ABOUT STOCK BROKING INDUSTRY

HISTORY
Indian stock market is one of the oldest in Asia. Its history dates to nearly
200 years ago. The earliest records of security dealing in India are merged
and obscure.

By 1830s business on corporate stocks & shares in bank and cotton presses
took place in Bombay. Though, the trading list was broader in 1839, there
were only half a dozen brokers recognized by banks and merchants during
1840 and 1850. The 1850s witnessed a rapid development of commercial
enterprise and brokerage business attracted many men into the field and by
1860 the no. of brokers increased into 60. In 1860-61 the American Civil
War broke out and cotton supply from United States and Europe was
stopped; thus, the ‘share mania’ in India began. The no. of brokers increased
about 200 to 250. However, at the end of the American Civil War, in 1865, a
disastrous slump began (for eg, Bank of Bombay share which had touched
Rs. 2850 could only be sold at Rs. 87). At the end of the American Civil
War the brokers who thrived out of civil war in 1874, found a place in a
street (now appropriately called as Dalal Street) where they would
conveniently assemble and transact business. In 1887, they formally
established in Bombay, the “Native Share and Stock Brokers’ Association”
(which is alternatively known as “The Stock Exchange”). In 1895, the Stock
Exchange acquired premise in the same street and it was inaugurated in
1899. Thus, the Stock Exchange at Bombay was consolidated.

Thus in the same way, gradually with the passage of time no. of exchanges
were increased and at currently it reached to the figure of 24 stock
exchanges.

1
INTRODUCTION
Stock exchanges to some extent play an important role as indicators,
reflecting the performance of the country’s economic state of health. Stock
market is a place where securities are bought and sold. It is exposed to a
high degree of volatility with price fluctuating within minutes and it is
determined by the demand and supply of stocks at given time. Stock brokers
are the one who buys abs sells securities on behalf of individuals and
institutions for some commission.

The Security and Exchange Board of India (SEBI) is the authorized body,
which regulates the operations of stock exchanges, banks and other financial
institutions. The past performances in the capital market especially the
securities scam by Harshad Mehta has led to tightening of the operations by
SEBI. In addition the international trading and investment exposure has
made it imperative to better operational efficiency. With the view to improve
discipline and bring greater transparency in this sector, constant efforts are
being made and to certain extent improvements have been made.

STOCKBROKERS
A broker is an intermediary who arranges to buy and sell securities on behalf
of the clients (the buyer and seller)

According to rule 2 (e) of SEBI rules, 1992, a stockbroker means a member

of a recognized stock exchanges of which he or she is admitted as a member.
Stock market transactions are carried out on computerized systems and deals
are recorded for inspection at any time.

Stock brokers independently may deal with the following:

 Operations for private clients and institutional clients.

 Some brokers act only as dealers (client investment manager) while
others are principally advisors (equity sales advisors).
 Some brokers provide services for portfolio management and
constantly review investments in the lights of trends and
developments in the market.

2
  Financial services brokers specialize in bond issues, handling
institutional accounts or mutual funds.

In large firms, stock brokers work in the following areas:

 Deal with and advice smaller firms.

 Securities brokers work on behalf of firms with private clients to
understand the investment plans and objectives of the client i.e.
expectation for returns and interest in risk taking. They are
representatives of brokerage firms and execute orders to buy and sell
securities. They are equipped with both knowledge experience to give
advice on the sale and purchase of scrips and management of financial
investments.
 Advice for investments.
 Carry out market transactions.
 The financial services in firms concern with pre-sales, sales and after
sales services. These firms have departments to manage the sales and
trading for the owners of securities, investment banking for firms and
the government for the issue of securities and capital markets which
form an essential arm for trading activities.

As Security Analysts

Brokers may be required to advice on floatation of shares conjunctions with

merchant banks. They are expected to have knowledge of the market to be
able to anticipate certain trend and make predictions.

As investment Analysts

The investment analysts provide accurate information to investors and fund

managers. There are two major roles:

 Institutional analyst – the process of analysis involves making

predictions of the company’s future based on its past and present
financial status.
 Stock broking analyst – investment analysts work with firms which
provide advice on buying and selling of shares and also with those
firms which have funds to be managed. Fund managers in merchant
banks, insurance and pension funds are involved with huge

3
 investments made by millions of investors. The funds are eventually
disbursed as insurance claims, pensions etc. They are specialized
financial advisors who provide advice on the how and where of details
concerning investment.

Investment analyst study the company’s annual report, visit the organization,
interview senior executive to assess statistical information, profits and
import and export figures for the industry as a whole. Institutional analysis
involves studying the entire sector.

MAJOR PLAYERS OF INDUSTRY

1. Angel Broking Ltd.

2. ICICI Web Trade Ltd. (ICICIdirect. com)
3. S. S. kantilal Ishwarlal Securities Pvt. Ltd. (sharekhan.com)
4. India infoline Ltd. (5paisa.com)
5. kotak Securities Ltd. (Kotakstreet.com)
6. Indiabulls
7. HDFC Securities (HDFC secs)
8. UTI Securities Ltd. (UTISEL)
9. Motilal Oswal Securities Ltd. (MOSt)
10. IDBI Capital Market Services Ltd.
11. Refco-Sify Securities India Pvt. Ltd.

4
 INDUSTRY ANALYSIS USING
PORTER’S 5 FORCES MODEL

POTENTIAL ENTERANT

R-Trade
Threats of New Entry SBI Capital Ltd.
Geojit
Cipher
UTI Securities Ltd.
IDBI Capital Mkt. Services Ltd.

Bargaining Power of
Buyers

SUPPLIERS COMPETITORS BUYERS

Web maintainers ICICI Web Trade Ltd Small Investors

NSCL 5paisa.com Franchise/Business
CSDL Kotak Securities Ltd Partners
NSE India Bulls HNI’s
BSE Motilal Oswal Securities Ltd MF Companies
MCX ShareKhan HUF
NCDEX Marwadi Finance Ltd Institutional Investors

Bargaining Power of
Suppliers
SUBSTITUTES

Mutual Funds
Insurance
Bank FD

Threats of Substitute
Products or Services

5
SUPPLIERS

 NSDL & CSDL are the regulatory bodies for Depository Participants
like Angel, SSKI, SHCIL, ICICIdirect.com, etc. These regulatory
bodies have got an upper hand as the bargaining power of stock
broking organizations like Angel would be less.

 NSE & BSE are playgrounds where an investor trade through stock
broking houses, for which they have to take permission from
NSE/BSE.

 NSE & BSE are under the purview of SEBI, that’s why stock broking
houses like Angel, have low bargaining power. But here there is one
advantage that NSE/BSE cannot go for forward integration.

 MCX & NCDEX are stock exchanges which trade in commodities.

Here again stock broking houses have to follow rules and regulation
of the same.

 Web maintainers are companies which maintain web sites & technical
aspects of the same. Here stock broking houses like Angel can have
more bargaining power due to stiff competition among web
maintaining companies.

 Web maintainers are companies who make and maintain software’s

for stock broking houses. If say for example stock broking houses
switches over to other web maintainers then that company cannot
understand the mechanisms of software’s. So it is quite high switching
cost.

BUYERS

 There are various types of investors who trade through stock broking
houses like Angel, which includes investors like small investors,
medium net worth investors, business partners, institutional investors
and mutual fund companies.

6
  Here the bargaining power of stock broking houses depends on how
big the investor is.

 So here we can say that bargaining power of stock broking houses is

high in case of small investors & HUF.

 While its moderate in HNI/MNI’s and business partners.

 While its less in case of mutual fund companies and institutional

investors.

 There is competitive buzz in stock broking industry; competitors are

offering low brokerage and best services with added feature. So
switching cost is pretty much less. So the buyer can easily switch over
to competitors product.

COMPETITORS

 The company is facing the competition from local as well as national

level players. The local players provide facility for off-line trading
while the national players like ICICIdirect.com and Kotakstreet.com,
HDFC Security provide online trading services.

 There are also other big names like Indiabulls, Motilal Oswal, 5paisa
Marwadi, and SSKI encircles the company form both the sides by
providing online and off-line trading with competitive services.

POTENTIAL ENTRANTS

 Few entrants which may take away the share of current players.

 The potential entrants in Rajkot city are Investmart, Jeojit Cipher and
many others which are coming in near future.

7
 Nationalized banks are also thinking to enter in this field by tying up
with broking houses. E.g. Bank Of Baroda.

Entry Barriers

 Huge capital: - Capital is necessary not only for fixed facilities but
also for customers’ credit and absorbing start up losses. To start a
stock broking house, one needs huge capital for technology up
gradation and skilled manpower.

 Technology:- Technology for stock broking houses is life saving

device. Stock broking requires huge capital to make their products
user friendly, which in turn requires capital to employ skilled
manpower. Thus, technology could be one of the entry barrier.

 Regulatory Constraints:- Obtaining a license is a tedious job for a

stock broking house. It should comply with the regulation of the
governing bodies like SEBI, NSDL, etc. For a stock broking
houses to plunge into the stock broking industry, it needs to have
some kind of financial background and expertise. Thus, regulators
constraints could be an entry barrier.

 Experience Curve:- The core competency in this industry is the

services which are provided to the end-users and the research
based activities which includes “TIPS”, fundamental as well as
technical script analysis. Also the most important thing which
helps already established firms is-“TRUST” which people would
be having on firms like Angel, Motilal Oswal, etc. this is very
difficult for new companies to imitate.

 Network:- ‘Reach’ to the customer is the key factor in the

industry. The network of the companies like Motilal Oswal,
Sharekhan, ICICI is very efficient and spreaded all over India. It
will take time for a new entrant to establish such a huge network
(e.g. Marwadi), which say that, “Network can come up as most
difficult entry barrier to overcome.”

8
 Expected Retaliation:- Whenever a new player comes in the
industry, the old companies have an option to reduce the prices of
their product. This kind of practice is called expected Retaliation
which is also possible in this industry in terms of less brokerage
rates and reduced account opening charges.

9
SUBSTITUTES

 Here substitutes are such instruments which can be used instead of

investing in shares.

 The instruments like Bank FD, insurance, mutual funds are the
substitutes.

 If the use of this instruments increase this may be disadvantage for the
stock broking houses.

 The companies and banks which are having these instruments can
plunge into this industry.

10
 ABOUT THE GROUP

The Angel Group has emerged as one of the top 5 retail stock broking
houses in India, having memberships in BSE, NSE and the two leading
commodity exchanges in the country i.e. NCDEX and MCX. Angel Broking
Ltd is also registered as a depository participant with CDSL.

The group is promoted by Mr. Dinesh Thakkar, who started this enterprise
as a small sub-broker in 1987 with staff strength of 3 personnel. As on date,
the group is managed by a team of 1918+ direct employees. It has a nation
wide network comprising 12 Regional Centres , 64 branches, Over 2569+
registered sub brokers and business associates and 6370+ active trading
terminals which cater to the requirements of 217948+ retail clients.

Angel Broking Limited is one of the leading and professionally managed

stock broking firm involved in quality services and research. Angel Broking
Limited is a corporate member of The Stock Exchange, Mumbai.

The membership of the company with The Stock Exchange, Mumbai was
originally in the name of Mukesh R. Gandhi, which was eventually turned
into a corporate membership in the name of Angel Broking Limited.

Angel Broking Limited is managed by Mr. Dinesh Thakkar and he is well

supported by Mr. Mukesh Gandhi, a fifteen years veteran in the market.

The group is well supported by a professional and qualified research team

and efficient operations and back office team, which comprises of highly
dedicated and qualified individuals. Angel has an in-house, state of art
research department.

Angel Broking Limited is primarily into retail stock broking, with a

customer base of retail investors, which has been increasing at a
compounded growth rate of 100% every year. The company has huge
network sub-brokers in Mumbai and other places outside Mumbai,
registered with SEBI, who act as channel partners for the company. The
company presently has total staff strength of around 1895 employees who
are spread accordingly across the head office and all the branches.

11
Angel Commodities Broking (P) Ltd. Promoted by Angel Group, started its
operations in July 2004. It has membership in India’s two premier
commodities exchanges i.e. National Commodities & Derivative Exchange
and Multi Commodities Exchange. At present the commodities broking
services are available at all existing branches and selected franchisees.

As of now Angel broking Ltd. is present in the country through its 12

Regional offices and 64 Branch offices. The list of offices is given below.

---

ANGEL LOGO

 Pyramid formation symbolizes steady growth

 Blocks of triangles stand for team work

12
  Triangle structure showcases our network strength
 The structure reflects alphabet “A” For Angel

 Green band indicates a customer supportive unit

 Green signifies wealth creation

 Yellow signifies continuous growth & radiance

 Yellow + Green merge in Blue – our corporate colour

 Blue signifies prosperity

Registered office
G – 1, Akuti Trade Centre,
Road No – 7 ,
Midc, Marol,
Andheri ( E )
Mumbai –400 093

Corporate Office
612, Acme Plaza,
M.V.Road.
Opp. Sangam Cinema,
Adheri ( E )
Mumbai –400 059

Regional Offices :
(1) Ahmedab (4) Hyderab (7) Kolkata
ad ad
(2) Bangalore (8) Mumbai
(5) Indore
(3) Chennai (9) New
(6) Jaipur Delhi

13
(10) Pune (11) Rajkot (12) Surat

Private Client Group Office

( 1 ) Ahmedabad ( C.G.Road )
( 2 ) Surat

Branch Offices :

(1) Andheri(W) (13) Mulund(W)

(2) Andheri (14) Santacruz(W)
( Lokhandwala ) (15) Thane(W)
(3) Bandra(W) – 2 (16) Vile Parle(W)
Offices (17) Ahmedabad –7
(4) Borivali(W) – 2 Offices
Offices (18) Amreli
(5) Chembur (19) Anand
(6) Fort. (20) Ankaleshwar
(7) Ghatkopar(E) (21) Baroda – 2
(8) Goregaon(W) Offices
(9) Kalbadevi (22) Bhavnagar
(10) kandivali (23) Bhopal
(11) Malad(W) (24) Gandhinagar
(12) Malad(E) (25) Gondal

14
(26) Himatnagar (38) Porbandar
(27) Indore (39) Pune
(28) Jalgaon (40) Rajkot - 4 Offices
(29) Jaipur (41) Secundeanagar
(30) Jamnagar (42) Surat
(31) Junagadh (43) Surendranagar
(32) Jodhpur (44) Udaipur
(33) Mehsana (45) Valsad
(34) Nasik-2 Offices (46) Vapi
(35) Nadiad (47) Vijayawada
(36) New Delhi - 4 (48) Vishakhapatnam
Offices
(37) Palanpur

ANGEL’S VISION

To Provide Best value For Money To Investors

Through Innovative Products,
Trading / Investment Strategies,
State Of The Art Technology And
Personalized Service.

ANGEL’S BUSINESS PHILOSOPHY

Ethical Practices & Transparency In All Our Dealing

Customer Interest Above Our Own
Always Deliver What We Promise
Effective Cost Management

15
ANGEL’S Quality Assurance Policy

We are committed to being the leader

In providing World Class Product & Services
Which exceed the expectations of our customers
Achieved by teamwork and
A process of continuous improvement

ANGEL’S CRM Policy

A Customer is the most Important Visitor

On Our Premises
He is not Dependent on us but
We are dependant on him
He is not interruption in our work,
But is the Purpose of it
We are not doing him a favour by serving
He is doing us a favour by giving us an
Opportunity to do so

ACHIEVEMENT

16
 Angel Broking has once again been awarded the
prestigious
‘Major Volume Driver’ award for the second
consecutive year of 2005-2006 by The Bombay
Stock Exchange.

ANGEL BROKING LTD HAS BEEN AWARDED

THE COVETED
MAJOR VOLUME DRIVER TROPHY
FOR THE YEAR 2004-2005
BY THE CEO & MD
OF BSE MR. RAJNIKANT PATEL

MEMBERSHIP OF ANGEL

17
Angel Broking Ltd. is a member of following Indian
Exchanges.

 National Stock Exchange of India Ltd.

 Bombay Stock Exchange
 National commodity And Derivatives
Exchange
 Multi-commodity Exchange

ANGEL DP SERVICES
Angel Broking Ltd. is a DP service provider through
CDSL (Central Depository Services India Ltd.). It
offers depository services to create a seamless
transaction platform to execute trades through Angel
Group of Companies and settle these transactions
through Angel Depository Services.

ADVANTAGES OF ONLINE
TRADINNG WITH ANGEL
Angel provides following valuable advantages to its
online trading customers.

 Multiple exchanges on a single screen – BSE,

NSE, NSE - F&O, MCX and NCDEX
 Hot keys similar to broker’s terminal
 Streaming quotes
 In-depth research and technical charts
 Intra-day calls
 24X7 back-office
 Auto pay-in and pay-out of shares
 Instant transfer of funds
 Highly secure and confidential

18
19
PRODUCTS OFFERED BY ANGEL
Angel’s main products are shown by the graph here:

ANGEL

Offline
Online PMS

Angel-DIET Angel Anywhere Angel-inet.net

Off-Line
The Off-Line account is trading account through
which one can buy and sell through his/her telephone
or by personal visit at Angel shop.

This facility is for those who are not comfortable

with computer and want to trade

On-Line
The Online trading facilities provided by Angel is
basically divided into three types, viz. Angel-DIET,
Angel Anywhere and Angel –inet.net.

 Angel-DIET:- This is an Application based

software which is ideal for traders. It s features
includes user friendliness, simple navigation,
robust & speedier execution of trade. It can

20
 deal with BSE, NSE, F&O, MCX and
NCDEX.

 Angel Anywhere:- This is also an Application

based software which is ideal for traders. Its
technical tools and intra-day/historical charts
with various indicators are its main features. It
can deal with BSE, NSE - Cash & Derivatives
both.

 Angel-net.net:- This is a browser based

software which is ideal for investors. No
installation is required and that’s why it
provides the advantage of mobility. Through
this software trading is as simple as internet
surfing. It can deal with BSE, NSE, F&O,
MCX and NCDEX.

Portfolio Management Services

Angel model portfolio was first launched in the year
2002. since then 5 model portfolio have been
launched. The model portfolio has consistently
outperformed the SENSEX by 80% each time.
Portfolio construction & advice is based on the
principle of value-investing. Minimum portfolio size
managed by Angel is Rs. 5 lakhs for residents and
Rs. 10 lakhs for NRIs, and time horizon for the
portfolio ranges from 12 months to 18 months.

Note: The group has recently started dealing in

IPOs and Mutual Funds.

RESEARCH SERVICES OFFERED

BY ANGEL

21
The main services provided by Angel can be
classified in 4 categories which are described below:

 Daily Services: Call

s
 Market Outlook  Derivative
at 9.30 am Stra
 Technical tegi
Report at es
6.00 pm
 Derivative  Commodities
Analysis Services:
Report
 Agro Tech
 Fundamental Speak
Services:  Call evaluation
 Commodities
 Saturday Tech
We Speak
ekl
y
Rep
ort
 The Industrial
Wat
ch
 Stock Analysis
 Flash News
 Technical
Ser
vice
s:

 Intraday Calls
 Posting
Tra
din
g

22
McKINSEY 7S FRAMEWORK ANALYSIS

Kotler’s 4Ps are used to analyse a product’s marketing strategy and its focus
always on products of the organization. To better represent the challenges of
service marketing, McKinsey developed a new framework for analyzing and
improving organizational effectiveness, the 7S model:

The 3Ss across the top of the model are described as 'Hard Ss':

Strategy: The direction and scope of the company over the long term.
Company’s strategy is to grow large by building trust and providing quality
services to retail clients.

Structure: The basic organization of the company, its departments,

reporting lines, areas of expertise, and responsibility (and how they inter-
relate). Company’s organization structure is flat and is look like SBU
(Strategic Business Unit).

Systems: Formal and informal procedures that govern everyday activity,

covering everything from management information systems, through to the
systems at the point of contact with the customer. Company has good IT
systems and connectivity among the branches of the organization. This helps
them to share information and solve any problem as soon as it occurs.
The 4Ss across the bottom of the model are less tangible, more cultural in
nature, and were termed 'Soft Ss' by McKinsey:

Skills: The capabilities and competencies that exist within the company.
Company has highly experienced and technically qualified employees,
which they consider as their assets.

Shared values: The values and beliefs of the company. Ultimately they
guide employees towards 'valued' behavior. Employees are given training
when they join the organization and are given regular guidance by seniors
and more experienced officials of the company. They believe in sharing
knowledge and expertise, so that they can serve the clients better.

Staff: The company's people resources and how they are developed, trained,
and motivated. Company’s staff is given training regarding the functioning
of the organization. All employees are given incentives, which help them to
perform better. But the targets are not very rigid; this helps an employee to
optimize his/her capacity. The HR policies of the organization are not
stringent and thus helps and an individual to enhance knowledge and serve
better.

Style: The leadership approach of top management and the company's

overall operating approach. In spite of a flat organization structure, decisions
of the company are taken by considering opinions of all concerned
employees. The culture encourages teamwork among all the employees

The framework thus provides effective analyses of the company and its
activities. It helps explore the extent to which the company is working
coherently towards its goal and expectations of its clients.
 SWOT – ANALYSIS
During my training at Angel Broking Limited, I came to know the strengths,
weaknesses, opportunities and threats for the company. It will be very useful
for the company to analyze them and for that purpose the SWOT analysis of
the company is presented here.

STRENGTHS
 Well maintained infrastructure
 Dedicated, intelligent and loyal staff
 Competitive brokerage
 The best investment advice through dedicated research and reports.
 Wide product range to enable the clients to choose the best alternative
 One of the best DPs in India
 A positive image in existing clients

WEAKNESSES

 Time consuming process for account opening, resolving the problems

of the customers, etc.
 Company is present in only one business, i.e. Stock Broking, so there
is no scope for cross-selling

OPPORTUNITIES
 Slope of stock market towards delivery based transactions
 Open interest of the people to enter in stock market for investing
 Attract the customer who are dissatisfied with other brokers
 An indirect opportunity generated by the stock market due to its
current situation
 Online trading a/c market has vast potential
 Derivatives and Commodities markets are growing so, there is
enormous potential for these markets
THREATS
 Increasing competition from existing as well as new players
 A threat of loosing clients for any kind of weakness of the company
 Indirect threat from instable stock market, i.e. low/no profit of
Angel’s clients would lead them to go for other broker
 New multinational and national players are coming with competitive
products
 ABOUT DERIVATIVES

INTRODUCTION
Keeping in view the experience of even strong and developed economies of
the world, it is no denying the fact that financial market is extremely volatile
by nature. Indian financial market is not an exception to this phenomenon.
The attendant risk arising out of the volatility and complexity of the
financial market is an important concern for financial analysts. As a result,
the logical need is for those financial instruments which allow fund
managers to better manage or reduce these risks.

The emergence of the market for derivative products, most notably forwards,
futures and options, can be traced back to the willingness of risk-averse
economic agents to guard themselves against uncertainties arising out of
fluctuations in asset prices. By their very nature, the financial markets are
marked by a very high degree of volatility. Through the use of derivative
products, it is possible to partially or fully transfer price risks by locking–in
asset prices. As instruments of risk management, these generally do not
influence the fluctuations in the underlying asset prices. However, by
locking-in asset prices, derivative products minimize the impact of
fluctuations in asset prices on the profitability and cash flow situation of
risk-averse investors.

MEANING OF DERIVATIVES
The term "Derivative" indicates that it has no independent value, i.e. its
value is entirely "derived". A derivative is a financial instrument, which
derives its value from some other financial price. This “other financial price”
is called underlying. The most common underlying assets include stocks,
bonds, commodities, currencies, livestock, interest rates and market indexes.

A wheat farmer may wish to contract to sell his harvest at a future date to
eliminate the risk of a change in prices by that date. The price for such a
contract would obviously depend upon the current spot price of wheat. Such
a transaction could take place on a wheat forward market. Here, the wheat
forward is the “derivative” and wheat on the spot market is “the underlying”.
The terms “derivative contract”, “derivative product”, or “derivative” are
used interchangeably.

Examples of Derivatives

 A very simple example of derivatives is curd, which is derivative of

milk. The price of curd depends upon the price of milk, which in turn
depends upon the demand, and supply of milk.

 American depository receipts/ global depository receipts of ICICI,

Satyam and Infosys traded on stock exchanges in the USA and
England have their own values? No. They draw their price from the
underlying shares traded in India.

 Consider how the value of mutual fund units changes on a day-to-day

basis. Don’t mutual fund units draw their value from the value of the
portfolio of securities under the schemes?

Aren’t these examples of derivatives? Yes, these are. And you know what,
these examples prove that derivatives are not so new to us.

There are two broad types of derivatives:

 Financial derivatives:- Here the underlying includes treasuries, bonds,

stocks, stock index, foreign exchange etc.

 Commodity derivatives:– Here the underlying is a commodity such as

wheat, cotton, peppers, turmeric, corn, soybeans, rice crude oil etc.

HISTORY
The history of derivatives is surprisingly longer than what most people
think. Some texts even find the existence of the characteristics of derivative
contracts in incidents of Mahabharata. Traces of derivative contracts can
even be found in incidents that date back to the ages before Jesus Christ.

The first organized commodity exchange came into existence in the early
1700s in Japan. The first formal commodities exchange, the Chicago board
of trade (CBOT), was formed in 1848 in the US to deal with the problem of
credit risk and to provide centralized location to negotiate forward contracts,
where forward contracts on various commodities were standardised around
1865. From then on, futures contracts have remained more or less in the
same form, as we know them today.

However, the advent of modern day derivative contracts is attributed to the

need for farmers to protect themselves from any decline in the price of their
crops due to delayed monsoon, or overproduction. Although trading in
agricultural and other commodities has been the driving force behind the
development of derivatives exchanges, the demand for products based on
financial instruments - such as bond, currencies, stocks and stock indices—
has now far outstripped that for the commodities contracts.

India has been trading derivatives contracts in silver, gold, spices, coffee,
cotton and oil etc for decades in the gray market. Trading derivatives
contracts in organized market was legal before Morarji Desai’s government
banned forward contracts. Derivatives on stocks were traded in the form of
Teji and Mandi in unorganized markets. Recently futures contract in various
commodities was allowed to trade on exchanges.

In June 2000, National Stock Exchange and Bombay Stock Exchange

started trading in futures on Sensex and Nifty. Options trading on Sensex
and Nifty commenced in June 2001. Very soon thereafter trading began on
options and futures in 31 prominent stocks in the month of July and
November respectively. The derivatives market in India has grown
exponentially, especially at NSE. Stock Futures are the most highly traded
contracts on NSE accounting for around 55% of the total turnover of
derivatives at NSE, as on April 13, 2005.

DERIVATIVE TYPES

A derivative as a term conjures up visions of complex numeric calculations,

speculative dealings and comes across as an instrument which is the
prerogative of a few ‘smart finance professionals’. In reality it is not so. In
fact, a derivative transaction helps to cover risk, which would arise on the
trading of securities on which the derivative is based and a small investor,
can benefit immensely.
A derivative security can be defined as a security whose value depends on
the values of other underlying variables. Very often, the variables underlying
the derivative securities are the prices of traded securities.

An example of a simple derivative contract:

 Ram buys a futures contract.

 He will make a profit of Rs. 1000 if the price of Infosys rises by Rs.
1000.
 If the price is unchanged Ram will receive nothing.
 If the stock price of Infosys falls by Rs. 800 he will lose Rs. 800.

As we can see, the above contract depends upon the price of the Infosys
scrip, which is the underlying security. Similarly, futures trading has already
started in Sensex futures and Nifty futures. The underlying security in this
case is the BSE Sensex and NSE Nifty.

Derivatives and futures are basically of 3 types:

 Forwards and Futures
 Options
 Swaps

DERIVATIVES
DERIVATIVES

Options
Options Futures
Futures Swaps
Swaps Forwards
Forwards

Put
Put Call
Call Interest
Interest Rate
Rate Currency
Currency

Commodity
Commodity Security
Security
FORWARD CONTRACT
A forward contract is the simplest mode of a derivative transaction. It is an
agreement to buy or sell an asset (of a specified quantity) at a certain future
time for a certain price. No cash is exchanged when the contract is entered
into. One of the parties to the contract assumes a long position and agrees to
buy the underlying asset on a certain specified future date for a certain
specified price. The other party assumes a short position and agrees to sell
the asset on the same date for the same price. The forward contracts are
normally traded outside the exchanges.

Features

 They are bilateral contracts where in all the details such as

purchase date, quantity, price are fixed by the contracting parties.
 Each contracts s unique in the nature.
 The contract price is not available in the public domain
 The contract has to be settled by delivery of the asset on the expiry
date.

Illustration

Shyam wants to buy a TV, which costs Rs 10,000 but he has no cash to buy
it outright. He can only buy it 3 months hence. He, however, fears that prices
of televisions will rise 3 months from now. So in order to protect himself
from the rise in prices Shyam enters into a contract with the TV dealer that 3
months from now he will buy the TV for Rs 10,000. What Shyam is doing is
that he is locking the current price of a TV for a forward contract. The
forward contract is settled at maturity. The dealer will deliver the asset to
Shyam at the end of three months and Shyam in turn will pay cash
equivalent to the TV price on delivery.
FUTURES CONTRACT
A futures contract is an agreement between two parties to buy or sell an
asset at a certain time in the future at a certain price. But unlike forward
contracts, the futures contracts are standardized and exchange traded. So, the
counter party to a future contract is the clearing corporation of the
appropriate exchange. To facilitate liquidity in the futures contracts, the
exchange specifies certain standard features of the contract. It is a
standardized contract with standard underlying instrument, a standard
quantity and quality of the underlying instrument that can be delivered, (or
which can be used for reference purposes in settlement) and a standard
timing of such settlement. Future contracts are often settled in cash or cash
equivalents, rather than requiring physical delivery of the underlying asset.

The standardized items in a futures contract are:

 Quantity of the Underlying.

 Quality of the Underlying.
 The date and month of delivery.
 The units of price quotation and minimum price change.
 Location of settlement.

Distinction between futures and forwards contracts:

Forward contracts are often confused with futures contracts. The confusion
is primarily because both serve essentially the same economic functions of
allocating risk in the presence of future price uncertainty. However futures
are a significant improvement over the forward contracts as they eliminate
counterparty risk and offer more liquidity. The distinction between futures
and forwards are summarized below:

Futures
1. Trade on an organized exchange
2. Standardized contract terms
3. Hence more liquid
4. Requires margin payments
Forwards
1. OTC in nature
2. Customized contract terms
3. hence less liquid
4. No margin payment
OPTIONS CONTRACT
An option is a contract that gives the buyer the right, but not the obligation,
to buy or sell an underlying asset at a specific price on or before a certain
date. An option, just like a stock or bond, is a security. It is also a binding
contract with strictly defined terms and properties.

For example, that you discover a house that you'd love to purchase.

Unfortunately, you won't have the cash to buy it for another three months.
You talk to the owner and negotiate a deal that gives you an option to buy
the house in three months for a price of Rs.20,00,000. The owner agrees, but
for this option, you pay a price of Rs.30,000.

Now, consider two theoretical situations that might arise:

1. It is discovered that the house is actually having a historical importance!

As a result, the market value of the house increases to Rs. 2 crores. Because
the owner sold you the option, he is obligated to sell you the house for
Rs.20,00,000. In the end, you stand to make a profit of
Rs.1,797,000(Rs.2crores–Rs.20,00,000–Rs.30,000).

2. While touring the house, you discover not only that the walls are chock-
full of asbestos, but also that it is a home place of numerous rats. Though
you originally thought you had found the house of your dreams, you now
consider it worthless. On the upside, because you bought an option, you are
under no obligation to go through with the sale. Of course, you still lose the
Rs.30,000 price of the option.

This example demonstrates two very important points. First, when you buy
an option, you have a right but not an obligation to do something. You can
always let the expiration date go by, at which point the option becomes
worthless. If this happens, you lose 100% of your investment, which is the
money you used to pay for the option. Second, an option is merely a contract
that deals with an underlying asset. For this reason, options are called
derivatives; means an option derives its value from something else. In our
example, the house is the underlying asset. Most of the time, the underlying
asset is a stock or an index.

Types of Options
There are two types of options:

 Call Options: - It gives the holder the right to buy an asset at a certain
price within a specific period of time. Calls are similar to having a
long position on a stock. Buyers of calls hope that the stock will
increase substantially before the option expires.

 Put Option: - It gives the holder the right to sell an asset at a certain
price within a specific period of time. Puts are very similar to having a
short position on a stock. Buyers of puts hope that the price of the
stock will fall before the option expires.

Participants in the Options Market

There are four types of participants in options markets depending on the
position they take:

1. Buyers of calls
2. Sellers of calls
3. Buyers of puts
4. Sellers of put

People who buy options are called holders and those who sell options are
called writers; furthermore, buyers are said to have long positions, and
sellers are said to have short positions.

Here is the important distinction between buyers and sellers:

 Call holders and put holders (buyers) are not obligated to buy or sell.
They have the choice to exercise their rights if they choose.

 Call writers and put writers (sellers), however, are obligated to buy or

sell. This means that a seller may be required to make good on a promise
to buy or sell.
Terminology Associated With The Options Market.

 Option Price:- Option price is the price, which the option buyer pays to
the option seller. It is also referred to as the option premium.

 Expiration Date:- The date specified in the options contract is known as

the expiration date, the exercise date, the strike date or the maturity.

 Strike Price:- The price specified in the options contract is known as the
strike price or the exercise price.

 American Options:- American options are options that can be exercised

at any time upto the expiration date. Most exchange-traded options are
American.

 European Options:- European options are options that can be exercised

only on the expiration date itself. European options are easier to analyze
than American options, and properties of an American option are
frequently deduced from those of its European counterpart.

 Listed Options:- An option that is traded on a national options exchange

such as the National Stock Exchange is known as a listed option. These
have fixed strike prices and expiration dates. Each listed option
represents a predetermined number of shares of company stock (known
as a contract).

 In-the-money Option:- An in-the-money (ITM) option is an option that

would lead to a positive cashflow to the holder if it were exercised
immediately. A call option on the index is said to be in-the-money when
the current index stands at a level higher than the strike price (i.e. spot
price > strike price). If the index is much higher than the strike price, the
call is said to be deep ITM. In the case of a put, the put is ITM if the
index is below the strike price.

 At-the-money Option:- An at-the-money (ATM) option is an option that

would lead to zero cashflow if it were exercised immediately. An option
on the index is at-the-money when the current index equals the strike
price (i.e. spot price = strike price).
 Out-of-the-money Option:- An out-of-the-money (OTM) option is an
option that would lead to a negative cash flow when exercised
immediately. A call option on the index is out-of-the-money when the
current index stands at a level, which is less than the strike price (i.e. spot
price < strike price). If the index is much lower than the strike price, the
call is said to be deep OTM. In the case of a put, the put is OTM if the
index is above the strike price.

Trading in Options

If one buys an option contract he is buying the option, or "right" to trade a

particular underlying instrument at a stated price.

An option that gives you the right to eventually make a purchase at a

predetermined price is called a "call" option. If you buy that right it is called
a long call; if you sell that right it is called a short call.

An option that gives you the right to eventually make a sale at a

predetermined price is called a "put" option. If you buy that right it is called
a long put; if you sell that right it is called a short put.

 Trading in Call

Suppose a call option with an exercise/strike price equal to the price of the
underlying (100) is bought today for premium Re.1.

Profit/ Loss for a Long Call.

At expiry, if
the security’s
price has
fallen below
the strike
price, the
option will be
allowed to
expire
worthless and
the position has lost Re.1. This is the maximum amount that you can lose
because an option only involves the right to buy or sell, not the obligation. In
other words, if it is not in your interest to exercise the option you don’t have
to and so if you are an option buyer your maximum loss is the premium you
have paid for the right.

If, on the other hand, the security’s price rises, the value of the option will
increase by Re.1 for every Re.1 increase in the security’s price above the
strike price (less the initial Re.1 cost of the option).
Note that if the price of the underlying increases by Re.1, the option
purchaser breaks even - breakeven is reached when the value of the option at
expiry is equal to the initial purchase price. For our call option, the
breakeven price is 101. If the price of the security is greater than 101, the
call buyer makes money.

Profit/Loss for a short call.

Here profit is limited to the premium received for selling the right to buy at
the exercise price - again Re.1. For every Re.1 rise in the price of the
underlying security above the exercise price the option falls in value by
Re.1. Here again, the breakeven point is 101.
 Trading in Put:

Consider that a put option with an exercise/strike price equal to the price of
the underlying (100) is bought today for premium Re.1.
Profit/Loss graph for a Long Put.

At expiry the put is worth nothing if the security’s price is more than the
strike price of the option but, as with the long call, the option buyer’s loss is
limited to the premium paid.
The breakeven for this option is 99, so the put purchaser makes money if the
underlying security is priced below 99 at expiry.

Profit/Loss graph for a short put.

Here profit is limited to the premium received for selling the right to sell at
the strike price. For every Re.1 fall in the price of the underlying security
below the strike price the option falls in value by Re.1. Here again, the
breakeven point is 99.

Pricing Strategy for Options

Having looked at the basic profit/loss characteristics of call and put options
we now need to know something about the price of the option – the premium
– and how it is arrived at.

Options pricing is highly complicated and mathematical but it is important

to understand some of the basic principles underlying it because:

 As an options buyer, you want to have some idea of why you are
paying what you are paying for an option.

 As an options seller you want to have some idea of why you receiving
what you are receiving for an option.

There are three key factors in options pricing.

1. Intrinsic value

The options we have looked at so far have been what are called ‘at the
money’ options. That is to say, we have examined their profit/loss
characteristics assuming a start point where the exercise price is equal to the
price of the underlying security.

The amount by which an option is ‘in’ or ‘out’ of the money is referred to as

its ‘intrinsic value’, and it is a key determinant of the price of the option, the
premium.

Obviously, if an option is ‘in-the-money’ it will cost more than an option

which is ‘out-of-the-money’. This is because it has more intrinsic value.
However, intrinsic value is not the only factor that plays a part in
determining the price of an option. 
2. Time value
Another important factor is the amount of time an option has until it expires.
This is important because the more time there is until expiry, the more time
there is for the option to move into a profitable position. This is known as
the time value of the option and it reduces the closer the option gets to
expiry.

The more time an option has to expiry, the more expensive it is likely to be
because the more time there is for the option to move into a profitable
position.

So an options price is determined by both intrinsic value and time value. But
there is another important factor too.

3. Volatility

The final factor we need to consider is the volatility of the price of the
underlying security that the option is written on. It is important because, as
with time value, the more price volatility an underlying security exhibits, the
more chance there is that it will move in a profitable direction for the option
buyer. For this reason, option writers will price high volatility into the
premiums they charge.
So we know something about the profit/loss characteristics and also we have
some idea of the factors that are going to affect the option’s price.
Difference between Future and Options

  Futures Options
Obligation Both the buyer and the seller The buyer of the option has
are under obligation to fulfill the right and not the
the contract. obligation whereas the
seller is under obligation to
fulfill the contract.
Risk The buyer and seller are The seller is subject to
subject to unlimited risk of unlimited risk of losing
losing. whereas the buyer has a
limited potential to lose.
Profit The buyer and seller have The seller has limited
unlimited potential to gain. potential to gain while the
buyer has unlimited
potential to gain.
Price It is one-dimensional as its It is bi-dimensional as its
Behavior price depends on the price of price depends upon both the
the underlying only. price and the volatility of
the underlying.

SWAP CONTRACT:
Swaps are private agreements between two parties to exchange cash flows in
the future according to a prearranged formula. They can be regarded as
portfolios of forward contracts. The two commonly used swaps are:

1. Interest rate swaps:- These entail swapping only the interest related
cash flows between the parties in the same currency.

2. 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.
A Swap is a simultaneous buying and selling of the same security or
obligation. Perhaps the best-known Swap occurs when two parties exchange
interest payments based on an identical principal amount, called the
"notional principal amount." Think of an interest rate Swap as follows: Party
A holds a 10-year $10,000 home equity loan that has a fixed interest rate of
7 percent, and Party B holds a 10-year $10,000 home equity loan that has an
adjustable interest rate that will change over the "life" of the mortgage. If
Party A and Party B were to exchange interest rate payments on their
otherwise identical mortgages, they would have engaged in an interest rate
Swap. Interest rate swaps occur generally in three scenarios; Exchanges of
a fixed rate for a floating rate, a floating rate for a fixed rate, or a floating
rate for a floating rate.

The "Swaps market" has grown dramatically. Today, Swaps involve

exchanges other than interest rates, such as mortgages, currencies, and
"cross-national" arrangements. Swaps may involve cross-currency payments
(U.S. Dollars vs. Mexican Pesos) and cross market payments, e.g., U.S.
short-term rates vs. U.K. short-term rates. Swaps may include "Caps ,"
"Floors ," or Caps and Floors combined ("Collars ").

HEDGING, SPECULATION AND ARBITRATION

Hedging, Speculation and Arbitration are the 3 terms which have become
synonymous to Derivatives now a day and why not because these are the 3
main purposes for which derivative trading is sought. Here these 3 purposes
are explained with necessary illustrations.

Hedging

Hedging is the sophisticated mechanism, which provides the necessary

immunity to the risk of adverse market fluctuations.

A Hedge is a countervailing contract transected in a futures market through

which those who have bought in the ready market will sell in the futures
market and those who have sold in the ready market would buy in the
futures market. In each of these two cases a purchase in the ready market is
off-set by an opposite sale in the futures market and a sale in the ready
market is off-set by purchase in the futures market.
Let us understand this hedging concept, by which one can protect his
portfolio from value erosion, through one example:

Illustration: Assume that you have a portfolio of 1 million and you want to
protect this specific portfolio from value erosion.

By diversifying your portfolio you can minimize company specific risk of

stocks but what about market risk? It can’t be diversified and has to be
hedged. So you are supposed to measure the market risk and it can be
known from Beta value of your portfolio.

Beta measures the relationship between movement of the index and the
movement of the stock. The beta measures the percentage impact on the
stock prices for 1% change in the index. Therefore, for a portfolio whose
value goes down by 11% when the index goes down by 10%, the beta would
be 1.1. When the index increases by 10%, the value of the portfolio
increases 11%. The idea is to make beta of your portfolio zero to nullify
your losses.

Every portfolio has a hidden exposure to the index, which is denoted by the
Beta. Assuming your portfolio has a Beta of 1.2, then you can hedge your
portfolio by selling Rs 1.2 mn of S&P CNX Nifty futures.

STEPS:
1. Determine the beta of the portfolio. If the beta of any stock is not
known, it is safe to assume that it is 1.
2. Short sell the index in such a quantum that the gain on a unit decrease
in the index would offset the losses on the rest of his portfolio. This is
achieved by multiplying the relative volatility of the portfolio by the
market value of his holdings.

Therefore in the above scenario we have to shortsell 1.2 * 1 million = 1.2

million worth of Nifty.

Now let us study the impact on the overall gain/loss that accrues:

Index up 10% Index down 10%

Gain/(Loss) in Portfolio Rs 120,000 (Rs 120,000)
 Gain/(Loss) in Futures (Rs 120,000) Rs 120,000
Net Effect Nil Nil

As we see, that portfolio is completely insulated from any losses arising out
of a fall in market sentiment. But as a cost, one has to forego any gains that
arise out of improvement in the overall sentiment. Then why does one invest
in equities if all the gains will be offset by losses in futures market. The idea
is that everyone expects his portfolio to outperform the market. Irrespective
of whether the market goes up or not, his portfolio value would increase.

The same methodology can be applied to a single stock by deriving the beta
of the scrip and taking a reverse position in the futures market. Also it can be
applied to commodity trading

Speculation
Speculators are those who do not have any position on which they enter in
futures and options market. They only have a particular view on the market,
stock, commodity etc. In short, speculators put their money at risk in the
hope of profiting from an anticipated price change. They consider various
factors such as demand supply, market positions, open interests, economic
fundamentals and other data to take their positions.

Illustration: Ram is a trader but has no time to track and analyze stocks.
However, he fancies his chances in predicting the market trend. So instead
of buying different stocks he buys Sensex Futures.

On May 1, 2001, he buys 100 Sensex futures @ 3600 on expectations that

the index will rise in future. On June 1, 2001, the Sensex rises to 4000 and at
that time he sells an equal number of contracts to close out his position.

Selling Price: 4000*100            = Rs 4,00,000

Less: Purchase Cost: 3600*100 = Rs 3,60,000

Net gain                                              Rs 40,000

Ram has made a profit of Rs 40,000 by taking a call on the future value of
the Sensex. However, if the Sensex had fallen he would have made a loss.
Similarly, if would have been bearish he could have sold Sensex futures and
made a profit from a falling profit. In index futures players can have a long-
term view of the market up to atleast 3 months.

Arbitration

An arbitrageur is basically risk averse. He enters into those contracts were he

can earn riskless profits. When markets are imperfect, buying in one market
and simultaneously selling in other market gives riskless profit. Arbitrageurs
are always in the look out for such imperfections.

In the futures market one can take advantages of arbitrage opportunities by

buying from lower priced market and selling at the higher priced market. In
index futures arbitrage is possible between the spot market and the futures
market.

Let us take the example of single stock to understand the concept better. If
Wipro is quoted at Rs 1000 per share and the 3 months futures of Wipro is
Rs 1070 then one can purchase Wipro at Rs 1000 in spot by borrowing @
12% annum for 3 months and sell Wipro futures for 3 months at Rs 1070.

Sale                = 1070

Cost= 1000+30 = 1030
Arbitrage profit =     40

These kind of imperfections continue to exist in the markets but one has to
be alert to the opportunities as they tend to get exhausted very fast.
 ABOUT COMMODITIES

COMMODITY MARKET IN INDIA

Organized futures market evolved in India by the setting up of "Bombay

Cotton Trade Association Ltd." in 1875. In 1893, following widespread
discontent amongst   leading cotton mill owners and
merchants over the functioning of the Bombay Cotton Trade Association, a
separate association by the name "Bombay Cotton Exchange Ltd." was
constituted. Futures trading in oilseeds was organized in India for the first
time with the setting up of Gujarati Vyapari Mandali  in 1900, which
carried on futures trading in groundnut, castor seed  and cotton. Before the
Second World War broke out in 1939 several futures markets in oilseeds
were functioning in Gujarat and Punjab.

There were booming activities in this market and at one time as many as 110
exchanges were conducting forward trade in various commodities in the
country. The securities market was a poor cousin of this market as there
were not many papers to be traded at that time.

The era of widespread shortages in many essential commodities resulting in

inflationary pressures and the tilt towards socialist policy, in which the role
of market forces for resource allocation got diminished, saw the decline of
this market since the mid-1960s. This coupled with the regulatory
constraints in 1960s, resulted in virtual dismantling of the commodities
future markets. It is only in the last decade that commodity future exchanges
have been actively encouraged. However, the markets have been thin with
poor liquidity and have not grown to any significant level.

A three-pronged approach has been adopted to revive and revitalize the

market. Firstly, on policy front many legal and administrative hurdles in the
functioning of the market have been removed. Forward trading was
permitted in cotton and jute goods in 1998, followed by some oilseeds and
their derivatives, such as groundnut, mustard seed, sesame, cottonseed etc.
in 1999. A statement in the first ever National Agriculture Policy, issued in
July, 2000 by the government that futures trading will be encouraged in
increasing number of agricultural commodities was indicative of welcome
change in the government policy towards forward trading.

Secondly, strengthening of infrastructure and institutional capabilities of the

regulator and the existing exchanges received priority. Thirdly, as the
existing exchanges are slow to adopt reforms due to legacy or lack of
resources, new promoters with resources and professional approach were
being attracted with a clear mandate to set up dematerialized, technology
driven exchanges with nationwide reach and adopting best international
practices.

The year 2003 marked the real turning point in the policy framework for
commodity market when the government issued notifications for
withdrawing all prohibitions and opening up forward trading in all the
commodities. This period also witnessed other reforms, such as,
amendments to the Essential Commodities Act, Securities (Contract) Rules,
which have reduced bottlenecks in the development and growth of
commodity markets. Of the country's total GDP, commodities related (and
dependent) industries constitute about roughly 50-60 %, which itself cannot
be ignored.

Most of the existing Indian commodity exchanges are single commodity

platforms; are regional in nature, run mainly by entities which trade on them
resulting in substantial conflict of interests, opaque in their functioning and
have not used technology to scale up their operations and reach to bring
down their costs. But with the strong emergence of: National Multi-
commodity Exchange Ltd., Ahmedabad (NMCE), Multi Commodity
Exchange Ltd., Mumbai (MCX), National Commodities and Derivatives
Exchange, Mumbai (NCDEX), and National Board of Trade, Indore
(NBOT), all these shortcomings will be addressed rapidly. These exchanges
are expected to be role model to other exchanges and are likely to compete
for trade not only among themselves but also with the existing exchanges.

The current mindset of the people in India is that the Commodity exchanges
are speculative (due to non delivery) and are not meant for actual users. One
major reason being that the awareness is lacking amongst actual users. In
India, Interest rate risks, exchange rate risks are actively managed, but the
same does not hold true for the commodity risks. Some additional
impediments are centered around the safety, transparency and taxation
issues.
CHARACTERISTICS OF FUTURES TRADING

A "Futures Contract" is a highly standardized contract with certain distinct

features. Some of the important features are as under:

 Futures’ trading is necessarily organized under the auspices of a

market association so that such trading is confined to or conducted
through members of the association in accordance with the procedure
laid down in the Rules & Bye-laws of the association.

 It is invariably entered into for a standard variety known as the "basis

variety" with permission to deliver other identified varieties known as
"tenderable varieties".

 The units of price quotation and trading are fixed in these contracts,

parties to the contracts not being capable of altering these units.

 The delivery periods are specified.

 The seller in a futures market has the choice to decide whether to

deliver goods against outstanding sale contracts. In case he decides to
deliver goods, he can do so not only at the location of the Association
through which trading is organized but also at a number of other pre-
specified delivery centers.

 In futures market actual delivery of goods takes place only in a very

few cases. Transactions are mostly squared up before the due date of
the contract and contracts are settled by payment of differences
without any physical delivery of goods taking place.

Economic Benefits of the Futures Trading of Commodities

Futures contracts perform two important functions of price discovery and

price risk management with reference to the given commodity. It is useful to
all segments of economy. It is useful to producer because he can get an idea
of the price likely to prevail at a future point of time and therefore can
decide between various competing commodities, the best that suits him. It
enables the consumer get an idea of the price at which the commodity would
be available at a future point of time. He can do proper costing and also
cover his purchases by making forward contracts.

The futures trading is very useful to the exporters as it provides an advance

indication of the price likely to prevail and thereby help the exporter in
quoting a realistic price and thereby secure export contract in a competitive
market. Having entered into an export contract, it enables him to hedge his
risk by operating in futures market. Other benefits of futures trading are:

 Price stabilization-in times of violent price fluctuations - this

mechanism dampens the peaks and lifts up the valleys i.e. the
amplititude of price variation is reduced.

 Leads to integrated price structure throughout the country.

 Facilitates lengthy and complex, production and manufacturing

activities.

 Helps balance in supply and demand position throughout the year.

 Encourages competition and acts as a price barometer to farmers and

other trade functionaries.

IMPORTANT FACTORS COMMODITIES FOR FUTURE

TRADING

Following are some of the key factors, which decide the suitability of the
commodities for future trading: -

 The commodity should be competitive, i.e., there should be large

demand for and supply of the commodity - no individual or group of
persons acting in concert should be in a position to influence the
demand or supply, and consequently the price substantially.

 There should be fluctuations in price.

 The market for the commodity should be free from substantial

government control.
  The commodity should have long shelf life and be capable of
standardization and gradation.

ITEMS TRADED IN THE MULTI COMMODITY

EXCHANGE
Bullion: Gold, Gold M, Gold HNI, Silver, Silver M, Silver HNI

Oil & Oil Seeds: Castor Seeds, Soy Seeds, Castor Oil, Refined Soy Oil,
Soymeal, RBD Palmolein, Crude Palm Oil, Groundnut Oil, Mustard
Seed, Mustard Seed Oil, Cottonseed Oilcake, Cottonseed

Spices: Pepper, Red Chilli, Jeera, Turmeric

Metal: Steel Long, Steel Flat, Copper, Nickel, Tin

Fibre: Kapas, Long Staple Cotton, Medium Staple Cotton

Pulses: Chana, Urad, Yellow Peas, Tur

Cereals: Rice, Basmati Rice, Wheat, Maize, Sarbati Rice

Energy: Crude Oil

Others: Rubber, Guar Seed, Gur, Guargum Bandhani, Guargum,

Cashew Kernel, Guarseed Bandhani

NEED FOR FUTURESTRADING IN COMMODITIES

Commodity Futures, which forms an essential component of Commodity
Exchange, can be broadly classified into precious metals, agriculture, energy
and other metals. Current futures volumes are miniscule compared to
underlying spot market volumes and thus have a tremendous potential in the
near future.

Futures trading in commodities results in transparent and fair price discovery

on account of large-scale participations of entities associated with different
value chains. It reflects views and expectations of a wider section of people
related to a particular commodity. It also provides effective platform for
price risk management for all segments of players ranging from producers,
traders and processors to exporters/importers and end-users of a commodity.

It also helps in improving the cropping pattern for the farmers, thus
minimizing the losses to the farmers. It acts as a smart investment choice by
providing hedging, trading and arbitrage opportunities to market players.
Historically, pricing in commodities futures has been less volatile compared
with equity and bonds, thus providing an efficient portfolio diversification
option.

Raw materials form the most key element of most of the industries. The
significance of raw materials can further be strengthened by the fact that the
"increase in raw material cost means reduction in share prices". In other
words "Share prices mimic the commodity price movements".

Industry in India today runs the raw material price risk; hence going forward
the industry can hedge this risk by trading in the commodities market.

REGULATORY BODY
The Forward Markets Commission (FMC) is the regulatory body for
commodity futures/forward trade in India. The commission was set up under
the Forward Contracts (Regulation) Act of 1952. It is responsible for
regulating and promoting futures/forward trade in commodities. The FMC is
headquartered in Mumbai while its regional office is located in Kolkata.
Curbing the illegal activities of the diehard traders who continued to trade
illegally is the major role of the Forward Markets Commission.

WHY COMMODITIES MARKET?

India has very large agriculture production in number of agri-commodities,
which needs use of futures and derivatives as price-risk management system.

Fundamentally price you pay for goods and services depend greatly on how
well business handle risk. By using effectively futures and derivatives,
businesses can minimize risks, thus lowering cost of doing business.
Commodity players use it as a hedge mechanism as well as a means of
making money. For e.g. in the bullion markets, players hedge their risks by
using futures Euro-Dollar fluctuations and the international prices affecting
it.

For an agricultural country like India, with plethora of mandis, trading in

over 100 crops, the issues in price dissemination, standards, certification and
warehousing are bound to occur. Commodity Market will serve as a suitable
alternative to tackle all these problems efficiently.

PROBLEMS FACED BY COMMODITIES

MARKETS IN INDIA
Institutional issues have resulted in very few deliveries so far. Currently,
there are a lot of hassles such as Octroi duty, logistics. If there is a broker in
Mumbai and a broker in Kolkata, transportation costs, Octroi duty, logistical
problems prevent trading to take place. Exchanges are used only to hedge
price risk on spot transactions carried out in the local markets. Also multiple
restrictions exist on inter-state movement and warehousing of commodities.

RISKS ASSOCIATED WITH COMMODITIES

MARKETS
No risk can be eliminated, but the same can be transferred to someone who
can handle it better or to someone who has the appetite for risk. Commodity
enterprises primarily face the following classes of risks, namely: the price
risk, the quantity risk, the yield/output risk and the political risk.

Talking about the nationwide commodity exchanges, the risk of the counter
party (trading member, client, vendors etc) not fulfilling his obligations on
due date or at any time thereafter is the most common risk.
This risk is mitigated by collection of the following margins: -

 Initial Margins
 Exposure margins

 Mark to market of positions on a daily basis

 Position Limits and Intra day price limits

 Surveillance

Commodity price risks include: -

 Increase in purchase cost vis-à-vis commitment on sales price

 Change in value of inventory

 Counter party risk translating into commodity price risk

KEY FACTORS FOR SUCCESS OF COMMODITY

EXCHANGES
The following are some of the key factors for the success of the commodities
exchanges: -

Strategy, method of execution, background of promoters, credibility of the

institution, transparency of platforms, scaleable technology, robustness of
settlement structures, wider participation of Hedgers, Speculators and
Arbitrageurs, acceptable clearing mechanism, financial soundness and
capability, covering a wide range of commodities, size of the trade guarantee
fund, reach of the organization and adding value on the ground. In addition
to this, if the Indian Commodity Exchange needs to be competitive in the
Global Market, then it should be backed with proper "Capital Account
Convertibility".

The interests of Indian consumers, households and producers are most

important, as these are the people who are exposed to risk and price
fluctuations.
KEY EXPECTATIONS OF COMMODITY
EXCHANGES
The following are some of the key expectations of the investor's with respect
to any commodity exchange: -

 To get in place the right regulatory structure to even out the

differences that may exist in various fields.
 Proper Product Conceptualization and Design.

 Fair and Transparent Price Discovery & Dissemination.

 Robust Trading & Settlement systems.

 Effective Management of Counter party Credit Risk.

 Self-Regulation to ensure: Overview of Trading and Surveillance,

Audit and review of Members, Enforcement of Exchange rules.

FUTURE PROSPECTS
With the gradual withdrawal of the government from various sectors in the
post-liberalization era, the need has been felt that various operators in the
commodities market be provided with a mechanism to hedge and transfer
their risks. India's obligation under WTO to open agriculture sector to world
trade would require futures trade in a wide variety of primary commodities
and their products to enable diverse market functionaries to cope with the
price volatility prevailing in the world markets. Government subsidy may go
down as a result of WTO. The MSP programme will not be sustainable in
such a scenario. The farmer will have to look at ways of being in a position
to trade on commodity exchanges in future. Also, corporates will feel the
pressure to hedge their price risk once the frontiers open up for free trade.

Indian markets have recently thrown open a new avenue for retail 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.
Following are some of the applications, which can utilize the power of the
commodity markets and create a win-win situation for all the involved
parties: -

Regulatory Approval / Permission to FII's For Trading In The

Commodity Markets

FII's are currently not allowed nor disallowed under any law. As, they have
added depth to the equity markets; they will add depth to the commodities
markets, since they globally know the commodities.

Online Commodity Trading

Online commodity trading offers a way for an open, many-to-many system,

where every user has equal access to price quotes and trading functionality.
It provides a level playing field for all, without favoritism or control by a
chosen few, where any user can view all quotes posted by other users in real
time, act or trade on quotes posted by others, post their own prices and
quantities for others to trade

The Online commodity trading site usually lists a large number of unique
products covering a variety of commodities, structures, and settlement terms
ranging from Oil, Natural Gas, Electric Power, Precious Metals, Emissions
and Weather. It provides for various media ranging from Physical Delivery
and Financial Cash Settlement. There are further derivative options available
ranging from Forwards, Swaps, Options, Spreads, Differentials, Complex
Derivatives.

Liquidity, or trade activity, is perhaps the best measure of success of an

online trading commodity trading system. With most online commodity
trading systems, traders can be sure of finding an interesting market
development or trading opportunity almost every time they log on.

All quotes posted by users on any online commodity trading systems are live
and firm. They can be acted on with full assurance of a completed
transaction. The greatest advantage of an online system for trading is that
just a click can be used to hit a bid or lift an offer.
The Online trading system operates almost continuously around the clock,
24 hours a day, seven days a week. This allows any user to extend the
trading day, and easily pass the trading objectives to others in companies in
different time zones.
The online commodity trading system in India is only an emerging segment
yet. This is because the Internet boom in Indian is on the rise only now. The
Internet charges are becoming minimal and the Internet is soon becoming a
way of life in India. It is in this scenario that online trading is becoming
more the way of trading in India.
 RATIONAL FOR THE STUDY
Any country of the world is measured by its economy. The economy
indicates whether the nation is strong or weak, developed or developing or
under developed.

Financial market is one of the factors which affect the economy of any
country.

The financial market consists of various instruments for investing or saving.

The more the investment or the saving in these instruments the more is the
development.

Various instruments available in the Indian financial markets are Bank FD,
Equity, Debentures, Government Bonds, various Postal Schemes, Mutual
Funds, Insurance, Derivatives and Commodities. Also, Bullion (Gold and
Silver) market and market for real estate is popular nowadays.

Out of these available instruments some instruments are used as purely

saving purpose, while some as liquidity, some are long term investment,
some are earning, some are speculation, and some are Hedging (Risk
Reducing) instruments. Individual requirements and characteristic of
instruments decides the portfolio.

Derivatives and commodities are basically used as Hedging instruments. But

nowadays people use them as speculative and arbitration instruments.

There are so many investors who are not familiar with these instruments. But
the fact is that there is an immense scope for the development of these
instruments.

As a part of my summer training in the Angel Broking Limited, a well

reputed and leading stock broking organization of our country, this study has
been carried out to know market mentality of people of Ahmedabad city
about Derivatives and Commodities. The main purpose of these study is to
gather the details and analyze those details on the basis of which the ways to
attract the investors of these markets can be found out. In this way this study
will help the organization to exploit the untapped potential of Derivatives
and Commodities market.
 OBJECTIVE OF STUDY
The broad objective of this study is to know market mentality of people of
Rajkot city about Derivatives and Commodities instruments. The specific
purposes of this study are:

 To know the scope for the Derivatives & Commodities

 To know the investment habit of the people of Rajkot city.

 To know the constraints which are hampering the use of Derivatives

and Commodities.

 To know the purpose of investing in Derivative & Commodities.

 To know the influencing force behind the decision making while

trading in derivatives and Commodities.

 To find out the best pattern to educate about Derivatives &

Commodities.

 To find out the medium which is the best suitable for trading on
Derivatives & Commodities.
.
 SOURCES OF DATA

As we all know that there are mainly two sources of data i.e.

 Primary
 Secondary

Primary Data:

The data, which is collected directly from the respondents, is called primary
data.

The normal procedure is to interview some people individually to get a sense

of how people feel about the derivatives & commodities segment.

So far as our research is concerned, primary data is the main source of

information. We have collected data through Questionnaire

Secondary Data:

When data are collected and compelled from the published nature or any
other’s primary data is called secondary data.

So far as our study is concerned, we have not collected any information from
any sources. So, we have not used secondary data for our study.
 SAMPLING PROCESS
It is very true that it’s very difficult to do the research with the whole
universe. As we know that it is not feasible to go for population survey
because of the numerous customers and their scattered location. So for this
purpose sample size has to be determined well in advance and selection of
sample also must be scientific so that it represents the whole universe.

So far as our research is concerned, we have taken sample size of 250

respondents. We have selected Income Earners with savings to invest in
Rajkot city.

All the respondents are stratified on the basis of their profession and
savings. We have selected the sample as per our convenience.

Sample universe Rajkot city

Sampling Technique Convenience sampling
Sample size 250 respondents
Professional
Business Man
Government Employees
Sampling Unit: Employees working in private firms
 SCOPE OF STUDY
The study that is being undertaken will be useful in the following respect.

 This will help the company, how to make people aware about
derivatives & commodities by imparting best education.

 This will help the company to frame effective Marketing Strategy.

 This will also help to select the right media for advertising to create
brand awareness as well as to give knowledge of the products.

 Mind share of Angel Broking Limited can be known.

 This will help the company to reduce the obstacles which come in the
way for the development of derivatives & commodities segment.
 LIMITATION OF THE STUDY
The limitations of this study are as follows:

Personal Bias:

People may have personal bias towards particular investment option so they
may not give correct information and due to which conclusion may be
derived.

Time Limit:

The time duration of the research is short that’s why the information is not
covered fully.

Sample Area:

The area was limited to Rajkot city only.

Sample Size:

The last limitation is Sample size, taken by us is of 200 only; due to which
we may not get the proper results.
 GRAPHICAL REPRESENTATION
AND INTERPRETATION

1. Name

2. Age

21 – 35 36 – 50 51 – 65 Above 66
Age 132 99 18 1

3. Educational Qualification

Under
Qualification Post Graduate Graduate Graduate Others
  50 163 30 7

4. Contact No.

5. Occupation

Employees
Business working in Pvt. Govt.
Professionals Man Firm Employees Others
71 83 55 29 12
6. Investment Pattern of The people

Instruments Nos. Percentage

Bank FD 129 51.6
Postal Schemes 64 25.6
Govt. - Secs 30 12
Mutual Funds 126 50.4
Insurance 164 65.6
Bonds/Debentures 13 5.2
Shares/Equity 223 89.2
Real Estate 51 20.4
Jewellery 39 15.6

250
224

200
164

150
129 126

100
64
51
50 39
30
13

0
Instruments

Bank FD Postal Scheme Govt.-Secs

Mutual Funds Insurance Bonds/Debentures
Shares/Equity Real Estate Jewellery

It can be seen from the graph that respondent have given first preference to
shares/equity for investment ahead of Bank FD. This is because of the
glorious growth of Sensex in the recent past. Insurance is holding the second
place with 65.6%, while Bank FD is on the third position with 51.6%. Also
we can see that because of positive movement of the Sensex, new
instruments like Mutual Funds are gaining popularity and providing tough
competition to the risk free instrument Bank FD. So, we can see that people
are now changing their attitude towards the risk and investing more in the
instruments which give high returns.
7. Instruments in which people are trading
 Instruments Nos. Percentage (%)
Equity 224 89.6
Derivative 49 19.6
Commodities 30 12

224
250

200

150

100 49
30
50

Equity Derivatives(F&O) Commodity

When asked to the respondents that out of the given three options in which
they are trading . Equity got the first preference by 74.4%. While derivatives
i.e. F&O has got second rank and commodities has been least preferred now
a days.
8. Instruments in which people want to be trade in.

Instruments Nos. Percentage (%)

Equity 186 74.4
Derivative 89 35.6
Commodities 53 21.2

187
200
180
160
140
120 89
100
53
80
60
40
20
0

Equity Derivatives Commodity

On asked about their preferences for trading in future, the respondents have
shown high interest in equity with 74.4 %. But by comparing this graph with
previous graph we can say that there are many who would like to jump into
derivatives and commodities segment. So there is a very good scope and
potential for the market of these instruments.
9. The constraints those are decreasing the use of Derivatives &
Commodities segment.

Obstacles Nos. Percentage

Risk Taking Ability 107 42.8
Regulatory Constraints 8 3.2
Fund Facilities 91 36.4
Still in wait & see 62 24.8
Lack of Knowledge 69 27.6
Lack of Guidance 84 33.6
No Facilities with
Broker 10 4

120 107

100 91
84

80 69
60
60

40

20 8 10

Risk Taking Ability Regulatoory Constraints

Fund Facilities Still in 'wait & see'
Lack of Knowledge Lack of Guidance
No Facility With Broker

While questioned about the constraints which hold them back from trading
in derivatives and commodities, respondents have given the maximum votes
to their “Risk awareness”. Fund facility is on the second position with
36.4%. Also lack of guidance about derivatives and commodities is one of
the major constraints followed by lack of guidance.
10. Factors that are to be considered by people while jumping in to
Derivative & Commodity segment.

Factors Percentage (%) Rank

Risk Reduction 24.77 2
Speculation 18.48 3
Investment 26.63 1
Arbitrage 15.68 4
To Increase The
Leverage 14.44 5

14.44%
24.77%

15.68%

18.48%

26.63%

Risk Reduction Speculation Investment

Arbitrage TO increase the Leverage

While investigating the factors which have been given the maximum
importance by investors while trading in derivatives and commodities we
have come up with “Investment” as the first priority with 26.63, while
24.77% people have considered it as an risk reduction option. Speculation is
on the third position with 18.48%. So in future, derivatives and commodities
can be highlighted as investment instruments with higher degree of risk
reduction.
11. Factors which people takes into consideration while taking the
decision to trade in Derivatives & Commodities.

Factor Percentage (%) Rank

Independently 15.86 1
Advice of Friends/Colleagues 11.33 4
Broker/Agent’s advice 12 2
Advice of CA/Tax consultants 8.06 9
News Channel 10.54 7
Well-known Stock Broking Houses 11.85 3
News Papers 11.12 5
Business Magazines 10.93 6
Internet 8.312 8

8.31%
15.86%
10.93%

11.33%
11.12%

12%
11.85%
10.54% 8.06%

Independently Advice of Feiends/Colleagues

Broker/Agent's Advice Advice from CA/Tax Consultant
News Channels Well-known Stock Broking House
Newspapers Business Magazines
Internet

On asked about whom they consider the reliable source of information while
deciding to trade in derivatives and commodities, we came up to know that
most of investors take their decision independently. While advice of
broker/agent and tips from well known stock broking houses also play an
important role in influencing the decisions of the investors. So, stock
broking houses like Angel can plan out their strategy to increase the trading
on derivatives and commodities.
12. Tools preferred by the people while learning Derivatives &
Commodities.

Tools Nos. Percentage (%)

Classroom Teaching 99 39.6
Internet 85 34
Literature 100 40
Documentaries 10 4
Self-Experience 138 55.2
Seminars 71 28.4

60 55.2

50
39.6 40
40 34
28.4
30

20

10 4

0
Percentage(%)

Classroom Teaching Internet Literature

Documentaries Self Experience Seminars

When the respondents were asked about the learning technique on

derivatives and commodities, the most of them preferred self experience, i.e.
they wanted to learn through “trial n error”: after all “Experience is The Best
Teacher”. Literature, classroom teaching and internet follow it with 40%,
39.6% and 34% respectively.
13. Time which people can devote to learn Derivatives &
Commodities.

Time Nos. Percentage (%)

1 day 63 25.2
2 days 71 28.4
3 days 15 6
2 hrs per day for 1 month 22 8.8
Can’t say 74 29.6

25.71%
30.20%

8.98%

6.12% 28.98%

1 Day 2 Days 3 Days 2 Hrs./Day for 1 Month Can't Say

When asked about the time which the respondents would like to devote for
learning about derivatives and commodities, 31% were not sure about the
time limit. It means it depends and varies from person to person. However,
most can afford 1 or 2 day to learn about derivatives and commodities.
14. Most preferred medium for trading in Derivatives & Commodities

Medium Percentage (%) Rank

Stock Broking Cos. (Branded) 31.51 1
Brokers 27.8 2
Franchisees 15 4
Online 25.7 3

25.70%
31.51%

15%

27.80%

Stock Broking Cos.(Branded) Brokers Franchisees Online

While finding out the medium which people consider the most reliable while
trading derivatives and commodities, the respondents gave maximum vote to
“Branded Stock Broking Houses” like Angel, Marwadi, ICICIdirect.com,
Kotakstreet.com etc. The second choice was given to local brokers. So from
the above we can say that if proper attention is given on online trading and
brokers the chances of development of derivatives and commodities would
be increasing.
15. Most preferred Broking companies of the city

Broking Company Percentage (%) Rank

Angel 15.07 1
India Bulls 7.53 5
ICICIdirect 7.67 4
Kotak Street 5.75 7
Sharekhan 9.04 3
5 Paisa 4.93 8
HDFC Securities 4.11 9
Motilal Oswal 6.99 6
Marwadi 13.29 2
Others 25.62 -

15.07%
25.62%

7.53%

7.67%

13.29% 5.75%

9.04%
6.99%
4.11% 4.93%
Angel Indiabulls ICICIdirect Kotak Street
Sharekhan 5 Paisa HDFC Securities Motilal Oswal
Marwadi Others

This question was one of the most crucial for investigating the mind share of
stock broking houses. In this question we came up with the company which
is one of the leading in stock broking industry i.e. Angel. The next close
challenger was Marwadi followed by Sharekhan.
 CONCLUSION
On the basis of this study I could reach to the following conclusions.

 Spectacular positive movement of Sensex and continuously

decreasing rate of interest has changed the conventional mind set of
people. They are now comparatively more risk takers and investing
heavily in the instruments which are giving high return.

 More no. of people, who are already investing in Equity market are
keen on investing in Derivatives and Commodities.

 Lack of Knowledge and Lack of Guidance are considered major

constraints along with Risk Taking Ability and Fund Facility
constraints, which are decreasing the use of Derivatives and
Commodities.

 People in Rajkot city wants to invest in Derivatives and Commodities

for reducing risk and they consider them as investment tools

 People generally want to trade independently. But broker’s advice and

tips from the well known stock broking houses are the major factors
which have a great deal of bearing on the trading decisions and hence
can influence the buying behavior of people.

 Most of the people want to learn about Derivatives and Commodities

by Self Experience. However, Literature and Classroom teaching can
be considered as good methods to impart education to them.

 People consider branded stock broking companies as the best medium

for trading in Derivatives and Commodities.
 RECOMMENDATIONS
 Though Angel has better position as far as its mind share is
concerned, it is facing steep competition from other industry majors.
So, Angel is required to increase its marketing activity for retaining its
top position.

 As there is a vast potential for Derivatives and Commodities market

Angel can take following steps to tap this potential.

 It can impart education by classroom teaching and literature as

lack of knowledge is one of the constraint, faced by people.
 It can show the benefits of Derivatives and Commodities to
existing customers turn them towards these instruments.
 Special services like online tutorial modules and practical
training would also be helpful in this regards.
 QUESTIONNAIRE

1. Name:

2. Age: 21-35 36-50 51-65 Above 66

3. Education: ___________________ 4. Contact No. __________________

5. Occupation: Professional Businessmen

Employee working Govt. Employee
in Pvt. Firms Others

6. Out of these investment options, which are you familiar with and already investing
in?

Bank FD Postal Scheme G-Secs

Mutual Funds Insurance Bonds/Debentures

Shares/Equity Real Estate Jewellery

7. Which of these are you dealing in already?

Equity Derivatives (F&O) Commodity

8. Which of these you would like to be in for trading?

Equity Derivatives (F&O) Commodity

9. If not dealing in either derivatives or commodities or both, what are the

constraints which are holding you back?

Risk taking ability Regulatory constraints

Fund Facilities Still in ‘wait & see’
Lack of knowledge Lack of Guidance
Non-Availability of Options
with your broker
10. If you are trading in derivatives & commodities or you want to be in, which
factors will you give importance? (Give Rank)

Risk Reduction Speculation

Investment Arbitrage
To increase the leverage
11. How do you take decisions if you want to trade in Derivatives &
commodities? (Give Rank)

Independently Advice of Friends/colleagues

Broker/Agent’s advice Advice from CA/Tax consultant
News channels Well-known Stock Broking Houses
Newspapers Business Magazines
Internet

12. How do you want to learn about derivatives & commodities?

Classroom teaching Internet

Literature Documentaries

Self-Experience Seminars
13. How much time will you be able to devote for learning derivatives &
Commodities?
1 day 2 days 3 days
2 hrs per day for 1 month Can’t say

14. According to you, which medium is the most reliable for trading in
derivatives & commodities? (Give Rank)

Stock broking cos. (Branded) Brokers

Franchisees Online

15. Name any 3 stock-broking companies that deal in derivatives &

commodities?

1. ________________ 2. ________________ 3. ________________

 BIBLIOGRAPHY
BOOKS
 Bharati V. Pathak , “Indian Financial System” , Pearson Education
Pte. Ltd.

WEBSITES
 www.angeltrade.com
 www.bseindia.com
 www.nseindia.com
 www.mcxindia.com
 www.ncdex.com
 www.investopedia.com
 www.moneycontrol.com