rocedure in character and the risk
involved and only after understandin the 0usiness4 he "ants to
transact 0usiness3
What aspects should $e considered :hile selecting a
commodity $roker?
#hile selectin a commodity 0roker investor should ideally kee1
certain as1ects in mind to ensure that they are not 0ein missed in
any "hich "ay3 ,hese factors include
18
*et "orth of the 0roker of 0rokerae firm3
,he clientele3
,he num0er of franchisesB0ranches3
,he market credi0ility3
,he references3
,he kind of service 1rovided< 0ack office functionin 0ein
most im1ortant3
Credit facility3
,he research team3
,hese are amonst the most im1ortant factors to calculate
the credi0ility of commodity 0roker3
2roker"#
,he /roker is essentially a 1erson of firm that liaisons 0et"een
individual traders and the commodity exchane3 In other "ords the
Commodity /roker is the mem0er of Commodity Exchane4 havin
direct connection "ith the exchane to carry out all trades leally3 He
is also kno"n as the authori2ed dealer3
5o: to $ecome a Commodity Trader0'roker of Commodity
-change?
,o 0ecome a commodity trader one needs to com1lete certain
leal and 0indin o0liations3 ,here is routine 1rocess follo"ed4 "hich
is stated 0y a unit of ;overnment that lays do"n the la"s and acts
"ith reards to commodity tradin3 ) 0roker of Commodities is also
re=uired to meet certain o0liations to ain such a mem0ershi1 in
exchane3
,o 0ecome a mem0er of Commodity Exchane the 0roker of
0rokerae firm should have net "orth amountin to .s3 !0 @akh3 ,his
sum has 0een determined 0y Multi Commodity Exchane3
5o: to $ecome a Mem$er of Commodity -change?
,o 0ecome mem0er of Commodity Exchane the 1erson
should com1ly "ith the follo"in Elii0ility Criteria3
13 He should 0e Citi2en of India3
23 He should have com1leted 21 years of his ae3
33 He should 0e ;raduate or havin e=uivalent =ualification3
43 He should not 0e 0ankru1t3
5. He has not 0een de0arred from tradin in Commodities 0y
statutoryBreulatory authority4
,here are follo"in three ty1es of Mem0ershi1s of Commodity
Exchanes3
19
Trading#cum#Clearing Mem$er 6TCM8"#
) ,CM is entitled to trade on his o"n account as "ell as on account
of his clients4 and clear and settle trades himself3 ) sole 1ro1rietor4
Aartnershi1 firm4 a 5oint Hindu -ndivided 6amily 7H-684 a cor1orate
entity4 a coo1erative society4 a 1u0lic sector orani2ation or any other
;overnment or non<;overnment entity can 0ecome a ,CM3
,here are t"o ty1es of ,CM4 ,CM<1 and ,CM<23 ,CM<1
refers to transfera0le non<de1osit 0ased mem0ershi1 and ,CM<2 refers
to non<transfera0le de1osit 0ased mem0ershi13
) 1erson desired to reister as ,CM is re=uired to su0mit
an a11lication as 1er the format 1rescri0ed under the 0usiness rules4
alon "ith all enclosures4 fee and other documents s1ecified therein3
He is re=uired to o throuh intervie" 0y Mem0ershi1 )dmission
Committee and committee is also em1o"ered to frame rules or criteria
relatin to selection or re5ection of a mem0er3
Institutional Trading#cum#clearing Mem$er 6ITCM8"#
Gnly an InstitutionB Cor1orate can 0e admitted 0y the Exchane
as a mem0er4 conferrin u1on them the riht to trade and clear
throuh the clearin house of exchane as an Institutional ,radin<
cum<clearin Mem0er 7I,CM83 ,he mem0er may 0e allo"ed to make
deals for himself as "ell as on 0ehalf of his clients and clear and settle
such deals3 I,CMs can also a11oint su0<0rokers4 authori2ed 1ersons
and ,radin Mem0ers "ho "ould 0e reistered as tradin mem0ers3
Professional Clearing Mem$er 6PCM8"#
) ACM entitled to clear and settle trades executed 0y other
mem0ers of the exchane3 ) cor1orate entity and an institution only
can a11ly for ACM3 ,he mem0er "ould 0e allo"ed to clear and settle
trades of such mem0ers of the Exchane "ho choose to clear and
settle their trades throuh such ACM3
Mem$ership )etails for NC)-7"#
(
Trading#cum#clearing Mem$er" # TCM
=r.
No3
Particulars NC)-7" TCM
1
Interest 6ree Cash
(ecurity Ee1osit
1!300 @akhs
2 Collateral (ecurity Ee1osit 1!300 @akhs
3 )dmission 6ee !300 @akhs
4 )nnual Mem0ershi1 6ees 03!0 @akhs
! )dvance Minimum 03!0 @akhs
1
www.ncdex.com
20
,ransaction Chares
& *et "orth .e=uirement !0300 @akhs
Professional Clearing Mem$ership" # PCM
=r.
No.
Particulars NC)-7" PCM
1
Interest 6ree Cash
(ecurity Ee1osit
2!300 @akhs
2
Collateral (ecurity Ee1osit
2!300 @akhs
3
)nnual (u0scri1tion
Chares
1300 @akhs
4
)dvance Minimum
,ransaction Chares
1300 @akhs
! *et "orth .e=uirement !000300 @akhs
Mem$ership )etails for MC7"#
*
Category
1dmission
!ees
Initial
=ecurity
)eposit
1nnual
=u$scription
Net :orth Criteria
Corporate Partnership Indi&idual
TCM#(
.s3 10
@akhs
.s3 1!
@akhs
.s !04000 .s !0 @akhs .s3 !0 @akhs
.s3 !0
@akhs
TCM#*
.s3 !
@akhs
.s3 !0
@akhs
.s !04000
.s3 !0
@akhs
.s3 !0 @akhs
.s3 !0
@akhs
ITCM
.s3 10
@akhs
.s3 !0
@akhs
.s !04000
.s3 !0
@akhs
*3)3 *3)3
PCM *il
.s3 !0
@akhs
.s 14004000 .s3 !Crores *3)3 *3)3




Chapter 3

2
MCX Certified Commodity Professiona !eference Materia
21
C,rrent 4cenario in Indian Commodity Market
Need o! Commodity Deri&ati&e !or India"#
India is amon to1 ! 1roducers of most of the Commodities4 in
addition to 0ein a ma5or consumer of 0ullion and enery 1roducts3
)riculture contri0utes a0out 22O ;EA of Indian economy3 It
em1loyees around !%O of the la0or force on total of 1&3 million
hectors of land )riculture sector is an im1ortant factor in achievin a
;EA ro"th of 8<10O3 )ll this indicates that India can 0e 1romoted as
a ma5or centre for tradin of commodity derivatives3
Trends in &olume contri$ution on the three National
-changes"#
Pattern on Multi Commodity -change 6MC78"#
MC+ is currently larest commodity exchane in the country in
terms of trade volumes4 further it has even 0ecome the third larest in
0ullion and second larest in silver future tradin in the "orld3
Comin to trade 1attern4 thouh there are a0out 100
commodities traded on MC+4 only 3 or 4 commodities contri0ute for
more than 80 1ercent of total trade volume3 )s 1er recent data the
larely traded commodities are ;old4 (ilver4 Enery and 0ase Metals3
Incidentally the futuresF trends of these commodities are mainly driven
0y international futures 1rices rather than the chanes in domestic
demand<su11ly and hence4 the 1rice sinals larely reflect
international scenario3
)mon )ricultural commodities ma5or volume contri0utors
include ;ur4 -rad4 Mentha Gil etc3 #hose market si2es are
considera0ly small makin then vulnera0le to mani1ulations3
Pattern on National Commodity ? )eri&ati&es -change
6NC)-78"#
*CEE+ is the second larest commodity exchane in the
country after MC+3 Ho"ever the ma5or volume contri0utors on *CEE+
are aricultural commodities3 /ut4 most of them have common
inherent 1ro0lem of small market si2e4 "hich is makin them
vulnera0le to market mani1ulations and over s1eculation3 )0out &0
1ercent trade on *CEE+ comes from uar seed4 chana and -rad
7narro" commodities as s1ecified 0y 6MC83

Pattern on National Multi Commodity -change 6NMC-8"#
*MCE is third national level futures exchane that has 0een
larely tradin in )ricultural Commodities3 ,rade on *MCE had
22
considera0le 1ro1ortion of commodities "ith 0i market si2e as 5ute
ru00er etc3 /ut4 in su0se=uent 1eriod4 the 1attern has chaned and
slo"ly moved to"ards commodities "ith small market si2e or narro"
commodities3
)nalysis of volume contri0utions on three ma5or national
commodity exchanes reveled the follo"in 1attern4

Ma%or &olume contri$utors" # Ma5ority of trade has 0een
concentrated in fe" commodities that are
*on )ricultural Commodities 70ullion4 metals and enery8
)ricultural commodities "ith small market si2e 7or narro"
commodities8 like uar4 -rad4 Mentha etc3
Trade strategy"#
It a11ears that s1eculators or o1erators choose commodities or
contracts "here the market could 0e influenced and extreme
s1eculations 1ossi0le3
In vie" of extreme volatilities4 the 6MC directs the exchanes to
im1ose restrictions on 1ositions and raise marins on those
commodities3 Conse=uently4 the o1eratorsBs1eculators chose another
commodity and start o1eratin in a similar 1attern3 #hen 6MC 0rins
restrictions on those commodities4 the o1erators once aain move to
the other commodities3 @ike"ise4 the s1eculators are movin from one
commodity to other 7from methane to -rad to uar etc8 "here the
market could 0e influenced either individually or "ith a rou13
'eneficiaries" # (o far the 0eneficiaries from the current nature of
tradin are
Exchaners> < makin 1rofit from mountin volumes
)r0itraers
G1erators

In order to understand the extent of 1roress the tradin the
tradin in Commodity Eerivatives has made to"ards its s1ecified
o05ectives 71rice discovery and 1rice risk manaement84 the current
trends are 5uxta1osed aainst the s1ecification
=pecified and actual pattern of futures trade"#
,
Process 1ught to $e 1ctual
Commodities ,here should 0e lare
demand for and su11ly of
@arely ,raded are
3
"MC # $%C& researc'
23
the commodity< no
individual or a rou1 of
1ersons actin in concert
should 0e in a 1osition to
influence the demand or
su11ly4 and conse=uently
the 1rice su0stantially
,o"ards this4 the ma5or
Aroduced or consumed
Commodities in the
Country such as "heat4
rice4 5ute etc3 and India is
the
to1 first or second
1roducer of these
Commodities3
/ullion4 Metals and
Commodities "ith small
market si2e 7or narro"
Commodities8 like uar4
/urmese -rad4 Mentha etc3
Trade
=trategy
Hedin toether "ith
Moderate s1eculation to
(moothen the 1rice
6luctuations3
Gver s1eculation and
Mani1ulation leadin to "ide
6luctuations3
'eneficiaries 6armersB1roducers44
Consumers and traders
Either throuh direct
Aartici1ation or throuh
Arice sinals3
(o far exchaners4
ar0itraeurs4
G1erators etc34
6urther there "ere instances of
#ron 1rice sinals accruin
losses to farmers in case of
menthe4 and to traders in case
Gf im1orted 1ulses3
;$%ecti&es
Arice Eiscovery Aure re1lication of
International trends not
,akin in account of
Eomestic E<( in case of
*on<aril3 Commodities
#ide fluctuations from
Gver s1eculation and
Mani1ulation in case of
@arely traded aril3
commodities
.isk Manaement *o such evidences and
contrarily4 the extreme
volatilities in certain
commodities are makin
futures
More risky for 1artici1ants3
24
,hus it is evident that the reali2ation of s1ecified o05ectives is
still a distinct destination3 It is further4 evident from the nature of the
commodities larely traded on national exchanes that the factors
drivin the current 1attern of futures trade are 1urely s1eculative3

+easons for pre&ailing trade pattern"#
*o "ide s1read 1artici1ation of all stake holders of commodity
markets3 ,he actual 0enefits may 0e reali2ed only "hen all the stake
holders in commodity market includin 1roducers4 traders4 consumers
etc trade actively in all ma5or commodities like rice4 "heat4 cotton etc3

4ome 4,((etion to make !,t,re market a a $e&e$ p$ayin( !ie$d
!or a$$ take ho$der"#
Creation of a"areness amon farmers and other rural
1artici1ants to use the futures tradin 1latform for risk
mitiation3
Contract s1ecifications should have "ider coverae4 so that
a lare num0er of varieties 1roduced across the country
could 0e included3
Eevelo1ment of "arehousin and facilities to use the
"arehouse recei1t as a financial instrument to encourae
1artici1ation farmers3
Eevelo1ment of 1hysical market throuh uniform radin
and standardi2ation and more trans1arent 1rice
mechanisms3
Eelivery system of exchanes is not ood enouh to attract
investors3 E33< In many commodities *CEE+ forces the
delivery on 1eo1le "ith lon 1osition and "hen they tend to
ive 0ack the delivery in next month contract the exchane
sim1ly refuses to acce1t the delivery on 1retext of =uality
difference and also auctions the 1roduct3 ,he traders have to
take a delivery or 0ook losses at settlement as there are
hue differences 0et"een t"o contracts and also sometimes
fe" contracts are not availa0le for tradin for no reason at
all3
Contract si2es should have an ade=uate rane so that
smaller traders can 1artici1ate and can avoid control of
tradin 0y fe" 0i 1arties3
(ettin of state level or district level commodities tradin
hel1desk run 0y inde1endent orani2ation such as re1uted
*;G for educatin farmers3
25
#arehousin and loistics manaement structure also needs
to 0e created at state or area level "henever commodity
1roduction is a0ove a certain share of national level3
,houh over 100 commodities are allo"ed for Eerivatives
tradin4 in 1ractice only a fe" commodities derivatives are
1o1ular for tradin3 )ain most of the trade takes 1lace only
on fe" exchanes3 ,his 1ro0lem can 1ossi0ly solved 0y
consolidatin some exchanes3
Gnly a0out 1O to !O of total commodity derivatives traded
in country are settled in 1hysical delivery due to
insufficiencies in 1resent "arehousin system3 )s ood
delivery system is the 0ack 0one of any Commodity trade4
"arehousin 1ro0lem has to 0e handled on a "ar footin3
)t 1resent there are restrictions in movement of certain
oods from one state to another3 ,hese needs to 0e
removed so that a truly national market could develo1 for
commodities and derivatives3
.eulatory chanes are re=uired to 0rin a0out uniformity in
Gctri and sales tax etc3 M), has 0een introduced in country
in 200!4 0ut4 has not yet 0een uniformly im1lemented 0y all
states3
) difficult 1ro0lem in Cash settlement of Commodities
Eerivatives contract is that4 under 6or"ard Contracts
.eulation )ct 1'!2 cash settlement of outstandin
contracts at maturity is not allo"ed3 ,hat means outstandin
contracts at maturity should 0e settled in 1hysical delivery3
,o avoid this 1artici1ants s=uare off their their 1ositions
0efore maturity3 (o in 1ractice contracts are settled in Cash
0ut 0efore maturity3 ,here is need to modify the la" to 0rin
it closer to the "ide s1read 1ractice and save 1artici1ants
from unnecessary hassle3




26
Chapter 5
Commoditie
4tee$" #
<eneral Characteristics" #
(teel is an alloy of iron and car0on4 containin less than 2O
car0on4 1O mananese and small amount of silicon4 1hos1horus4
sul1hur and oxyen3 (teel is most im1ortant enineerin and
construction material in the "orld3 It is most im1ortant4 multi
functional and the most ada1ta0le of materials3 (teel 1roduction is 20
times hiher a com1ared to 1roduction of all non<ferrous metals 1ut
toether3
(teel com1ared to other materials of its ty1e has lo"
1roduction costs3 ,he enery re=uired for extractin iron from ore is
a0out 2!O of "hat is needed for extractin aluminum3
,here are altoether a0out 2000 rades of steel
develo1ed of "hich 1!00 rades are hih<rade steels3 ,he lare
num0er of rades ives steel the characteristics of 0asic 1roduction
material3
Categories of =teel" #
(teel market is 1rimarily divided in to t"o main cateories<
flat and lon3 ) flat car0on steel 1roduct is a 1late 1roduct or a 7hot or
cold8 rolled stri1 1roduct3 Alate 1roducts vary in dimensions from 10
mm to 200 mm and thin flat rolled 1roducts from 1 mm to 10 mm3
Alate 1roducts are used for shi1 0uildin4 construction4 lare diameter
"elded 1i1es and 0oiler a11lications3 ,hin flat 1roducts find end use
a11lications in automotive 0ody 1anels4 domestic P"hite oodsF
1roducts4 Ptin cansF and the "hole host of other 1roducts from office
furniture to heart 1acemakers3 Alates4 H. coils and H. (heet4 C.
(heet and C. coils4 ;AB;C 7alvani2ed 1lates and coils8 1i1es etc3 are
included in this cateory3
) lon steel 1roduct is a road or a 0ar3 ,y1ical rod 1roduct
are the reinforcin rods made from s1one iron for concrete4 inots4
0illets4 enineerin 1roducts4 ears4 tools4 etc3 #iredra"n 1roducts
and seamless 1i1es are also 1art of the lon 1roducts rou13 /ars4
rods4 structures4 rail"ay materials4 etc are included in this cateory3
(1one IronB Eirect reduced iron 7E.I8> ,his is a hih
=uality 1roduct 1roduced 0y reducin iron ore in a solid state and is
1rimarily used as an iron in1ut in electric arc furnace 7E)68 steel
makin 1rocess3 ,his industry is an interal 1art of the steel sector3
27
India is one of the leadin countries in terms of s1one iron
1roduction3 ,here are a num0er of coal<0ased s1one ironBE.I 1lants
7in the eastern and central reion8 and also three natural as 0ased
1lants 7in "estern 1art of the country8 in the country3
<lo$al =cenario" #
,he total out1ut of the "ord crude steel in 200& stood at '4!
million tons4 resultin in a ro"th of &3%O over the 1revious year3
China is the "ordFs larest crude steel 1roducer in the year
200& "ith around 220312 million tons of steel 1roduction4 follo"ed 0y
Ca1an and -()3 -() "as larest im1orter of steel 1roducts4 0oth
finished and semi finished4 in 200!4 follo"ed 0y China and ;ermany3
,he "ords larest ex1orter of semi<finished and finished steel
"as Ca1an in 200!4 follo"ed 0y .ussia and -kraine3
China is the larest consumer no" and consum1tion of steel 0y
China is estimated to increase 0y 12<13O in 200%3
Indian =cenario" #
India is the 8
th
larest 1roducer of the steel "ith an annual
1roduction of 3&31'3 million tons4 "hile the consum1tion is around 30
million tons3
Iron D steel can 0e freely ex1orted and im1orted from India3
India is a net ex1orter of steel3
,he ;overnment of India has taken a num0er of 1olicy
measures4 such as removal of iron D steel industry from the list of
industries reserved for 1u0lic sector4 dereulation of 1rice and
distri0ution of iron D steel and lo"erin im1ort duty on ca1ital oods
and ra" materials4 since li0erali2ation for the ro"th and develo1ment
of Indian iron D steel industry3
)fter li0erali2ation India has seen hue scale addition to its
steel makin ca1acity3 ,he country faces shortae of iron and steel
materials3
!actors Influencing )emand ? =upply of =teel 9ong and =teel
!lat" #
,he demand for steel is de1endent on the overall health of the
economy and the in fracture develo1ment activities 0ein undertaken3
,he steel 1rices in the Indian market 1rimarily de1end on the domestic
demand and su11ly conditions4 and international 1rices3 ;overnment
and different 1roducer and consumer associations reularly monitor
steel 1rices3
,he duty im1osed on im1ort of steel and its fractions also have
an im1act on steel 1rices3 ,he 1rice trend in steel in Indian markets
has 0een a function of #orldFs economic activity3 Arices of in1ut
28
materials of iron and steel such as 1o"er tariff4 friht rates and coal
1rices4 also contri0ute to the rise in the in1ut costs for steel makin3
Monthly @ariations in =teel Prices from !e$ *AA/# )ec *AA2" #
.

Contract peci!ication o! 4tee$ 6$at
(ym0ol (,EE@6@),
Eescri1tion (,EE@6@),MMMHH
,radin Aeriod Mondays throuh (aturdays
,radin session Monday to 6riday>
1
st
session> 10300 am to !300 1m
2
nd
session> !330 1m to 8300 1m
(aturday> 10300 am to 2300 1m
*o3 of contracts a year 12
Contact Euration 4 months
Trading
,radin unit 2! M,
Arice Nuote .s3Bton4 Ex<,alo5 Kalam0o
7excludin execise duty and sales tax83
Maximum order si2e 200 M,
,ick si2e 7minimum
Arice movement8
.s3 10
Eaily 1rice limits 4O
Initial marin !O
(1ecial marin In case of additional volatility4 a s1ecial
marin of 2O or such other 1ercentae4 as
deemed fit4 "ill 0e im1osed immediately on4
0oth 0uy and sale side in res1ect of all
outstandin 1osition4 "hich "ill remain in
force of next three days4 after "hich the
s1ecial marin "ill 0e relaxed3
Maximum )llo"a0le G1en
Aosition
6or individual clients> 14004000 M,
6or a mem0er collectively for all clients>
2!O of o1en market 1osition3
)eli&ery
Eelivery unit 2! M, "ith tolerance limit
4
MCX certified Commodity Professiona !eference Materia.
Percentage Change B /C *#/C D *C
No. of Times
Inots< Mandi 2 10 10
H.C 23! Mum0ai 8 3 11
H.C 230 Im1orted 12 4 &
H.C fo0< Euro1e ! ' 8
29
/et"een 233! M, to 2&3! M,
Eelivery Center7s8 #arehouses at ,alo5aB Kalam0oli
Euality =pecifications
H. coil conformin to the follo"in s1ecification>
,hickness 2 mm
#idth either 12!0mm or '10 mm at sellerFs o1tion3
It should confirm to I( 11!13 ;rade EB()E 1008 7International
e=uivalent8
Eelivery is acce1ta0le only in coil form3
Contract peci!ication o! 4tee$ )on(
(ym0ol (,EE@@G*;
Eescri1tion (,EE@@G*;MMMHH
,radin Aeriod Mondays throuh (aturdays
,radin session Monday to 6riday>
1
st
session> 10300 am to !300 1m
2
nd
session> !330 1m to 8300 1m
(aturday> 10300 am to 2300 1m
*o3 of contracts a year 12
Contact Euration 4 months
Trading
,radin unit 1! M,
Arice Nuote .s3Bton4 Ex< Mandi ;o0indarh 7includin
excise duty 0ut excludin sales tax83
Maximum order si2e 300 M,
,ick si2e 7minimum
Arice movement8
.s3 10
Eaily 1rice limits 4O
Initial marin !O
(1ecial marin In case of additional volatility4 a s1ecial
marin of 2O or such other 1ercentae4 as
deemed fit4 "ill 0e im1osed immediately on4
0oth 0uy and sale side in res1ect of all
outstandin 1osition4 "hich "ill remain in
force of next three days4 after "hich the
s1ecial marin "ill 0e relaxed3
Maximum )llo"a0le G1en
Aosition
6or individual clients> 14004000 M,
6or a mem0er collectively for all clients>
2!O of o1en market 1osition3
)eli&ery
Eelivery unit 1! M, "ith tolerance limit
30
/et"een 133! M, to 1&3! M,
Eelivery Center7s8 #arehouses at Mandi ;o0indarh
Euality =pecifications
Mild steels inots 93 Q R 4 Q inch:
Car0on com1osition> /elo" 032!O
Mananese> )0ove 034!O
Material should 0e 1hysically sound3 It should have no hollo"ness4 no
1i1in no risin3 Its surface should 0e 1lain3
7,a$ity 4peci!ication" #
=ponge Iron !utures
=ponge Iron 9umps
Chemical Properties 6only Magnetic Portion8" #
Eeree of Metalli2ation> 88 SB< 2O3
,otal Iron> '1O3
Car0on> 032O to 033O3
(ul1hur> 030!O Max3
Ahos1horus> 030& Max3
(io2 S )l2o3> &O or Max3
Char D other 1rocess Contaminants> 1O Max3
(i2e> 3 to 20 mm
-ndersi2e arisin durin tailins 7<3mm8> !O Max
=teel !lat" #
H. Coil confirmin to the follo"in s1ecification> <
,hickness 2mm
#idth either 12!0 mm or '10 mm at sellerFs o1tion3
It should confirm to I( 11!13 ;rade EB ()@E 1008
7international e=uivalent8
Eelivery is acce1ta0le only in coil form3
=teel 9ong 6'ha&nagar8" #
31
Mild steel inots 3 Q R 4 Q inch3
Car0on com1osition> /elo" 032!O
Mananese> )0ove 034!O
Material should 0e 1hysically sound3 It should have no
hollo"ness4 no 1i1in and no risin3 Its surface should 0e 1lain3
=teel 9ong 6<o&indgarh8" #
Mild steel inots 3 Q R 4 Q inch.
Car0on com1osition> /elo" 032!O
Mananese> )0ove 034!O
Material should 0e 1hysically sound3 It should have no
hollo"ness4 no 1i1in and no risin3 Its surface should 0e 1lain3
8HEAT
#heat is cereal rain and consumed "orld"ide3 #heat is
more 1o1ular than any other cereal rain for use in 0aked oods3 Its
1o1ularity stems from the luten that forms "hen lour is mixes "ith
"ater3 #heat is the most "idely ro"n cereal rain in the "orld3
<lo$al and Indian =cenario" #
,he "orld "heat 1roduction in the recent years has 0een
o0served to 0e hoverin 0et"een !!! million tons to &2! million tons a
year3 ,he 0iest cultivators of "heat are E- 2!4 China4 India4 -()4
.ussia4 )ustralia4 Canada4 Aakistan4 ,urkey and )rentina3 E- 2!4
China4 India and -( are the four larest 1roducers account for around
&0O of total lo0al 1roduction3
#orldFs "heat consum1tion is continuously ro"in "ith
ro"th in a 1o1ulation4 as it is one of the ma5or sta1le foods across
the "orld3 ,he ma5or consumin countries of "heat are E-4 China4
32
India4 .ussia4 -() and Aakistan3 India has larest area in the "orld
under "heat3 Ho"ever4 in terms of 1roduction4 India is second larest
0ehind China3 In India4 #heat is so"n durin Gcto0er to Eecem0er
and harvested durin March to May3 ,he "heat marketin season in
India is assumed to 0ein from )1ril every year3
,he ma5or "heat 1roducin states in India are -tter Aradesh4
Aun5a04 Haryana4 Madhya Aradesh4 .a5astan and /ihar3 #hich toether
account for around '3O of total 1roduction3 In terms of 1roductivity4
Aun5a0 stands first follo"ed 0y Haryana4 .a5astan4 -A4 ;u5arat4 /ihar
and MA3 Indian "heat is larely softBmedium hard4 medium 1rotein4
0read "heat3 India is also 1roduces around 13! million tons of durum
"heat4 mostly in central and "estern India4 "hich is not sereated
and marketed se1arately3 India consumes around %2<%4 million tons of
#heat every year3
,here are around 1000 lare flourmills in India4 "ith a millin
ca1acity of around 1! million tons3 ,he total 1rocurement of "heat 0y
;overnment aencies durin last 1! years from 8 to 20 million tons4
accountin for only 1!<20O of the total 1roduction3 India ex1orted
around ! m illion tons su0sidi2ed 0y ;overnment in 2004<0!4 as a
result of sur1lus stock3 .ecently ;ovt3 took decision to im1ort "heat in
vie" of4 declinin stocks and increasin demand3
Fey market mo&ing !actors" #
Arice tends to 0e lo"er as harvestin 1roresses and 1roduce
starts comin in to the market3 )t the time so"in and 0efore
harvestin 1rice tend to rise in a vie" of tiht su11ly situation3
#eather has 1rofound influence on "heat 1roduction3 ,em1erature
1lays crucial role to"ards maturity of "heat and 1roductivity3
33
Chane in Minimum (u11ort Arice 7M(A8 0y ;ovt3 and the stock
availa0le "ith 6ood cor1oration of India and the release from official
stock influence of the 1rice3 ,houh4 international trade is limited4 the
u1s and do"ns in the 1roduction and consum1tion at all the
ma5orBminor 1roducin and consumin nation dose influence the lon
term 1rice trend3
Contract peci!ication o! 8heat
Contract Aeriod 6ive Months
,radin Aeriod Mondays throuh (aturdays
,radin session Monday to 6riday>
10300 am to !300 1m
(aturday>
10300 am to 2300 1m
Trading
,radin unit 10 M,
Nuotation 0ased value 1 Nuintal
Maximum order si2e !00 M,
,ick si2e 7minimum
Arice movement8
10 Aaise
Arice Nuotation Ex<"arehouse Eelhi 7includin all taxes4 levies
and sales taxB M),4 as the case may 0e8
Eaily 1rice limits 4O
Initial marin !O
(1ecial marin In case of additional volatility4 a s1ecial
marin at such other 1ercentae4 as deemed
fit "ill 0e im1osed immediately on4 0oth 0uy
and sale side in res1ect of all outstandin
1osition4 "hich "ill remain in force of next 2
days4 after "hich the s1ecial marin "ill 0e
relaxed3
Maximum )llo"a0le G1en
Aosition
Client"ise< 20000 M,4 Mem0er "ise<80000 M,
or 20O of o1en 1osition4 "hich ever is hiher3
)eli&ery
Eelivery unit 10 M, "ith tolerance limit of !O
Eelivery Marin 2!O
Eelivery Center7s8 #arehouses at Eelhi
Euality =pecifications
#heat of (tandard Mill variety confirmin to the follo"in =uality
standerds "ill 0e delievera0le3 ,he material "ill 0e tested usin a 3mm
sieve3
34
)efects
7a8 6orein Matter
7oranicBinoranic8
230O 7Max8
708 Eamaed Kernels 2300 7Max8 1rovided that infestation damaed
not to exceed 1 1er 100 kernels3
7c8 (hrunken (hriveled
D 0roken rains
3300O 7Max8
,otal defects 7aS0Sc8
)cce1ta0le u1 to
.e5ected total defect is
/elo" &O
8O #ith re0ate on 1>1 0asis
)0ove 8O
,eat "eiht u1 to %& kBhl %&kBhl3 Min3 acce1ta0le "ith re0ate of 1!0
rams 1er kBhl or 1ro<rata variance in hector
liter "eiht deducted 1er =uintal /elo" %4 kBhl
.e5ected /elo" %4 kBhl
Moisture
)cce1ta0le
.e5ect a0le
11O
7Max813O #ith re0ate 1>1
)0ove 13O

7,a$ity 4peci!ication" #
#heat of (tandard Mill variety conformin to the follo"in =uality standards
"ill 0e delivera0le? ,he material "ill 0e tested 0y usin 3 mm sieve3
)efects" #
13 6orein Matter 7oranicBinoranic8
23 Eamaed Kernel
33 (unken4 (hriveled and
/roken rains
,otal Eefects 7aS0Sc8
)cce1ta0le
.e5ected if total defects
230O 7maximum8
230O 7maximum8 1rovided that
infestation damaed not exceed 1
Aer 100 kernels3
3300O 7maximum8
/elo" &O
-1 to 8O "ith re0ate on 1>1 0asis
)0ove 8O
Total Weight
-1 to %4 kBhl
%& kBhl3 7minimum8
)cce1ta0le "ith re0ate of 1!0
rams 1er kBhl or 1ro<rata
variance in hector liter "eiht
35
/elo" %4 kBhl
deducted 1er =uintal "eiht
delivered3
.e5ected
Moisture
)cce1ta0le
.e5ect a0le
11O 7maximum8
-1 to 13O "ith re0ate 1>1
)0ove 13!
Aackin Aackin should 0e in / ,"ill once
used 100k 5ute 0as4 the tare
"eiht deduction 1er 0a for net
"eiht calculation shall 0e 1 k 1er
=uintal of ross "eiht3

36
ANA)Y4I4
(urvey "as conducted across Mum0ai City 7in areas like
)ndheri4 (antacru24 /andra Church ate8 to 5ude the a"areness of
1eo1les reardin investment in Commodity Market.
(am1le si2e 30 1eo1les
COMMODITY MARKET
Questionnaire for Investors
1. (o yo) 'a*e any in*estment +an,
a. -%. /. 01
2if no mo*e to 3)estion no. 44
2. 5f6 yes6 w'ere yo) wo)d i7e to in*est yo)r money,
a. 8an7 ".(. /. .'are Mar7et c. Commodity Mar7et d. 1t'er 2s+ecify4
3. 9'y yo) +refer s+ecific in*estment,
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
4. 5f no6 w'y,
a. 0ot aware a/o)t in*est a*en)es /. 5ns)fficient income c. 1t'er 2s+ecify4
5. (o yo) aware a/o)t Commodity Mar7et,
a. -%. /. 01
2if no mo*e to 3)estion no 124
6. ;re yo) wiin< to in*est in Commodity Mar7et,
25f in =. 2 Commodity Mar7et6 s7i+ t'is 3)estion4
a. 5f -%.6 w'y, ::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
/. 5f 016 w'y, ::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
25f no mo*e to t'e =)estion no.104
7. 5f yes6 w'ic' Commodity %xc'an<e yo) wi +refer for in*estment,
a. MCX /. 0C(%X c. 0MC% d. 1t'er 2s+ecify4 f. Can>t .ay
8. 9'y yo) +refer s+ecific Commodity %xc'an<e for in*estment,
2if answer to =.7 f6 s7i+ t'is 3)estion4
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

37
9. 5n w'ic' Commodities yo) wi +refer to 5n*est, ;nd w'y,
a. 8)ion /. ;<ric)t)ra c. Metas d. "ossis?%ner<y
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

10. 9'at is yo)r +erce+tion a/o)t Commodity Mar7et,
a. &ess !is7y /. !is7y c. @ery !is7y
11. 9'at yo) t'in7 Commodity Mar7et ;d*ertisements 2'oardin<s6 +rints etc4 are
ex+anatory eno)<' to <i*e needed )sef) information,
a. -%. /. 01
12. Aender
a. Mae /. "emae
13. ;<e Aro)+
a. 8eow 21 -ears /. 21 years B 30 years c.31 years B 40 years
d. 41 years B 50 years e. ;/o*e 50 years
14. 1cc)+ation
a. Ao*t. Co/ /. Pri*ate Co/ c. 8)siness d. 1t'er 2s+ecify4
15. 5ncome Aro)+ 2Per mont'4
a. 0i /. 8eow 106000?: c. 106000 B 206000?:
d. 206000 B 306000?: e. ;/o*e 306000?:
###########################################################################
###########################################################################
38
7,antitati&e Ana$yi
19 In&etor: pre!erence" #
)nalysis of data revels that ma5ority of 1eo1le 1refer
investment in .eal Estate 728381O of total sam1le8 "hich s1ecified in
other cateory investment and it is reater than share market
investment 1reference3
39
;9 <eop$e: kno/$ed(e a=o,t Commodity Market" #
Mery fe" 1eo1le heard of commodity market3 Mast ma5ority of
1eo1le are una"are a0out Commodity Market3
39 In&etor: intereted to in&et in Commodity Market" #
7Gut of those4 "ho kno" Commodity Market8

,houh some 1eo1le heard of commodity market due to lack
of com1lete kno"lede a0out it half of then are not interested in
investin in Commodity Market3
40
)0ove data revels that ma5ority of commodity investors like
to invest in /ullion 7;old D (ilver83
.9 <erception a=o,t Commodity Market
)nalysis of data sho"s that ma5ority of 1eo1le "ho are
a"are a0out commodity market? feel that investment in commodity
market is very risky3 (o efforts should 0e done to minimi2e the risk in
commodity investment and make 1eo1les a0out minimum risk in
commodity investment3
41
19 Opinion a=o,t Commodity Market Ad&ertiement
7Ex1ressed 0y those "ho kno" commodity market8
,here is no second o1inion amonst commodity investors4 that
commodity market advertisements do not ive all the necessary
information3

7,a$itati&e Ana$yi
19 In&etment pre!erence" #
Most of the investors 1refer least risky investment "hich
ives hiher returns3 ,hat is "hy ma5ority 7%0O of sam1le8 of
1eo1le interested in investments other than (hare and commodity
market3
Mery less num0er of 1eo1le 7only %O8 sho"ed their
interest in investment in commodity market3 Main reason for this is
lack of a"areness and com1lete information a0out commodity
market3
;9 Commodity E'chan(e" #
Aeo1le "ho are interested in commodity investment
sho"ed more concern to"ards *CEE+? for its 0rand name and
1eo1le think there miht 0e surety of transaction at *CEE+3
39 Commoditie" #
/ullion is most 1referred commodity for investment3 /ecause
one can ex1ect maximum returns from such investment due to
ra1idly increasin 1rices of 0ullion in market3
42
-9 Ad&ertiement" #
Commodity market )dvertisements should 0e more
informative3 )nd it is the failure of commodity marketFs
advertisement cam1ain to attract 1eo1leFs attention? as ma5ority
of 1eo1le are not a"are a0out commodity market3
<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<
<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<

Questionnaire for Brokers
1. .ince 'ow many years yo) are wor7in< as a /ro7er,
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
2. Dow does one /ecome /ro7er,
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
3. 9'ic' Commodity %xc'an<e yo) +refer to wor7,
a. MCX /. 0C(%X c. 0MC% d. 1t'er 2s+ecify4
4. 9'y do yo) +refer t'e s+ecific Commodity %xc'an<e,
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
5. 5n w'ic' commodities do yo) dea,
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
6. 9'y do yo) +refer t'ose commodities,
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
7. 5f one wants to in*est in Commodity Mar7et6 'ow to <o a/o)t it,
43
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
10. 9'at is yo)r +erce+tion a/o)t Commodity Mar7et,
a. &ess !is7y /. !is7y c. @ery !is7y
11. ;ny s)<<estion for commodity mar7et,
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
12. Aender
a. Mae /. "emae
13. ;<e Aro)+
a. 8eow 21 years
/. 21 years B 30 years
c. 31 years B 40 years
d. 41 years B 50 years
e. ;/o*e 50 years
14. 5ncome Aro)+ 2+er year4
a. 8eow 16006000?:
/. 16006000 B 16506000?:
c. 16506000 : 26506000?:
d. ;/o*e 26506000?:
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<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<


44
COMMODITY MARKET
Questionnaire for Officials
1. 9'at is MCX? 0C(X? 0MC%?EE.
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
2. Distory /e'ind formation of MCX? 0C(X? 0MC%?EEEEEE..
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

3. 9'at are t'e de+artments at MCX? 0C(X? 0MC%?EEE.
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
4. Dow wor7 is done in eac' de+artment,
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

5. Dow one can /ecome /ro7er at MCX? 0C(X? 0MC%?EEEE.
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6. Dow one can /ecome mem/er of MCX? 0C(X? 0MC%EEE..
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45
ANNEX>RE
Term and De!inition re$ated to Commodity Market" #
1ccruals"# Commodities on hand ready for shi1ment4 storae
and manufacture
1r$itragers" # )r0itraers are interested in makin 1urchase
and sale in different markets at the same time to 1rofit from
1rice discre1ancy 0et"een the t"o markets3
1t the Market" # )n order to 0uy or sell at the 0est 1rice
1ossi0le at the time an order reaches the tradin 1it3
'asis" # /asis is the difference 0et"een the cash 1rice of an
asset and futures 1rice of the underlyin asset3 /asis can 0e
neative or 1ositive de1endin on the 1rices 1revailin in the
cash and futures3
'asis grade" # (1ecific rade or rades named in the exchanes
future contract3 ,he other rades delivera0le are su05ect to 1rice
of underlyin futures
'ear" # ) 1erson "ho ex1ects 1rices to o lo"er3
'id" < ) 0id su05ect to immediate acce1tance made on the floor
of exchane to 0uy a definite num0er of futures contracts at a
s1ecific 1rice3
'reaking" < ) =uick decline in 1rice3
'ulging" # ) =uick increase in 1rice3
'ull" < ) 1erson "ho ex1ects 1rices to o hiher3
'uy on Close" # ,o 0uy at the end of tradin session at the 1rice
"ithin the closin rane3
'uy on opening" # ,o 0uy at the 0einnin of tradin session at
a 1rice "ithin the o1enin rane3
Call" # )n o1tion that ives the 0uyer the riht to a lon 1osition
in the underlyin futures at a s1ecific 1rice4 the call "riter
46
7seller8 may 0e assined a short 1osition in the underlyin
futures if the 0uyer exercises the call3
Cash commodity" # ,he actual 1hysical 1roduct on "hich a
futures contract is 0ased3 ,his 1roduct can include aricultural
commodities4 financial instruments and the cash e=uivalent of
index futures3
Close" # ,he 1eriod at the end of tradin session officially
desinated 0y exchane durin "hich all transactions are
considered made 9at the close:3
Closing price" # ,he 1rice 7or 1rice rane8 recorded durin the
1eriod desinated 0y the exchane as the official close3
Commission house" # ) concern that 0uys and sells actual
commodities or futures contract for the accounts of customers3
Consumption Commodity" < Consum1tion commodities are
held mainly for consum1tion 1ur1ose3 E33 Gil4 steel
Co&er" # ,he cancellation of the short 1osition in any futures
contract 0uys the 1urchase of an e=ual =uantity of the same
futures contract.
Cross hedge" # #hen a cash commodity is heded 0y usin
futures contract of other commodity3
)ay orders" # Grders at a limited 1rice "hich are understood to
0e ood for the day unless ex1ressly desinated as an o1en
order or 9ood till canceled: order3
)eli&ery" # ,he tender and recei1t of actual commodity4 or in
case of ariculture commodities4 "arehouse recei1ts coverin
such commodity4 in settlement of futures contract3 (ome
contracts settle in cash 7cash delivery83 In "hich case o1en
1ositions are marked to market on last day of contract 0ased on
cash market close3
)eli&ery month" < (1ecified month "ithin "hich delivery may
0e made under the terms of futures contract3
47
)eli&ery notice" < ) notice for a clearin mem0erFs intention to
deliver a stated =uantity of commodity in settlement of a short
futures 1osition3
)eri&ati&es" < ,hese are financial contracts4 "hich derive their
value from an underlyin asset3 7-nderlyin assets can 0e
e=uity4 commodity4 forein exchane4 interest rates4 real estate
or any other asset38 6our ty1es of derivatives are trades for"ard4
futures4 o1tions and s"a1s3 Eerivatives can 0e traded either in
an exchane or over the counter3
)ifferentials" # ,he 1remium 1aid for rades 0atter than the
0asis rade and the discounts allo"ed for the rades3 ,hese
differentials are fixed 0y the contract terms on most exchanes3
-change" # Central market 1lace for 0uyers and sellers3
(tandardi2ed contracts ensure that the 1rices mean the same to
everyone in the market3 ,he 1rices in an exchane are
determined in the form of a continuous auction 0y mem0ers "ho
are actin on 0ehalf of their clients4 com1anies or themselves3
!or:ard contract" # It is an areement 0et"een t"o 1arties to
0uy or sell an asset at a future date for 1rice areed u1on "hile
sinin areement3 6or"ard contract is not traded on an
exchane3 ,his is oldest form of derivative contract3 It is traded
in G,C Market3 *ot on an exchane3 (i2e of for"ard contract is
customi2ed as 1er the terms of areement 0et"een 0uyer and
seller3 ,he contract 1rice of for"ard contract is not trans1arent4
as it is not 1u0licly disclosed3 Here valuation of o1en 1osition is
not calculated on a daily 0asis and there is no re=uirement of
M,M3 @i=uidity is the measure of fre=uency of trades that occur
in a 1articular commodity for"ard contract is less li=uid due to
its customi2ed nature3 In for"ard contracts4 counter< 1arty risk
is hih due to customi2ed D 0ilateral nature of the transaction3
6or"ard contract is not reulated 0y any exchane3 6or"ard
contract is enerally settled 0y 1hysical delivery3 In this case
delivery is carried out at delivery center s1ecified in the
customi2ed 0ilateral areement3
!utures Contract"# It is an areement 0et"een t"o 1arties to
0uy or sell a s1ecified and standardi2ed =uantity and =uality of
an asset at certain time in the future at 1rice areed u1on at the
time of enterin in to contract on the futures exchane3 It is
48
entered on centrali2ed tradin 1latform of exchane3 It is
standardi2ed in terms of =uantity as s1ecified 0y exchane3
Contract 1rice of futures contract is trans1arent as it is availa0le
on centrali2ed tradin screen of the exchane3 Here valuation of
Mark<to<Mark 1osition is calculated as 1er the official closin
1rice on daily 0asis and M,M marin re=uirement exists3 6utures
contract is more li=uid as it is traded on the exchane3 In futures
contracts the clearin<house 0ecomes the counter 1arty to each
transaction4 "hich is called novation3 ,herefore4 counter 1arty
risk is almost eliminated3 ) reulatory authority and the
exchane reulate futures contract3 6utures contract is enerally
cash settled 0ut o1tion of 1hysical settlement is availa0le3
Eelivery tendered in case of futures contract should 0e of
standard =uantity and =uality as s1ecified 0y the exchane3
!utures commission merchant" # ) 0roker "ho is 1ermitted
to acce1t the orders to 0uy and sale futures contracts for the
consumers3
6utures 6unds> < -sually limited 1artnershi1s for investors "ho
1refer to 1artici1ate in the futures market 0y 0uyin shares in a
fund manaed 0y 1rofessional traders or commodity tradin
advisors3
!utures Market"#It facilitates 0uyin and sellin of standardi2ed
contractual areements 7for future delivery8 of underlyin asset
as the s1ecific commodity and not the 1hysical commodity itself3
,he formulation of futures contract is very s1ecific reardin the
=uality of the commodity4 the =uantity to 0e delivered and date
for delivery3 Ho"ever it does not involve immediate transfer of
o"nershi1 of commodity4 unless resultin in delivery3 ,hus4 in
futures markets4 commodities can 0e 0ouht or sold irres1ective
of "hether one has 1ossession of the underlyin commodity or
not3 ,he futures market trade in futures contracts 1rimarily for
the 1ur1ose of risk manaement that is hedin on commodity
stocks or for"ard 0uyers and sellers3 Most of these contracts are
s=uared off 0efore maturity and rarely end in deliveries3
5edging" < Means takin a 1osition in futures market that is
o11osite to 1osition in the 1hysical market "ith the o05ective of
reducin or limitin risk associated "ith 1rice3
In the money" < In call o1tions "hen strike 1rice is 0elo" the
1rice of underlyin futures3 In 1ut o1tions4 "hen the strike 1rice
49
is a0ove the underlyin futures3 In<the<money o1tions are the
most ex1ensive o1tions 0ecause the 1remium includes intrinsic
value3
Inde !utures" # 6utures contracts 0ased on indexes such as
the ( D A !00 or Malue @ine Index3 ,hese are the cash
settlement contracts3
In&estment Commodities" # )n investment commodity is
enerally held for investment 1ur1ose3 e33 ;old4 (ilver
9imit" # ,he maximum daily 1rice chane a0ove or 0elo" the
1rice close in a s1ecific futures market3 ,radin limits may 0e
chaned durin 1eriods of unusually hih market activity3
9imit order" < )n order iven to a 0roker 0y a customer "ho
has some restrictions u1on its execution4 such as 1rice or time3
9i4uidation" # ) transaction made in reducin or closin out a
lon or short 1osition4 0ut more often used 0y the trade to mean
a reduction or closin out of lon 1osition3
9ocal" # Inde1endent trader "ho trades hisBher o"n money on
the floor of the exchanes3 (ome local act as a 0rokers as "ell4
0ut are su05ect to certain rules that 1rotect customer orders3
9ong" # 718 ,he 0uyin side of an o1en futures contract or
futures o1tion? 728 a trader "hose net 1osition in the futures or
o1tions market sho"s an excess of o1en 1urchases over o1en
sales3
Margin" # Cash or e=uivalent 1osted as uarantee of fulfillment
of a futures contract 7not a do"n 1ayment83
Margin call" # Eemand for additional funds or e=uivalent
0ecause of adverse 1rice movement or some other continency3
Market to Market" # ,he 1ractice of creditin or de0atin a
traderFs account 0ased on daily closin 1rices of the futures
contracts he is lon or short3
Market order" # )n order for immediate execution at the 0est
availa0le 1rice3
50
Near$y" # ,he futures contract closest to ex1iration3
Net position" # ,he difference 0et"een the o1en contracts lon
and the o1en contracts short held in any commodity 0y any
individual or rou13
;ffer" < )n offer indicatin "illinness to sell at a iven 1rice
7o11osite of 0id83
;n opening" # ) term used to s1ecify execution of an order
durin the o1enin3
;pen contracts" # Contracts "hich have 0een 0rouht or sold
"ithout the transaction havin 0een com1leted 0y su0se=uent
sale4 re1urchase or actual delivery or recei1t of commodity3
;pen interest" # ,he num0er of 9o1en contracts:3 It refers to
unli=uidated 1urchases or sales and never to their com0ined
total3
;ption" # It ives riht 0ut not the o0liation to the o1tion
o"ner4 to 0uy an underlyin asset at s1ecific 1rice at s1ecific
time in the future3
;ut#of#the money" # G1tion calls "ith the strike 1rices a0ove
the 1rice of the underlyin futures4 and 1uts "ith strike 1rices
0elo" the 1rice of the underlyin futures3
;&er the counter" # It is alternative tradin 1latform4 linked to
net"ork of dealers "ho do not 1hysically meet 0ut instead
communicates throuh a net"ork of 1hones D com1uters3
Pit" # )n octaonal 1latform on the tradin floor of an exchane4
consistin of ste1s u1on "hich traders and 0rokers stand "hile
tradin 7if circular called rin83
Point" # ,he minimum unit in "hich chanes in futures 1rices
may 0e ex1ressed 7minimum 1rice fluctuation may 0e in
multi1les of 1oints83
Position" # )n interest in the market in the form of o1en
commodities3
51
Aremium> < ,he amount 0y "hich a iven futures contractFs 1rice
or commodityFs =uality exceeds that of another contract or
commodity 7o11osite of discount83 In o1tions4 the 1rice of a call
or 1ut4 "hich the 0uyer initially 1ays to the o1tion "riter 7seller83
Price limit" # ,he maximum fluctuation in 1rice of futures
contract 1ermitted durin one tradin session4 as fixed 0y the
rules of a contract market3
Aurchase and sales statement> < ) statement sent 0y 6MC to a
customer "hen his futures o1tion has 0een reduced or closed
out 7also called PA and (:8
Put" < In o1tions the 0uyer of a 1ut has the riht to continue a
short 1osition in an underlyin futures contract at the strike 1rice
until the o1tion ex1ires? the seller 7"riter8 of the 1ut o0liates
himself to take a lon 1osition in the futures at the strike 1rice if
the 0uyer exercises his 1ut3
+ange" # ,he difference 0et"een hih and lo" 1rice of the
futures contract durin a iven 1eriod3
+atio hedging" # Hedin a cash 1osition "ith futures on a less
or more than one<for<one 0asis3
+eaction" # ,he do"n"ard tendency of a commodity after an
advance3
+ound turn" # ,he execution of the same customer of a
1urchase transaction and a sales transaction "hich offset each
other3
+ound turn commission" # ,he cost to the customer for
executin a futures contract "hich is chared only "hen the
1osition is li=uidated3
=calping" # 6or floor traders4 the 1ractice of tradin in and out
of contracts throuh out the tradin day in a ho1es for makin a
series of small 1rofits3
52
=ettlement price" # ,he official daily closin 1rice of futures
contract4 set 0y the exchane for the 1ur1ose of settin marins
accounts3
=hort" # 718 ,he sellin of an o1tion futures contract3 728 )
trader "hose net 1osition in the futures market sho"s an excess
of o1en sales over o1en 1urchases3
=peculator" # (1eculator is an additional 0uyer of the
commodities "henever it seems that market 1rices are lo"er
than they should 0e3
=pot Markets"#Here commodities are 1hysically 0rouht or sold
on a neotiated 0asis3
=pot price" # ,he 1rice at "hich the s1ot or cash commodity is
sellin on the cash or s1ot market3
=pread" < (1read is the difference in 1rices of t"o futures
contracts3
=triking price" < In o1tions4 the 1rice at "hich a futures
1osition "ill 0e esta0lished if the 0uyer exercises 7also called
strike or exercise 1rice83
=:ap" # It is an areement 0et"een t"o 1arties to exchane
different streams of cash flo"s in future accordin to
1redetermined terms3
Technical analysis 6charting8" # In 1rice forecastin4 the use
of charts and other devices to analy2e 1rice<chane 1atters and
chanes in volume and o1en interest to 1redict future market
trends 7o11osite of fundamental analysis83
Time &alue" # In o1tions the value of 1remium is 0ased on the
amount of time left 0efore the contract ex1ires and the volatility
of the underlyin futures contract3 ,ime value re1resents the
1ortion of the 1remium in excess of intrinsic value3 ,ime value
diminishes as the ex1iration of the o1tions dra"s near andBor if
the underlyin futures 0ecome less volatile3
53
@olume of trading 6or sales8" # ) sim1le addition of
successive futures transactions 7a transaction consists of a
1urchase and matchin sale83
Writer" # ) sealer of an o1tion "ho collects the 1remium
1ayment from the 0uyer9
=ummary

,his decade is termed as Eecade of Commodities3
Arices of all commodities are headin north"ards due to ra1id
increase in demand for commodities3 Eevelo1in countries like
China are voraciously consumin the commodities3 ,hatFs "hy
lo0ally commodity market is 0ier than the stock market3
India is one of the to1 1roducers of lare num0er of
commodities and also has a lon history of tradin in
commodities and related derivatives3 ,he Commodities
Eerivatives market has seen u1s and do"ns4 0ut seems to have
finally arrived no"3 ,he market has made enormous 1roress in
terms of ,echnoloy4 trans1arency and tradin activity3
Interestinly4 this has ha11ened only after the ;overnment
1rotection "as removed from a num0er of Commodities4 and
market force "as allo"ed to 1lay their role3 ,his should act as a
ma5or lesson for 1olicy makers in develo1in countries4 that
1ricin and 1rice risk manaement should 0e left to the market
forces rather than tryin to achieve these throuh administered
1rice mechanisms3 ,he manaement of 1rice risk is oin to
assume even reater im1ortance in future "ith the 1romotion
of free trade and removal of trade 0arriers in the "orld3
)s ma5ority of Indian investors are not a"are of
orani2ed commodity market? their 1erce1tion a0out is of risky
to very risky investment3 Many of them have "ron im1ression
a0out commodity market in their minds3 It makes them
s1ecious to"ards commodity market3 Concerned authorities
have to take initiative to make commodity tradin 1rocess easy
and sim1le3 )lon "ith ;overnment efforts *;GFs should come
for"ard to educate the 1eo1le a0out commodity markets and to
encourae them to invest in to it3 ,here is no dou0t that in near
future commodity market "ill 0ecome Hot s1ot for Indian
farmers rather than s1ot market3 )nd 1roducers4 traders as
"ell as consumers "ill 0e 0enefited from it3 /ut for this to
ha11en one has to take initiative to standardi2e and 1o1ulari2e
the Commodity Market3
54

2I2)IO?RA<HY
Trading Commodities and !inancial !utures" 1 =tep $y
=tep guide to Mastering the MarketG ,
rd
-dition $y <eorge
Fleinman
;ptionsG !utures and ;ther )eri&ati&es $y Hohan C. 5ull
http"00commodities.in
http"00finance.indiamart.com0markets0commodity0
http"00:::.commoditiescontrol.com
http"00:::.mcindia.com
http"00:::.ncde.com
MC7 Certified Commodity Professional +eference Material
'usiness World 6(/
th
=eptem$er *AA,8
'usiness World 6.
th
)ecem$er *AA28
http"00in&estmentI.co.in
http"00trade.indiainfoline.com
http"00:::.finance.indiamart.com
55
(1eaker 1> < Introduction>< #hat is commodity$ commodity exchane$
"hat is commodity futures$ o05ective of commodity futures

(1eaker 2> < /enifits of commodity futures4 Evalution of history of
commodity markets

(1eaker 3> <India and commodity markets history S leal frame
"orkS 6MC

(1eaker 4> <Commodity Exchanes in India D International exchanes

(1eaker !> < )mar> <ho" commodity market "orksS ho" to invest in
commodity marketS ho" to 0ecome a mem0er

(1eaker &> <Current scenarioSsuestions
56