TRADING IN

COMMODITY
MARKETS
PRESENTATION BY
GROUP 2
 THE TEAM
Abhilasha (04)
Aritra Nandy (11)
Chirag Khera (12)
Christy Joseph (13)
Ashish Dokar (17)
Dhruv Thakkar (18)
Kenita Sabu (28)
Natania Mahipal (37)
Sarang Pawar (41)
Shloka Naudiyal (59)
Tanya Singh (60)
Ujjwala Kapoor (61)
Vrinda Maheshwari (65)
 INTERNATIONAL COMMODITY EXCHANGES
>> The New York Mercantile Exchange (NYMEX)
World’s biggest exchange for trading in physical commodity futures
Primary trading forum for energy products and precious metals
Contributed in developing and launching energy futures and options contract in 1978
Facilitated price transparency and risk management in the key market

>> London Metal Exchange (LME)

World’s premier non-ferrous market, with highly liquid contracts
Trading turnover value of more than US$2000 billion per annum and contributes
substantially to the invisible earnings
Focus of LME is providing a market for participants from the non-ferrous base metals
related industry to safe guard against risk
Famous for its open-outcry trading between ring dealing members that takes place on the
market floor
 INTERNATIONAL COMMODITY EXCHANGES
>> The Chicago Board of Trade (CBOT)
First commodity exchange established on the world
One of the leading exchanges in the world for trading in futures and options
Facilitate trading in non-storable agricultural commodities and non-agricultural products like
gold and silver
Provide transparency and liquidity in its contracts to its members, clients and market
participants

>> Tokyo Commodity Exchange (TOCOM)

Second largest commodity futures exchange in the world with trade in metals and energy
contracts
TOCOM took towards establishing Asia as the benchmark for price discovery and risk
management in commodities
First commodity Exchange in Japan to introduce an in-house clearing system
Trades in Gasoline, Kerosene, Crude Oil, Gold, Silver, Platinum, Palladium, Aluminum, etc.
 INTERNATIONAL COMMODITY EXCHANGES

>> Chicago Mercantile Exchange (CME)

Initially a non profit organisation, now a designated contract market of the CME Group Inc.
Largest options and futures contracts open interest (number of contracts outstanding)
exchange
Products traded - Agricultural Commodity, Cryptocurrency, Energy, Foreign Exchange
Products, Equity Index Products, Metals Products

>> European Energy Exchange

Central European electric power and related commodities exchange
Develops, operates and connects secure, liquid and transparent markets for energy and
related products
Trade power contracts 6 years into the future
 INTERNATIONAL COMMODITY EXCHANGES

>> Intercontinental Exchange (ICE)

Operations include futures exchanges, cash exchanges, central clearing houses, and
market services for off-exchange trading.
Initial primary focus was on energy products, specifically crude and refined oil, natural
gas, power, and emissions.
Widened scope through aquistions
 NATIONAL COMMODITY EXCHANGES

>> Multi Commodity Exchange (MCX)

Largest commodity market trading in India
Types of commodities traded : bullion, energy, agri products, metals
Benchmark Index : iCOMDEX

>> National Commodity and Derivative Exchange Limited (NCDEX)

Leading Agriculture Commodity Exchange in India
Allows trading in 23 commodities
Benchmark Index - AGRIDEX
PLAYERS IN
THIS MARKET
Financial Investors
Represented by:
Position traders, Market
makers
Objective: Anticipate
Arbitrageurs
future price movement
Objective: Earn
riskless profit by
Hedgers buying and selling in
Represented by: different markets at
Manufacturers, the same time
Traders, Exporters
Objective: Reduce risk
 INSTITUTIONAL
PLAYERS THAT HAVE
BEEN PERMITTED
Category III Alternative Investment Funds
(AIFs) (various types of funds such as hedge
funds, PIPE (Private Investments in Public
Equity) Funds, etc. are registered as
Category III AIFs)
Eligible Foreign Entities (EFEs) having actual
exposure to Indian commodity market
Mutual Funds
Portfolio Managers
 HOW TO START COMMODITY TRADING?
Commodity trading in India has been regulated by the Securities and Exchange
Board of India since 2015 merged with Forward Markets Commission.

SWACH BHARAT STAMP DUTY

CESS Selecting an
Understanding
Charged @0.5% on Varies from 0.001%
efficient
the market
Service Charge. to 0.04% or flat
broker
rate.

SWACH BHARAT STAMP DUTY

Opening
CESS a Making initial Create a
trading
Charged @0.5% on Varies from 0.001%
deposit trading plan
Service Charge. to 0.04% or flat
account rate.
 METHODS TO TRADE IN COMMODITY
Direct Investment Purchase Stocks Commodity ETFs &
Mutual Funds

Directly purchase Many ETFs and mutual

Can invest in stocks
items like gold and funds based on
of commodity
silver commodities.
company
Allows investors to
Entails a high
Public information profit from fluctuations
transaction cost
about a company's in commodity prices
financial situation is
readily available No purity or storage-
related issues with ETFs
as the units are held
electronically in demat
account
 LOGISTICS
Methods to trade in commodity

Traditional methods:
Ocean, Rail and truck freight

Multiple Transportation:
Intermodal freight

Freight exchange:
A virtual platform that helps increase
effectiveness of logistics
WHILE EXECUTING
TRADE

TAX

ON PROFITS
MADE
 WHILE EXECUTING TRADE
SERVICE TAX COMMODITIES TAXATION
CHARGES
Charged @14% on service
charges. Charged @0.01% on total turnover.
Brokerage Varies On non-agricultural commodities.-
Transaction Charged @0.0031% Charged on on sell side of intraday
on non-Agri Commodities and transactions.
@0.00175% for Agri Charged on both buy and sell side of
Commodities. delivery transactions.

SWACH BHARAT STAMP DUTY SEBI CHARGES

CESS
Varies from 0.001% @0.0002% charged
Charged @0.5% on
to 0.04% or flat rate on Turnover
Service Charge
TAXES LEVIED ON PROFITS

You are considered as a trader and not an

investor.

Profits and losses are considered business

profits and business losses.

In Case of Profits - Added to Income and Tax

rate for appropriate Tax Slab.

In Case of Losses - Can be net off against any

income other than salary.
 INSURANCE
INSURANCE

Why is it needed? Types of Insurance Who can Buy?

Provided Financial Support Single Transit ( Inland) Importers/ Exporters

Cover losses Open Policy ( Export/ Manufacturer
Suitable for all Businesses Import) Transporter
Meeting Coverage All Risk Cover - ICC/ITC -A Custom House Agents
Requirements Basic Cover - ITC B
Traders

Insurance Providers Quotes ( All commodities)

Bajaj Allianz Inland ( Single Transit - All Modes ) - 591 Rs.
Reliance General Insurance for 10,00,000 Cover
Digit Import/ Export ( Open Yearly - All Modes ) -
Icici Lombard 1183 Rs. For 10,00,000 Cover
Sbi General Prices May vary according to Location and
Tata AIG Sum Insured. These are the Average Prices
Source : Policybazaar.com
 ADVANTAGES OF
COMMODITY MARKET TRADING
Facilitates Diversification

The Upside Of Inflation

Highly Liquid Assets

 DISADVANTAGES OF
COMMODITY MARKET TRADING

Leverage May Quickly Go Out of Hand

Excessive Volatility May Create Confusion

Exposed to Economic and Geopolitical Factors

 NSEL CASE
NSEL was established in 2008- the first electronic spot exchange market
Objective:
1) Transform the Indian Economy
2) Assist farmers/manufacturers in selling their products at competitive
prices
DCA allowed NSEL only to execute spot contracts

SCAM:
NSEL prepared some spot and many general contracts(forward) for
profits
It started the execution of paired contracts via brokers
In 2010, NSEL requested FMC to allow (T+11) contracts
False WRs were issued to the buyers
Investors were invited to invest in the spot exchange market-5600crore
No goods were available in warehouses to execute agreements- only on
paper deals.
THANK YOU