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Summer training of management student plays an important role to develop one into a well groomed professional. It gives theoretical concepts and practical shape in a field of applications. It gives an idea of dynamic and versatile professional world as well as an exposure to the intricacies and complexities of corporate world.
My summer training for two months in Indiabulls Securities Ltd., Pune was a learning experience to see what and how the company provides its product and services to its existing and potential customers.
Thisdecadeistermed as Decade of Commodities.Prices of all commodities are heading northwards due to rapidincrease in demand for commodities. Developing countries likeChina are voraciously consuming the commodities. That‘s whyglobally commoditymarket is bigger than the stock market. India is one of the top producers of large number ofcommodities and also has a long history of trading incommodities and related derivatives. The CommoditiesDerivatives market has seen ups and downs, butseems to havefinally arrived now. The market has made enormous progress interms of Technology, transparency and trading activity.Interestingly, this has happened only after the Governmentprotection was removed from a number of Commodities, and market force was allowed to play their role. This should act as amajor lesson for policy makers in developing countries, thatpricing and price risk management should be left to themarketforces rather than trying to achieve these through administeredprice mechanisms. The management of price risk is going toassume even greater importance. In future with the promotionof free trade and removal of trade barriers in the world.
One of the interesting developments in financial market over the last 15 to 20 yearshas been the growing popularity of derivatives. In many situations, both hedgers andspeculators find it more attractive to trade a derivative on an asset, commodity than to tradeasset and commodity itself. Some commodity derivatives are traded on exchanges.
In this report Ihave included history of commodity market. Then I have includedcommodity exchanges in India. And after that I have discussed the mechanism of trading incommoditymarket in India.
In this report I have taken a first look at forward, futures and options contract andother risk management instruments. Than after I have discussed the risk associated with commodity futures and variousrisk management techniques used in commodity future contract. Thereare mainly three types of traders: hedgers, speculators andarbitrageurs.
Then after I have discussedabout the present scenario of commodity marketin India.In the next I have tried to analyse the trading pattern and investment pattern ofcommodity traders and other investors. This I have done through the help ofQUESTIONER,which contains 22 questions.
On the basis of different charts prepared,I have at the end given the research findingsand Conclusion. And on the basis of my findings I have given suggestion andrecommendation
CHAPTER I INTRODUCTION
Introduction to Commodity Market
What is “Commodity”?
Any product that can be used for commerce or an article of commerce which is traded on an authorized commodity exchange is known as commodity. The article should be movable of value, something which is bought or sold and which is produced or used as the subject or barter or sale. In short commodity includes all kinds of goods. Indian Forward Contracts (Regulation) Act (FCRA), 1952 defines, ―goods‖ as, ―every kind of movable property other than actionable claims, money and securities‖. In current situation, all goods and products of agricultural (including plantation), mineral and fossil origin are allowed for commodity trading recognized under the FCRA. The national commodity exchanges, recognized by the Central Government, permits commodities which include precious (gold and silver) and non-ferrous metals, cereals and pulses, ginned and un-ginned cotton, oilseeds, oils and oilcakes, raw jute and jute goods, sugar and gur, potatoes and onions, coffee and tea, rubber and spices. Etc.
DIFFERENT TYPES OF COMMODITIES TRADED
World-over one will find that a market exits for almost all the commodities known to us. These commodities can be broadly classified into the following: PRODUCTS Precious Metals Other Metals Agro-Based Commodities Soft Commodities Live-Stock Energy Live Cattle, Pork Bellies etc. Crude Oil, Natural Gas, Gasoline etc. Coffee, Cocoa, Sugar etc. Nickel, Aluminium, Copper etc. Wheat, Corn, Cotton, Oils, Oilseeds. COMMODITIES Gold, Silver, Platinum etc.
What is a commodity exchange?
A commodity exchange is an association or a company or any other body corporate organizing futures trading in commodities for which license has been granted by regulating authority
ROLE OF COMMODITY TRADING EXCHANGE
Earlier, all the sellers and buyers of a commodity used to come to a common market place for the trade. Buyer could judge the amount of produce that year while the seller could judge the amount of demand of the commodity. They could dictate their terms and hence the counter party was left with no choice. Thus, in order to hedge from this unfavorable price movement, need of the commodity exchange was felt.
An exchange designs a contract, which alone would be traded on the exchange. The contract is not capable of being modified by participants, i.e., it is standardized. The exchange also provides a trading platform, which converges the bids and offers emanating from geographically dispersed locations, thereby creating competitive conditions for trading. The exchange also provide facilities for clearing, settlement, arbitration facilities, along with a financially secure environment by putting in a place suitable risk management mechanism and guaranteeing performance of contract.
The concept of organized trading in commodities evolved in Chicago. Latter on by making some modifications these contracts transformed in to an instrument to protect involved parties against adverse factors such as unexpected price movements and unfavourable climatic factors. which had no intentions to buy or sell wheat but would purely speculate on price movements in market to earn profit. during the Great Depression. As if dealer is not interested in taking delivery of the produce. Latter on rules came in to being. In 19th century Chicago in United States had emerged as a major commercial hub. To raise cash warehouse holders sold receipts against the stored rice. in advance. Gradually sellers & buyers started making commitments to exchange the produce for cash in future and thus contract for ―futures trading‖ evolved. Agricultural commodities were mostly traded but as long as there are buyers and sellers. the Rubber Exchange of New York. Whereby the producer would agree to sell his produce to the buyer at a future delivery date at an agreed upon price. This kind of agreement proved beneficial to both of them. Eventually. the Commodity Exchange. was established in New York through the merger of four small exchanges – the National Metal Exchange. This created a platform for establishment of a body to regulate and supervise these contracts. That‘s why Chicago Board of Trade (CBOT) was established in 1848. So that wheat producers from Mid-west attracted here to sell their produce to dealers & distributors. and transfer of agricultural products. Inc. In Japan merchants used to store Rice in warehouses for future use. These were known as ―rice tickets‖. any commodity can be traded. In 1870 and 1880s the New York Coffee. in 1848. these rice tickets become accepted as a kind of commercial currency. he could sell his contract to someone who needs the same. Trading of wheat in futures became very profitable which encouraged the entry of other commodities in futures market. These situations lead to need of establishing a common meeting place for farmers and dealers to transact in spot grain to deliver wheat and receive cash in return. In 1933. Similarly producer who not intended to deliver his produce to dealer could pass on the same responsibility to someone else.History of Evolution of commodity markets Commodities future trading was evolved from need of assured continuous supply of seasonal agricultural crops. Cotton and Produce Exchanges were born. In this way producer was aware of what price he would fetch for his produce and dealer would know about his cost involved. the National Raw Silk Exchange. The price of such contract would dependent on the price movements in the wheat market. pricing. In 1872. absence of uniform weighing & grading mechanisms producers often confined to the mercy of dealers discretion. This promoted traders entry in futures market. to standardize the trading in rice tickets. . Due to lack of organized storage facilities. a group of Manhattan dairy merchants got together to bring chaotic condition in New York market to a system in terms of storage. and the New York Hide Exchange. But one can trace its roots in Japan.
The Chicago Mercantile Exchange. (iii) The Central Government. Singapore. the Government set up a committee (1993) to examine the role of futures trading. France. History of Commodity Market in India The history of organized commodity derivatives in India goes back to the nineteenth century when Cotton Trade Association started futures trading in 1875. Japan. Worldwide there are major futures trading exchanges in over twenty countries including Canada. Under the act only those associations/exchanges. about a decade after they started in Chicago. India. Wheat in Hapur (1913) and Bullion in Bombay (1920). derivatives trading started in oilseed in Bombay (1900). Over the time datives market developed in several commodities in India. in a complete change in a policy. The Committee (headed by Prof.The largest commodity exchange in USA is Chicago Board of Trade.is the ultimate regulatory authority. It also recommended strengthening Forward Markets Commission. Kabra) recommended allowing futures trading in 17 commodity groups. The act prohibited options trading in Goods along with cash settlement of forward trades. The parliament passed the Forward Contracts (Regulation) Act. England. sugar and cocoa Exchange. Following Cotton. the New York Mercantile Exchange. After Liberalization and Globalization in 1990.N. The act envisages three tire regulations: (i) Exchange which organizes forward trading in commodities can regulate trading on day-to-day basis. Ministry of Consumer Affairs. (ii) Forward Markets Commission provides regulatory oversight under the powers delegated to it by the central Government. and certain amendments to .Department of Consumer Affairs. raw jute and jute goods in Calcutta (1912). The commodities future market remained dismantled and remained dormant for about four decades until the new millennium when the Government. Australia and New Zealand. Food and Public Distribution. K. resulting in to banning of commodity options trading and cash settlement of commodities futures after independence in 1952. 1952. started actively encouraging commodity market. rendering a crushing blow to the commodity derivatives market. However many feared that derivatives fuelled unnecessary speculation and were detrimental to the healthy functioning of the market for the underlying commodities. which are granted reorganization from the Government. are allowed to organize forward trading in regulated commodities. which regulated contracts in Commodities all over the India. the New York Commodity Exchange and New York Coffee.
in an organized way. By Exchange rules and by law. Since 2002. Before discovering the price. That keeps the market as efficient as possible. . Multi Commodity Exchange of India Limited (MCX) Mumbai and National Multi-Commodity Exchange of India Limited (NMCEIL)Ahmedabad. Today. except some negligible activities on OTC basis. There are other regional commodity exchanges situated in different parts of India. Since 1952 till 2002 commodity datives market was virtually non. they reach to the producers. commodity exchanges are purely speculative in nature. and keeps the traders on their toes to make sure no one gets the purchase or sale before they do. Government of India has allowed forward transactions in commodities through Online Commodity Exchanges. where a single auctioneer announces the bids and the Exchange is that people are not only competing to buy but also to sell. no one can bid under a higher bid. and no one can offer to sell higher than someone else‘s lower offer. at a grassroots level. After a gap of almost three decades. It brings a price transparency and risk management in the vital market. The Government accepted most of these recommendations and futures‘ trading was permitted in all recommended commodities. end-users.Forward Contracts (Regulation) Act 1952. particularly allowing option trading in goods and registration of brokers with Forward Markets Commission. the commodities future market in India has experienced an unexpected boom in terms of modern exchanges. The three exchanges are: National Commodity & Derivatives Exchange Limited (NCDEX) Mumbai. A big difference between a typical auction. Earlier only the buyer of produce and its seller in the market judged upon the prices.existent. and even the retail investors. In India there are 25 recognized future exchanges. Others never had a say. Commodity exchange in India plays an important role where the prices of any commodity are not fixed. of which there are three national level multicommodity exchanges. a modification of traditional business known as Adhat and Vayda Vyapar to facilitate better risk coverage and delivery of commodities. which crossed $ 1 trillion mark in 2006. number of commodities allowed for derivatives trading as well as the value of futures trading in commodities. It is timely decision since internationally the commodity cycle is on upswing and the next decade being touched as the decade of Commodities.
cottonseed. 1. Castorseed.. Rajdhani Oils & Oilseeds Exchange Ltd. The Chamber of Commerce.The Present Status Presently futures trading is permitted in all the commodities. Hapur Gur. Calcutta 11.. Meerut 7. Exchange COMMODITY (both domestic and India Pepper & Spice Trade Association. Mustard seed 2. Gur 4. cotton (kapas) and RBD palmolein. its oil & Association. Groundnut. its oil and Ahmedabad 10. The Bombay Commodity Exchange Ltd. The East India Cotton Association Ltd.. Oilseed Mumbai Complex. Rajkot cake. Gur. The Ahmedabad Commodity Exchange. Trading is taking place in about 78 commodities through 25 Exchanges/Associations as given in the table below:No.. its oil & cake. VijaiBeopar Muzaffarnagar 3. Mustard seed its oil & Delhi oilcake Om & Oil Exchange Ltd. Castor oil international contracts 8.. Gur. cottonseed. 6. Bhatinda Bhatinda 5. Pepper Kochi (IPSTA) international contracts) Chambers Ltd.. Cotton Mumbai . Potatoes and Mustard seed The Meerut Agro Commodities Exchange Gur Ltd.. Oil & Bullion Merchants Castor seed. oilcake The East India Jute & Hessian Exchange Hessian & Sacking Ltd. 9. Rajkot Seeds.
. Several Commodities Exchange Ltd. Coffee Futures Exchange India Ltd. 17. Guar seed.. Indore Soya seed... Rapeseed/Mustardseed its oil and oilcake and RBD Palmolien 14. Ahmedabad 18.12. Coffee Bangalore 19. Hissar Bullion Association Ltd. Cotton. 23. Haryana Commodities Ltd.. 25. Guar Gum 24. E-Commodities Ltd. Mumbai 22.. Kapas Surendranagar 20. The First Commodities Exchange of India Copra/coconut. Central India Commercial Exchange Ltd... its oil & oilcake Ltd. Soyaoil and Soya meals. Kochi 15. Jaipur Mustard seed complex Mustard seed Complex . 13... Surendranagar Cotton Oil & Oilseeds. 21. Cottonseed. Multi Commodity Exchange Ltd. Mumbai Sugar National Multi-Commodity Exchange of Several Commodities India Ltd.. New Delhi National Commodity & Sugar (trading yet to commence) Derivatives. The Spices & Oilseeds Exchange Ltd. Turmeric Sangli.. E-sugar India Ltd. Gram. National Board of Trade.. Gur and Mustard seed Gwalior 16. Mumbai Bikaner commodity Exchange Ltd. Bikaner Several Commodities Mustard seeds its oil & oilcake.
How Commodity market works? . Squiring off is done by taking an opposite contract so that the net outstanding is nil. The first is the spot trade. The second is futures trade. Which allows him to ask for physical delivery of the good from the warehouse. The underpinning for futures is the warehouse receipt.There are two kinds of trades in commodities. But some one trading in commodity futures need not necessarily posses such a receipt to strike a deal. good X in a ware house and gets a warehouse receipt. With online commodity trading they could sit in the confines of their home or office and call the shots. Today Commodity trading system is fully computerized. For commodity futures to work. But at present in India very few warehouses provide delivery for specific commodities Following diagram gives a fair idea about working of the Commodity market. . A person deposits certain amount of say. by when the buyer or seller either closes (square off) his account or give/take delivery of the commodity. in which one pays cash and carries away the goods. The buyer should be able to take physical delivery at a location of his choice on presenting the warehouse receipt. Traders need not visit a commodity market to speculate. the seller should be able to deposit the commodity at warehouse nearest to him and collect the warehouse receipt. A person can buy or sale a commodity future on an exchange based on his expectation of where the price will go. Futures have something called an expiry date. The broker maintains an account of all dealing parties in which the daily profit or loss due to changes in the futures price is recorded.
For instance. This is how modern futures contracts first came into being. The Dojima rice market can thus be regarded as the first futures market. The first futures markets in the Western hemisphere were developed in the United States in Chicago. to this day the largest futures market in the world. Changes in the price of the underlying asset affect the price of the derivative security in a predictable way. in Japan. the price of a gold futures contract for October maturity is derived from the price of gold. This evolution occurred in stages. . the rice was been grown abundantly. in the sense of an organized exchange with standardized trading terms. Traders found that the agreements were easier to buy and sell if they were standardized in terms of quality of grain.INTRODUCTION TO DERIVATIVES Derivatives A derivative is a security or contract designed in such a way that its price is derived from the price of an underlying asset. Gradually these contracts became transferable and over a period of time. These markets had started as spot markets and gradually evolved into futures trading. In 1730. This led to forward trading. the market received official recognition from the ―Tokugawa Shogunate‖ (the ruling clan of shoguns or feudal lords). The first stage was the starting of agreements to buy grain in the future at a pre-determined price with the intension of actual delivery. later the trade in rice grew and evolved to the stage where receipts for future delivery were traded with a high degree of standardization. particularly delivery of the physical produce. market lot and place of delivery. Evolution of derivatives In the 17th century. The Chicago Board of Trade (CBOT) which opened in 1848 is.
On the other hand. futures trading would represent a ‗Zero sum game‘ what one side wins. to exchange an agreed quantity of an asset for cash at a certain date in future at a predetermined price specified in that agreement.Kinds of financial derivatives 1) Forwards A forward contract refers to an agreement between two parties. b) Short position is when the seller agrees to sell the asset. The underlying asset could be foreign currency. a stock index. They are traded on an organized exchange. A futures trade will result in a futures contract between 2 sides. The specified price is known as the future price. The promised asset may be currency. instrument etc. if there were no transaction costs. a treasury bill or any commodity. commodity. the user who promises to sell at an agreed price at a future date is said to be in ‗short position‘. standardized form of forward contracts. which exactly match what the other side loses . which is a physical place of trading floor where listed contract are traded face to face. The undertaker in a future market can have two positions in the contract: - a) Long position is when the buyer of a futures contract agrees to purchase the underlying asset. In a forward contract. Each contract also specifies the delivery month. a user (holder) who promises to buy the specified asset at an agreed price at a future date is said to be in the ‗long position‘. 2) Futures A futures contract represents a contractual agreement to purchase or sell a specified asset in the future for a specified price that is determined today.someone going long at a negotiated price and someone going short at that same price. Thus. which may be nearby or more deferred in time. Futures contract represents an institutionalized.
on or before a specified date in the future. Option Premium In return for the guaranteeing the exercise of an option at its strike price. the seller is usually referred to as ―writer‖. If the option expires without being exercised. However. Alternatively. the option seller or writer charges a premium. .3) Options An option contract is a contract where it confers the buyer. and commodity) etc. Writer In an option contract. which gives the option holder the right to ―buy‖ an underlying asset at a pre-determined price. since he is said to write the contract. it is called an European Option. the right to either buy or to sell an underlying asset (stock. which the buyer usually pays upfront. the buyer may be allowed to sell it. an option may be exercisable on any date during a specified period or it may be exercisable only on the final or expiration date of the period covered by the option contract. currency. at a predetermined price. bond. The price so predetermined is called the ‗Strike price‘ or ‗Exercise price‘. if it can be exercised only on its expiration date. Call Option A Call Option is one. Option instruments a. Depending on the contract terms. If an option can be excised on any date during its lifetime it is called an American Option. the buyer receives no compensation for the premium paid. Under favorable circumstances the buyer may choose to exercise it.
who in turn pays the first party a price based on the prevailing market price (or an accepted index thereof) for the same quantity. which gives the Option holder both the right to ―buy‖ or ―sell‖ underlying asset at a pre-determined price on or before a specified date in the future. Double Option A Double Option is one. which gives the option holder the right to ―sell‖ an underlying asset at a pre-determined price on or before the specified date in the future. 4) SWAPS A SWAP transaction is one where two or more parties exchange (swap) one pre-determined payment for another. There are three main types of swaps:- a) Interest Rate swap An Interest Rate swap is an agreement between 2 parties to exchange interest obligations or receipts in the same currency on an agreed amount of notional principal for an agreed period of time. c. b) Currency swap A currency swap is an agreement between two parties to exchange payments or receipts in one currency for payment or receipts of another. . c) Commodity swap A commodity swap is an arrangement by which one party (a commodity user/buyer) agrees to pay a fixed price for a designated quantity of a commodity to the counter party (commodity producer/seller).b. Put Option A put option is one.
based trades. Investors canchoose between the two. Very simply.Commodity Futures The commodity futures trading. has protected itself against a possible sharprise in cotton prices. All open contracts not intended for delivery are cash settled. as less than 2% of all the futures contracts are met by actual delivery. on the other hand. commodity stockiest and wholesalers gofor delivery.based settlement. say. The commodity exchanges guarantee that the buyers and sellers will stick to the terms of theagreement. a transferable receipt fromthe warehouse where goods are stored is issued in favour of the buyer. not the rulehowever. This allows him to lock into a fixed price and protect his earnings from a steep drop in cottonprices in the future. So. The complicating factor is quality. Investor’s choice The futures market in commodities offers both cash and delivery. When one buys or sells a futures contract. commodity futures are agreements to buy or sell something at a later dateand at a price that has been fixed earlier by the buyer and seller. sometimes prior to the expiration of the date of the contract. In the case of delivery. Commodity futures contracts have to specify the quality of goods beingtraded. The other way to meetone‘s obligation. which is a legally bindingagreement providing for the delivery of the underlying asset or financial entities at specific date in thefuture. What makes commodity trading attractive? A good low-risk portfolio diversifier A highly liquid asset class. equities Investors can leverage their investments and multiply potential earnings . a cotton farmer may agree to sell his output to a textiles company many monthsbefore the crop is ready for actual harvesting. consists of a futures contract. is by ―offset‖. compared with. is by making or taking delivery of the commodity. bonds and real estate Less volatile. The textiles company. First. This can be easily done becausefutures contracts are standardized. If the buyer chooses to take delivery of the commodity. for example.While speculators and arbitrageurs generally prefer cash settlement. On producing this receipt. Like all future contracts. the buyercan claim the commodity from the warehouse. he is actually entering into a contractual obligationwhich can be met in one of 2 ways. acting as a counterweight to stocks. offset is making the opposite or offsetting sale or purchase of the same number ofcontracts sold. The options to square of the deal or to take delivery can be changed before the last date ofcontract expiry. the margin rises to 20-25% of the contract value andthe seller is required to pay sales tax on the transaction. This is the exception. the method which everyone most likely will use.
but the seller wants Rs. thus making quick transaction possible. measurement methods of transfer. The futures exchange brings together a large number of speculators.000 a bushel. 18. The exchange provides a setting where risk can be transferred from the hedgers to the speculators.adjusted returns A good hedge against any downturn in equities or bonds as there is little correlation with equityand bond markets High correlation with changes in inflation No securities transaction tax levied. The price is usually given as ―Bid -Ask‖. he needs to know whether he can effect the transaction quickly.g. When a hedger wants to sell futures contracts to protect his business position.000 bid. In the pits. there must be a large group of individuals ready to buy or sell. and times of delivery.18. By standardizing the contracts in this manner. . 17.000 bushel. Why commodities preferred to stocks? Prices predictable to their cyclical and seasonal patterns Less risk Small margin requirement Lesser investment requirement No insider trading Entry and exit guaranteed at any point of time Cash settlement according to Mark to Market Position Relatively small commission charges Higher returns The Role of the exchange in futures Trading 1) Price discovery As sellers offer to sell and buyers offer to buy in the pit.: . then. they provide immediate information regarding the price of the futures contract. meaning a buyer is willing to pay Rs. setting standards of grading. Rs.Upfront margin requirement low Better risk. 3) Liquidity If risk is to be transferred efficiently.Price for wheat might be Rs. risk is inherent part of doing business. E. 4) Standardization The exchange writes the specifications for each contract.000 ask. the exchange opens the futures market to almost anyone willing to hedge risk. the auction process is facilitated because only the price must be negotiated. 17. 2) Risk Transfer In a futures transaction.
errors (or fraud) may occur in carrying out operations.For E. in placing orders.g. making payments oraccounting for them. Switching 3. they are 1. Locking Averaging Averaging is a technique used when there is an existing position. in few adverse situations. Averaging 2. The Various Risk Management Techniques Used in Commodity Futures Trading Considering the risks discussed previously. a futures price has increased or decreased by the maximum allowable daily limit and there is noone presently willing to buy the futures contract you want to sell. And thenat that particular price. or sell the futures contract you want tobuy. a person who has aposition in the market may not be able to liquidate his position. various risk management techniques are used in order tominimize the losses. Liquidity risk Although commodity futures markets are liquid mostly. Market risk It is the risk of adverse changes in the market price of a commodity future. Then take the average of these 2 prices. enter into a similar new position. And whenthe price moves to that price liquidate the position. .RISK ASSOCIATED WITH COMMODITY FUTURES TRADING There are various risks in commodity futures trading. There are mainly 3 techniques. they are:- Types of Risk Operational Risk Operational risk Market Risk Liquidity Risk The risk that. and the price moves adversely.
000 Now. 46.000.000. expecting price to go up. one lot will be liquidating the first lot. when there is an existing position. 46. but Price goes to Rs.Example: 1.000 ---. Now when price goes to Rs. 4. 50. liquidate the second lot. where. the average price is Rs.000. 45. and then the second one willbe a new position. It is the process where there is an existing position. and thenliquidates the first lot .000 ----------Net profit 0 ----------Switching Switching is yet another risk management technique. Here two processes are involved ‗locking and ‗unlocking‘. Example:Bought silver 1 lot @ Rs. there is an existing position. and book the profits. and the pricesmove adversely and give an indication that it will move in that direction. where it is expected to bounce back.48.000 ----(2nd position) Price goes to Rs. Profit = Rs. And then when the second price reaches a point where it will bounce back. 1.000 Then sold 2 lots of silver @ Rs.000. liquidate the position.000 Loss = (-) Rs. 2. 5. 50.000. we‗unlock‘ by liquidating the second position and book profits.000 Loss = (-) Rs.000. Sold silver 1 lot @ Rs. 48. but it will come back to itsoriginal position. we ‗lock‘ by enteringinto a new opposite position. Buy another new lot @ Rs. 46. (Liquidationof2nd position) Price comes to Rs. Silver bought 1 lot@ Rs. 2.49000. and the prices move adversely and give all indication that it will go in the same direction for still some while.(1st position) Price falls to Rs.000 Price reaches @ 46.50. Example: Bought silver 1 lot @ Rs.000. 41. Then wehave to liquidate the first position and enter a new and opposite position at the same price. and the price moves adversely. whereby we can minimize the loss.000 ----------Locking Locking is yet another risk management technique. 48000 Make new position. liquidate the second lot. then liquidate both the lots and thus Profit = Rs. and then finally when the price reachessomewhere near the first position.000 ----------Net profit (+) Rs. 45. Bought silver 1 lot @ Rs. 48000 When the price comes to Rs. when.
The only important factor for analysing the market is price action. The market movement is reduced on a daily basis as avertical line between the high and low.000 ---------Analysis There are different types of risks involved in commodity futures trading.000 (from 2 position) Loss = (-) Rs. and in order to do so. tools are used. Among the risk management techniques. 2. two important analyses made are: Technical Analysis Fundamental Analysis TECHNICAL ANALYSIS Technical analysis refers to the process of analysing the market with the help of technical tools. the various analyses. (Liquidation of 1st position) nd Profit = Rs. he has to pump in huge volumes of money. Bar Chart A Bar Chart is one of the most widely used charts. 3. Interpretation Although there exists various types of risks involved in trading the various risk management technique canbe effectively used in order to minimize the loss due to adverse price movements. which is very unlikely. various types of risk management techniques are used in order to minimize the risk.000 (from 1st position) ---------Net profit (+) Rs. Although bar . 1. market risk. these are global commodity prices.49000. and henceforth makes future predictions of the prices.Sold silver 1 lot @ to Rs. As well as a daily record. locking is the most commonly used one. Manipulation of price of the commodity is not possible as. The most important one being. But to counter these price risks. the opening level being indicated as a ‗horizontal dash to the left‘. similar chartscan be drawn for weekly or monthly price ranges.the closing level being indicated as a ‗horizontal dash to the right‘. Various analysis tools used to predict the price movements in commodity futures trading In order to predict the future price of a commodity. In order to make the daily or regular predictions. which includes charts.
The green line is the 50-day average and the yellow line is the 100 day average. In the above chart the red line is the 20-dayaverage. and generally drawn by the non-technical investor interested in gettingquick visual impression of the general movement of the market. A good fundamentalist will be able to forecast a major price move well inadvance of the technician. FUNDAMENTAL ANALYSIS Fundamental analysis is the study of supply and demand.g. It is often regarded as aconfirmation that a new trend is well established. Strong movements in overseas markets influencing our market or interest. than just by looking at a daily high-low-close pattern. Gaps A Gap is formed when one day‘s trading movement does not overlap the range of the previous day. . it will carryover from the previous year ii) Production This is the crop estimate for the current year. Break away gap This usually occurs soon after a new trend has been established as large numbers of new trend has beenestablished. their minor limitation is that they do not show how the market acted during the trading day. and can give betterbuy and sell signals. They are Fundamentals affecting Agriculture Commodities a) Supply The supply of a grain will depend on i) Beginning stocks This is what the government says. of the previous 20 days. a 20-day movingaverage refers to the average price. There are various factors affecting the fundamentals of different commodities. Moving averages Moving averages are used to iron out some of the more volatile short-term movements. Thismay be caused by the market opening sharply highly or lower than the previous days close. but can give avery good indication as to what the market has been doing over a longer time scale. up to 10 to 20 years. E. They are not really adequate for market movement interpretation. if there is a drought in Brazil during the flowering phase of soybean plant one can rationally explainwhy bean prices are rising. as a result ofimportant overnight news. The cause and effect of price movement isexplained by supply and demand. Normally closing prices are used andjoined to form a line chart. orquite simply because the market has started to develop a strong momentum of its own. For instance. A line chart is the simplest chart. as large numbers of new investors suddenly want to join the action.charts are the most popular for technicalanalysts.
it lists the stocks inthe exchange approved warehouses for aluminum. tin. industrialized demand is the key.iii) Imports This includes the commodities imported from different countries. iv) Total supply This is the beginning stocks+production+imports. Demand traditionally soars for all the industry al metalsin times of increased defense spending. lead.meal and oil. it will shoot up the price. due to increase in demand. c) Ending carryover stocks Total supply minus total demand= the carryover. copper. iii) Mining strikes and production problems iv) War Copper in particular has been called the ‗war‘ metal. ii) Exports This refers to the quantity of different commodities demanded by foreign countries. ii) LME stocks Every day the London Metal Exchange releases its widely watched stocks report. which affects the process of all types of grains. steel etc. where. ending stocks d) Weather Weather is the single most important factor. this willbe reflected in lower prices. b) Demand i) Crush This is the domestic demand by the crushers who buy new soybeans. zinc. v) Inflation The industrial metals have been at times been called the ‗poor man‘s gold‘ and will heat up in aninflationary environment. Metals fundamentals These include copper. . the grains and oil seeds do exhibit certain seasonal tendencies. e) Seasonality All other factors remaining equal. If there is flooddrought. Their fundamentals are i) Economic activity For any metal. If there is the threat of an economic slowdown. And crush them into the products.
Trends in volume contribution on the three National Exchanges Pattern on multi Commodity Exchange (MCX):MCX is currently largest commodity exchange in the country in terms of trade volumes. As per recent data the largely traded commodities are Gold.Analysis Predictions in the commodity futures trading can be made through 2 tools i. Among Agricultural commodities major volume contributors include Gur. It helps to explain what the general tendency in the market is. most of them have common inherent problem of small market size. in order to makepredictions. chana and Urad (narrow commodities as specified by FMC). Urad. only 3 or 4 commodities contribute for more than 80 percent of total trade volume. and henceforth take a favourable position in the market and thus benefit from the pricemovements. Interpretation From the above analysis.e. .Technical analysis is the process of using all kinds of tools and charts. it helps to explain exactly at which point to enter a position or helps to explain at whatpoint will be the trend reversal. further it has even become the third largest in bullion and second largest in silver future trading in the world.Fundamental analysis seeks to protect the market by making use of the demand and supply factors. fundamentalanalysis and technical analysis. Coming to trade pattern. the price signals largely reflect international scenario. though there are about 100 commodities traded on MCX. Incidentally the futures‘ trends of these commodities are mainly driven by international futures prices rather than the changes in domestic demand-supply and hence. it can be concluded that. But. Mentha Oil etc. Energy and base Metals. by making use of both the fundamental and technicalanalysis efficiently. However the major volume contributors on NCDEX are agricultural commodities. Whose market sizes are considerably small making then vulnerable to manipulations. About 60 per cent trade on NCDEX comes from guar seed. which is making them vulnerable to market manipulations and over speculation. Pattern on National Commodity & Derivatives Exchange (NCDEX):NCDEX is the second largest commodity exchange in the country after MCX. Silver.
Trade on NMCE had considerable proportion of commodities with big market size as jute rubber etc. Mentha etc. 1952. was enacted. As a result. Forward markets in wheat have been functioning at Hapur since 1913 and in bullion at Bombay since 1920. A.Shroff and select committees of two successive Parliaments and finally in December 1952.Majority of trade has been concentrated in few commodities that are Non Agricultural Commodities (bullion. the pattern has changed and slowly moved towards commodities with small market size or narrow commodities. COMMODITY EXCHANGE TRADING REGULATIONS IN INDIA Commodity Derivative markets started in India in cotton in 1875 and in oilseeds in 1900 at Bombay.Pattern on National Multi Commodity Exchange (NMCE):NMCE is third national level futures exchange that has been largely trading in Agricultural Commodities.fmc. Forward trading in raw jute and jute goods started at Calcutta in 1912. Urad.gov. the Forward Contracts (Regulation) Act. The Act provided for three-tier regulatory system: The Forward Markets Commission (FMC) (set up in September 1953) (http://www. in subsequent period.in) .D. Analysis of volume contributions on three major national commodity exchanges reveled the following pattern. metals and energy) Agricultural commodities with small market size (or narrow commodities) like guar. A Bill on forward contracts was referred to an expert committee headed by Prof. Major volume contributors: . After independence. the responsibility for regulation of commodity futures markets devolved on the Government of India. But. the Constitution of India brought the subject of stock exchanges and futures markets into the Union list.
The authorities subsequently granted licenses to three national commodity exchanges: Multi Commodity Exchange (MCX). National Commodity & Derivatives Exchange (NCDEX) and National Multi Commodity Exchange of India (NMCE). were either suspended or prohibited altogether. Commodities in which futures trading can be organized under the auspices of a recognized association. As a follow up. . In the seventies. The National Agriculture Policy announced in July 2000 and the declarations in the 2002-2003 Budget indicated the Government‘s resolve to put in place a mechanism of a futures market. as well as forward trading in the commodities for which they were registered. Commodities that have neither been regulated for being traded under the recognized association nor prohibited are referred to as free commodities and the association involved in such free commodities must obtain the Certificate of Registration from the Forward Markets Commission. The liberalized policy now being followed by the Government of India and the gradual withdrawal of the procurement and distribution channel necessitated setting in place a market mechanism to perform the economic functions of price discovery and risk management. An association recognized by the Government of India on the recommendation of Forward Markets Commission The Central Government. most registered trade associations became inactive. The Act divides the commodities into three categories with reference to extent of regulation: Commodities in which futures trading is prohibited. which began operations in 2004. the government issued notifications on 1 April 2003 permitting futures trading in all commodities. as futures. Forward Contracts (Regulation) Rules were notified by the Central Government in July 1954.
COMMODITY TRADING REGULATOR AND EXCHANGES IN INDIA .
extractors. They use the futures market to reduce a particular risk that they face. a company that knows that it is due to buy an asset in the future can hedge by taking long futures position. A long hedge is appropriate when a company knows it will have to purchase a certain asset in the future and wants to lock in a price now.Participants of Commodity Derivatives For a market to succeed. or is likely to own the asset and expects to sell it at some time in the future. Hedgers could be government institutions. As we said. By selling his crop forward. Hedgers Many participants in the commodity futures market are hedgers. There are basically two kinds of hedges that can be taken. ginners. This risk might relate to the price of any commodity that the person deals in. . The classic hedging example is that of wheat farmer who wants to hedge the risk of fluctuations in the price of wheat around the time that his crop is ready for harvesting. A company that wants to sell an asset at a particular time in the future can hedge by taking short futures position. it could make the outcome worse. private corporations like financial institutions. Similarly. indeed. for instance farmers. he obtains a hedge by locking in to a predetermined price. What it does however is. trading companies and even other participants in the value chain. Hedging does not necessarily improve the financial outcome. A short hedge is a hedge that requires a short position in futures contracts.. Commodity markets give opportunity for all three kinds of participants. This is called a short hedge. a short hedge is appropriate when the hedger already owns the asset. it must have all three kinds of participants – 1) Hedgers 2) Speculators and 3) Arbitragers. This is known as long hedge. that it makes the outcome more certain. who are influenced by the commodity prices. The confluence of these participants ensures liquidity and efficient price discovery on the market. processors etc.
a customer must open a futures trading account with a commodity derivatives broker. These are the people who takes positions in the market & assume risks to profit from price fluctuations in fact the speculators consume market information make forecasts about the prices & put money in these forecasts. Buying futures simply involves putting in the margin money. Arbitragers A central idea in modern economics is the law of one price. commodities are bulky products and come with all the costs and procedures of handling these products. speculating in commodities is not as simple as speculating on stocks in the financial market. speculators are those who are willing to take such risk. they should sell at the same price. An entity having an opinion on the price movements of a given commodity can speculate using the commodity market.Speculators If hedgers are the people who wish to avoid price risk. This enables futures traders to take a position in the underlying commodity without having to actually hold that commodity. While the basics of speculation apply to any market. This states that in a competitive market. if two assets are equivalent from the point of view of risk and return. it is easy to buy the shares and hold them for whatever duration he wants to. With the purchase of futures contract on a commodity. the holder essentially makes a legally binding promise or obligation to buy the underlying security at some point in the future (the expiration date of the contract). The commodities futures markets provide speculators with an easy mechanism to speculate on the price of underlying commodities. . arbitrage helps to equalise prices and restore market efficiency. The buying cheap and selling expensive continues till prices in the two markets reach equilibrium. This activity termed as arbitrage. If the price of the same asset is different in two markets. Hence. For a speculator who thinks the shares of a given company will rise. To trade commodity futures on the NCDEX. However. there will be operators who will buy in the market where the asset sells cheap and sell in the market where it is costly.
‖ he insists. In comparison. As a result. For investor Gupta. Gupta says he took a right decision when he started trading in commodities a year ago. prices of which are determined internationally and are much more stable. ―In the Indian stock exchanges. says equity markets with their volatile trades are not easy to live with. ―While in gold I will have to spend only 4% as margin but in a scrip like Ranbaxy or Reliance Industries. Investors are increasingly putting more of their money in commodities as the equities market in India goes through a prolonged downturn.Current Scenario in Indian Commodity Market India is among top 5 producers of most of the Commodities. and National Commodity and Derivatives Exchange Ltd. Agriculture contributes about 22% GDP of Indian economy. futures and options trading at National Stock Exchange. View of an investor Investor R.‖ Margins are taken by commodity exchanges before a trade is initiated to cover price risks. ―With the money I save in paying margin. or MCX.‖ Increasingly. Gupta is not alone in coming to this conclusion even if it is not necessarily empirically valid across commodities and markets.K. data available with the bourses show. rose on 38%.‖ he says. trading in gold has an additional benefit. one can lose money in even the best known blue-chip company as volatility plays a much bigger role than the company‗s strong fundamentals. or NCDEX—have more than doubled over year-ago July. it would be anywhere between 25% and 30%. It employees around 57% of the labour force on total of 163 million hectors of land Agriculture sector is an important factor in achieving a GDP growth of 8-10%. who began investing in the stock market some seven years back. Gupta. or NSE. in addition to being a major consumer of bullion and energy products. All this indicates that India can be promoted as a major centre for trading of commodity derivatives. I can do more trades in gold. Futures trading in July at the country‗s two main commodity exchanges—Multi Commodity Exchange of India Ltd. . ―I mostly trade in gold and other metals.
No single investors or group can influence commodity prices it‗s a global market with high liquidity and maximum participants. If price moves are favourable. says Jayant Manglik.―Falling equity prices and volumes have led to renewed focus on scientific asset allocation by investors and traders. Commodity price cannot remain at low prices or high prices there is a cycle of supply and demand. the producer realizes the greatest return with this marketing alternative. No premium charge is associated with futures market contracts .View of a commodity expert Commodities prices are generally perceived to be negatively correlated with equity prices and analyses show with a fall in volumes in NSE F&O. we have seen a rise in MCX volumes. Commodities are used in a day to day basis so all the factors that influence the prices are readily made known. Far more easily predictable than any other form of investment. Most large firms are putting 10-30% of their investible surplus in commodities as against 5% earlier and have managed handsome returns. The positive part of investing in commodity market Commodity prices fluctuate with basic supply and demand. Factors irrelevant to the supply and demand won‘t have an impact in the prices. commodity analyst.
at a locked in price. of a wide range of products like soy onions got bumped from the list. . It also takes the risk of making less than double on a bad crop in exchange for the chance to profit on a good crop. Many buyers have no intention of taking delivery and many sellers have no intention a making delivery of the product. meaning they are not equity. accounting for more than 23% of global demand. Because the contract is usually insured. but the seller can lose much more. determined by both. The buyer pays a market determined price (premium) and has the right to exercise his or her option within a specific time period bean and pork bellies to oil and gas. investors can lose big. The contract is a legally binding agreement between the buyer and seller on a price and amount to be delivered or paid for on a settlement date. a term you‗ll hear a lot in the futures market. They are basically contracts for future delivery. One of the major producers of Soy bean. There are a lot of players in this market that are in it for the market itself. World‘s leading producer of 17 Agri – Commodities. Third largest industrial consumer of Silver after America and Japan. They‗re called speculative investors and their presence keeps the market competitive futures market as well as the chance to reap a higher rate of return in exchange for the greater risk. This is referred to as hedging. This market is risky and if the price goes in the opposite direction. They just want to profit from the change in price. Some facts on commodity markets Largest consumer of Gold. It‗s simply insurance against the damages of price volatility. They could lose the chance of profits and even lose the chance the breaking even. Largest importer of edible oils in the world. Over 25 major markets and 7500 mandies. The buying and selling of these commodities hardly ever happens. not the goods. the buyer can lose the premium and associated costs.The negative part of invest in commodity market Commodity Futures and Options are not the same as stocks.
To study the perception of investors of commodity market Study the awareness level about operating process of commodity market in India. There is no doubt that in near future commodity market will become Hotspot for Indian farmers rather than spot market. OBJECTIVE OF THE PROJECT To analyse the view of commodity traders. Study the risk taking nature of different investors in India. . It makes them specious towards commodity market. Along with Government efforts NGO‘s should come forward to educate the people about commodity markets and to encourage them to invest in to it. Study the investment strategies taken by Indian Investors in commodity market.NEED FOR THE STUDY As majority of Indian investors are not aware of organized commodity market. To identify the most suitable mode of communication. their perception about is of risky to very risky investment. Concerned authorities have to take initiative to make commodity trading process easy and simple. And producers. traders as well asconsumers will be benefited from it. To make understand the process of future commodity trading in India. Many of them have wrong impression about commodity market in their minds. But for this to happen one has to take initiative to standardize and popularize the Commodity Market. To know the investment pattern of commodity traders .
its growth and future in Commodity Market For company This analysis will help the organization to identify the improvement areas To know what major factors influence customer‘s trading behaviour.SCOPE OF STUDY For Academic and Reasrcher This study will help in to know about Commodity Market. .
The methodology adopted includes Criteria question Questionnaire Random sample survey of customers Discussions with the concerned The criteria question was that whether the individual was already investing in either equity or commodities market. Sampling procedure: From large number of investors. . sample lot was randomly picked up by researcher. Further applying simple statistical techniques. SAMPLING PLAN Population: Any investors located in Pune. Due to time constraint non-probability sampling was chosen for the study. Sampling size: A sample of hundred was chosen for the purpose of the study. Sample consisted of both small and large investors Sampling Methods: Probability sampling requires complete knowledge about all sampling units in the universe. the collected data are processed.RESEARCH METHODOLOGY DESIGN OF THE SURVEY For the purpose of the study 100 customers were picked up at random and their views solicited on different parameters. Personal interviews and informal discussions were held with only the positive respondents.
this is not a true representation of the population as a whole. COLLECTION OF DATA THROUGH QUESTIONNAIRES The data collected for the study purpose is through questionnaires. One hundred investors were selected randomly for the study purpose and then the information revealed from the customers is analysed and interpreted in the study. small shopkeepers. LIMITATION OF STUDY Since sample size is only 100.Field Study: Directly approached respondents (businessmen. Level of accuracy of the results of research is restricted to the accuracy level with which the customers have given their answers and the accuracy level of the answers cannot be predicted . physical commodities traders and service class people).
30 existing India Bull‘s clients and rest are moving public on the road. To survey the market we made a questionnaire with 19 questions.DATA ANALYSIS AND INTERPRETATION By doing market survey we understand the investment pattern of people. . We made 100 copies of this questionnaire and move on to some marketplace. We asked people to fill up these questionnaires according to their opinion. what they are offering to their customer and compare with our service. 20 gold trader. competitors position in the market. (Among the people there are 20 garments shop keeper.) Based on their answer we got this report.
0% RESPONSE 0% 33% 67% Out of the whole sample 33% people don‗t invest in market and rest 67% are investing in the market as per the survey. engineers. CAs etc.1. lawyers. after them there are service persons (35%). 2. Market investment. Then there are professionals like doctors. Occupational Status of the Sample RESPONSE RETIRED 15% PROFESSIONAL 8% SERVICE 35% BUSINESS 42% Out of the one total samples we have found that majority of them are businessman (42%). (8%) and Retired persons (15%) respectively. .
Here it is very important to have a basic idea about current economic condition of the country and performances of the companies. After Bank FD they would like to invest their money in Insurance (25%) because they get the opportunity to grow their money with an advantage of accident and death coverage. RESPONSE REAL ESTATE 5% EQUITY 7% COMMODITY 3% LIFE INSURANCE 25% BANK FD 42% POSTAL DEPOSIT 11% MUTUAL FUND 7% When we asked the question in which sector you would like to invest your money most? Then we found that most of the person goes for Bank FD (42%) because there they get the opportunity to grow their money in a steady and safe way. After that people prefer real estate (5%) and Commodity comes last according to people‗s choice (3%) .Then comes Mutual funds (7%) where they get the net impact of some chosen stocks. Most preferable place for Investment. The Postal deposits come to third position in terms of ranking (11%). Thus it minimizes the risk as well as return also.3. After that people prefer to invest in the Equity Market (7%)Where there is high return and high risk also.
5 % of whole investment . If invest in stock market then which is the preferable place to invest? 0% MARKET PREFERENCE EQUITY & COMMODITY 14% ONLY COMMODITY 3% ONLY EQUITY 83% According to this survey investors that I surveyed 83% are investing only in the equity market. 3% are investing only in the commodities market and the remaining 14% are investing in both the equity and commodities market.4. 46. 5.5 %. Investment in the other sectors is approx. Where do you invest? Among the whole sample investment in Equity is approx. following by commodity 15% and Mutual funds 6 %. 32.
CNN. ZEE Business etc. 4%). Business newspaper is another option which gives information about stock market. Thus these business magazines help investors to generate an idea in which sector they should invest their money to get a maximum return of their money. 22%). Internet is mostly use by those people who would like to trade online.). NDTV. 61%) who invest in stock market keep themselves updated with the help of television through various business news channels (like – CNBC. It is mainly use by the investors who would like to invest their money on a particular stock over a long period of time. These business magazines give people an overall picture of economy and position of different sectors in a particular economic situation. How people get the information about Stock Market? 70 61 60 50 40 30 22 20 13 10 0 NEWS PAPER TV INTERNET MAGZINE 4 Most of the people (approx.profit. CNBC-Awaz.6. It is one of the oldest medium of getting information but still effective and comes to the Second position (approx. . Though it is the most advanced way to get the information about stock market but due to lack of proper knowledge of computer most of the people do not use this facility and thus it comes to the Third position with approx. 13% vote. Business magazines are also used by people to monitor stock market (approx.
Many people think that stock market is like a lottery where the possibility of profit is very less and risk is very high. 46%) want to stay out of the stock market because of high risk and market volatility. When we asked the people that why they do not invest in stock market then we get this result. 16%) don‗t invests in stock market because they don‗t have time to monitor stock market. Approx. 6% of people leave stock market because they already faced a loss in the market and thus they don‗t want to waste their money any more. They have a fear in their mind that they might a loss. People belong to this category asked several question to us and give them feedback from our company. Some people (approx. This is one of the important results we found in our market survey and if we are able to discover an ideal solution which can solve this problem of customers then we can generate a better customer base and can create a high brand value. . They don‗t want to lose their hard earned money in stock market. Some people (approx. If don’t invest in Commodity market then why? 50 45 40 35 30 25 20 15 10 5 0 NOT AWARE OF COMMODITY MARKET HIGH RISK ALREADY FACE A LOSS DON’T HAVE TIME TO MONITOR MARKET This is a testto find out the back logs and pitfalls of Stock market and all the broking companies. They used to be very busy at that particular time when stock market operation is going on. 32%) don‗t invest in stock market because they are not aware of stock market. They don‗t know what is Sensex or Nifty and why these indicators changes so rapidly. Most of the people (approx.7.
8. We have found that among the people who invest in stock market approx. Some times when they find that the stock which they holds run on a loss they might take the stock on hold for few days and sell when the price of that stock increases.We called them the intraday trader. If invest in stock market then how often trade? Through this question we tried to identify the pattern of investment by the people and categories them according to their investment. . 16 % of them prefer to trade on daily basis and want to take profit or loss on that day itself.
They are called Investor. 21% (weekly investor) and approx. .9. Then they sell that stock and earn a huge profit. He holds most of the stocks for minimum of 20 to 25 years. 36 % (monthly investor). the value of that stock increases due to economic development or value appreciation after a long period. They prefer to hold stocks for a short period of time usually a week or a month. There are some people who neither act as intraday trader nor as an Investor. 28%) who would like to hold a stock for a long period of time usually more than a year. Waren Buffet is an Investor. The world‗s 2nd richest person Mr. Their proportion is approx. For how long have you been investing in commodity / equity market? There is a group of people (approx. This kind of trader purchase the stock whenever the value of stock decreases due to any reason and hold it over a long period of time.
This group of people (approx. They believe that the company which has a high brand value is better to trade with because they have successfully satisfy customers and gave people better service and thus they have earned such a Brand recognition. This group mainly consists of those people who have a limited knowledge about stock market and thus depend up on company tips. The third group (approx. Most of the people (approx. 41%) prefer a company which has a high brand value. 45 40 35 30 25 20 15 10 5 0 41 27 19 13 BRAND NAME BROKERAGE RATE BETTER RESEARCH GOOD RELATIONS When a person is choosing a broking house to trade with he or she looks at different factors and facilities which a broking house generally offer to its customer. 19%) gives importance to the relationship with the broker. Factors behind choosing a broking house. brand name. Here brokerage rate doesn‗t matter to them. . 13%) wants better research and useful tips.10. They build a strong relationship with the broker and trade according to their opinion. The lower it the better for them because usually they trade with a high volume on intraday basis and don‗t want to give much brokerage as their profit margin is small. If the broker changes the company then the customers also change the company. If they get proper useful tips which increase the possibility of profit they will be satisfied. I have tried to ranking those priorities which a customer seeks while choosing a broking house by collecting the opinion of people. Their main intention is to earn profit. The other group of people (approx. 27%) looks at the brokerage rate that a company offers to its customer. brokerage rate is secondary object to them. They have trust on that particular broker. Company policy.
Perception about commodity market. 0% LESS RISKY 25% VERY RISKY 50% RISKY 25% Analysis of data shows that majority of people who are aware about commodity market. Commodity market investor preference. 12. . feel that investment in commodity market is very risky. So efforts should be done to minimize the risk in commodity investment and make peoples about minimum risk in commodity investment. 31% 38% METAL ENERGY PRODUCT AGRO BASED COMMODITY OTHERS 21% 10% Above data revels that majority of commodity investors like to invest in Bullion (Gold & Silver).11.
and the MCX is one of the fastest growing exchanges. 100 Not Informative 14. And 32 % invests in NCDEX . In which commodity exchange investment rate is more? 0% NCDEX 32% MCX 68% According to my survey 68% of the whole sample invests in MCX because the volumes on MCX are good. Opinion about information on commodity market (Expressed by those who know commodity market) 0% NOT INFORMATIVE 100% There is no second opinion amongst commodity investors. MCX has large volumes especially in gold and silver.13. that commodity market advertisements do not give all the necessary information.
16.000 .00.000-5. 50.000 at a time.00.00.000 MORE THAN 5.00.000. 00.00. 5.000 to Rs.000-1.000 to Rs. 5. from commodity / equity investment? 70 60 50 40 30 20 10 0 10-20% 20-30% 30-40% .00.15.50. And approx 43% like to invests Rs.000 50. 12% invests Rs.00. 1.000 and 20% invests less than Rs.000 According to my survey 25 % of the sample who invest in the commodity market prefers to invest more than Rs. 1. The amount investors prefer to invest at a time in Commodity market? 45 40 35 30 25 20 15 10 5 0 LESS THAN 50.00 1. per annum. What is the profit percentage you are getting.
Are you satisfied with the return? 0% 0% NO 33% YES 67% 18.17. Is your portfolio diversified? Column1 0% 0% NO 30% YES 70% .
19. Do you hedge your portfolio? Column1 0% 0% YES 18% NO 82% 20. Do you use stop loss while trading? Sales 0% 0% NO 24% YES 76% .
Are you satisfied with the services provided by your broking firm? Column1 0% 0% YES 41% NO 59% .21.
CHAPTER FINDINGS & RECOMMEDATION .
Investors are inclined towards the equity market and few are interested about investing in the commodities market. Good trading software. The most popular suggestions are:Good tips and calls. In commodity market maximum people are interested to invest in precious metal (gold. Educating the clients about the market. Good relation with the dealers and the relationship manager. Easy money transfer (pay-in and pay-out). Investment in the stock market mostly done by the business man. Regular research reports. Less brokerage.FINDINGS The level of awareness among the investors about commodity market is low.) and energy product (crude oil). The investors provided valuable suggestions about better service of a broking firm. silver etc. . Most of the investor prefers MCX than NCDEX . The most popular source of information about the market among the investors is television and newspaper followed by internet and business magazines.
So it will be beneficial for India Bulls. and very few of the office goers invest in these markets. Introduce some programs which will help to attract more of office going clients. Most of the investors are businessmen. the client must be invited for feedback and suggestion‗s. The service of the company can be improved keeping in mind the suggestions provided by the investors.RECOMMENDATION The investors do not have much knowledge about the commodities market and the various concepts like hedging and arbitration present in these markets. The first priority should be to educate the investors about the market and the various techniques to invest in these markets which will enable the investors to extract better return from these markets. The investors mainly follow the television and the newspapers to update themselves about the market. Thus there is still a huge number of client base in the corporate sector which can be attracted towards these markets by educating them about these markets. Once in Every month. . If they come out with weekly article in the leading newspapers regarding market research and present market condition. Providing the clients better guidance to diversify their portfolio to minimize the risk involved.
―Commodity futures can beused as a risk reduction and a sound investment instrument‖ . The trading system also includes trading and intermediary participants. And. Thus. now. which reduce the risk in commodity futures. In the commodity market various risk are involved but here with the help of the fundamental and technical analysis they are reducing their risk. This can be emphasized bythe fact that therehas been an increasing trend in the volume traded in most of the commodities. commodity trading offers a good option for long-term investors and arbitrageurs and speculators.From all the above conclusions of it can be concluded. availability of commodity etc. Thus. For diversification of portfolio beyond shares.CONCLUSION After almost two years that commodity trading is finding favour with Indian investors and is been seen as a separate asset class with good growth opportunities.. Now a days investor become more careful in investment with considering the factor like global economy. with daily global volumes in commodity trading touching three times that of equities. fixed deposits and mutual funds. In the trading system people consider above factor for investment so we can conclude that investor are more moving towards the exchange traded market. who ensure the correct pricediscovery. the trading system is one of the factors. commodity futures area growing market. trading in commodities cannot be ignored by Indian investors.It can be concluded that one can use commodity futures for the hedging purposes rather than for the speculative.
No 2. Postal savings f. Do you invest in market? a. What is you Occupation? a. Service b. Commodity c. What type of investment do you prefer? a.Questionnaire Name: Contact No: Address: Occupation: 1. Bank FD d. Only Commodity c. Equity b. Mutual Fund e. Life Insurance g. According to you. Real Estate 4. Yes b. Business. Professional d. Retired 3. Equity and Commodity both . c. Only Equity b. which is the best place for investment? a.
In which sector do you invest? a. Monthly e. Yearly 9. Insurance d. Don‗t have time to monitor market 8. If not investing in the Commodity Market.5. Others 6. Magazines 7. Commodity c. Weekly c. For how long have you been investing in commodity / equity market? a. News Paper b. 1 month to 6 months c. Equity b. Fortnight d. 7 month to 1 year d. >1 year . High Risk c. How people get information about stock market ? a. < 1 month b. TV c. Not aware of stock market b. what is the reason? a. Mutual fund e. How often do you trade? a. Daily b. Already faced a loss d. Internet d.
NCDX 15. Metals b. What are the Factors behind choosing a Broking House? a. Energy Product c. Broking Rate c. 100000. b. Where do you invest? a. Very Risky 13. Others 12. Agro based commodity d. <50000 b. Not informative 14. Brand Name.MCX b. How much do you prefer to invest at a time in commodity? a. > 500000 e. What is you perception about commodity Market ? a. 50000-100000 c. Good relation/ better service 11. Risky c. Not so much Informative c. Informative b. Less Risky b. Among the commodities where do you invest? a. Better research d.10.500000 d. What is your opinion about the information available for commodity market/ a. Nil .
c.16. Do you use stop loss while trading? Yes No 21. Do you hedge your portfolio ? Yes No 20. What is the profit percentage you are getting. . from commodity / equity Investment? ___________ % 17. Is your portfolio diversified? Yes No 19. d. What services do you expect from your broking firm? a. Are you satisfied with the services provided by your broking firm? Yes No 22. b. per annum. Are you satisfied with the return? Yes No 18.
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