EXECUTIVE SUMMARY

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. Thats 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.

History of Evolution of commodity markets

Commodities future trading was evolved from need of assured continuous supply of seasonal agricultural crops. The concept of organized trading in commodities evolved in Chicago, in 1848. But one can trace its roots in Japan. In Japan merchants used to store Rice in warehouses for future use. To raise cash warehouse holders sold receipts against the stored rice. These were known as rice tickets. Eventually, these rice tickets become accepted as a kind of commercial currency. Latter on rules came in to being, to standardize the trading in rice tickets. In 19th century Chicago in United States had emerged as a major commercial hub. So that wheat producers from Mid-west attracted here to sell their produce to dealers & distributors. Due to lack of organized storage facilities, absence of uniform weighing & grading mechanisms producers often confined to the mercy of dealers discretion. 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. Gradually sellers & buyers started making commitments to exchange the produce for cash in future and thus contract for futures trading evolved. Whereby the producer would agree to sell his produce to the buyer at a future delivery date at an agreed upon price. In this way producer was aware of what price he would fetch for his produce and dealer would know about his cost involved, in advance. This kind of agreement proved beneficial to both of them. As if dealer is not interested in taking delivery of the produce, he could sell his contract to someone who needs the same. Similarly producer who not intended to deliver his produce to dealer could pass on the same responsibility to someone else. The price of such contract would dependent on the price

movements in the wheat market. 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. This promoted traders entry in futures market, which had no intentions to buy or sell wheat but would purely speculate on price movements in market to earn profit. Trading of wheat in futures became very profitable which encouraged the entry of other commodities in futures market. This created a platform for establishment of a body to regulate and supervise these contracts. Thats why Chicago Board of Trade (CBOT) was established in 1848. In 1870 and 1880s the New York Coffee, Cotton and Produce Exchanges were born. Agricultural commodities were mostly traded but as long as there are buyers and sellers, any commodity can be traded. In 1872, a group of Manhattan dairy merchants got together to bring chaotic condition in New York market to a system in terms of storage, pricing, and transfer of agricultural products. In 1933, during the Great Depression, the Commodity Exchange, Inc. was established in New York through the merger of four small exchanges the National Metal Exchange, the Rubber Exchange of New York, the National Raw Silk Exchange, and the New York Hide Exchange.

The largest commodity exchange in USA is Chicago Board of Trade, The Chicago Mercantile Exchange, the New York Mercantile Exchange, the New York Commodity Exchange and New York Coffee, sugar and cocoa Exchange. Worldwide there are major futures trading exchanges in over twenty countries including Canada, England, India, France, Singapore, Japan, Australia and New Zealand.

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, about a decade after they started in Chicago. Over the time datives market developed in several commodities in India. Following Cotton, derivatives trading started in oilseed in Bombay (1900), raw jute and jute goods in Calcutta (1912), Wheat in Hapur (1913) and Bullion in Bombay (1920). However many feared that derivatives fuelled unnecessary speculation and were detrimental to the healthy functioning of the market for the underlying commodities, resulting in to banning of commodity options trading and cash settlement of commodities futures after independence in 1952. The parliament passed the Forward Contracts (Regulation) Act, 1952, which regulated contracts in Commodities all over the India. The act prohibited options trading in Goods along with cash settlement of forward trades, rendering a crushing blow to the commodity derivatives market. Under the act only those associations/exchanges, which are granted reorganization from the Government, are allowed to organize forward trading in regulated commodities. The act envisages three tire regulations: (i) Exchange which organizes forward trading in commodities can regulate trading on day-to-day basis; (ii) Forward Markets Commission provides regulatory oversight under the powers delegated to it by the central Government. (iii) The Central Government- Department of Consumer Affairs, Ministry of Consumer Affairs, Food and Public Distribution- is the ultimate regulatory authority. The commodities future market remained dismantled and remained dormant for about four decades until the new millennium when the Government, in a complete change in a policy, started actively encouraging commodity market. After Liberalization and Globalization in 1990, the Government set up a committee (1993) to examine the role of futures trading. The Committee (headed by Prof. K.N. Kabra) recommended allowing futures trading in 17 commodity groups. It also recommended strengthening Forward Markets Commission, and certain amendments to

Forward Contracts (Regulation) Act 1952, particularly allowing option trading in goods and registration of brokers with Forward Markets Commission. The Government accepted most of these recommendations and futures trading was permitted in all recommended commodities. It is timely decision since internationally the commodity cycle is on upswing and the next decade being touched as the decade of Commodities. Commodity exchange in India plays an important role where the prices of any commodity are not fixed, in an organized way. Earlier only the buyer of produce and its seller in the market judged upon the prices. Others never had a say. Today, commodity exchanges are purely speculative in nature. Before discovering the price, they reach to the producers, end-users, and even the retail investors, at a grassroots level. It brings a price transparency and risk management in the vital market. A big difference between a typical auction, where a single auctioneer announces the bids and the Exchange is that people are not only competing to buy but also to sell. By Exchange rules and by law, no one can bid under a higher bid, and no one can offer to sell higher than someone elses lower offer. That keeps the market as efficient as possible, and keeps the traders on their toes to make sure no one gets the purchase or sale before they do. Since 2002, the commodities future market in India has experienced an unexpected boom in terms of modern exchanges, number of commodities allowed for derivatives trading as well as the value of futures trading in commodities, which crossed $ 1 trillion mark in 2006. Since 1952 till 2002 commodity datives market was virtually non- existent, except some negligible activities on OTC basis. In India there are 25 recognized future exchanges, of which there are three national level multicommodity exchanges. After a gap of almost three decades, Government of India has allowed forward transactions in commodities through Online Commodity Exchanges, a modification of traditional business known as Adhat and Vayda Vyapar to facilitate better risk coverage and delivery of commodities. The three exchanges are: National Commodity & Derivatives Exchange Limited (NCDEX) Mumbai, Multi Commodity Exchange of India Limited (MCX) Mumbai and National Multi-Commodity Exchange of India Limited (NMCEIL)Ahmedabad. There are other regional commodity exchanges situated in different parts of India.

The Present Status

Presently futures trading is permitted in all the commodities. Trading is taking place in about 78 commodities through 25 Exchanges/Associations as given in the table below:No. 1. Exchange COMMODITY (both domestic and

India Pepper & Spice Trade Association, Pepper Kochi (IPSTA)

international contracts) Chambers Ltd., Gur, Mustard seed

2.

VijaiBeopar Muzaffarnagar

3.

Rajdhani Oils & Oilseeds Exchange Ltd., Gur, Mustard seed its oil & Delhi oilcake Om & Oil Exchange Ltd., Gur

4.

Bhatinda Bhatinda

5. 6.

The Chamber of Commerce, Hapur

Gur, Potatoes and Mustard seed

The Meerut Agro Commodities Exchange Gur Ltd., Meerut

7.

The Bombay Commodity Exchange Ltd., Oilseed Mumbai

Complex,

Castor

oil

international contracts

8.

Rajkot Seeds, Oil & Bullion Merchants Castor seed, Groundnut, its oil & Association, Rajkot cake, cottonseed, its oil & cake, cotton (kapas) and RBD

palmolein. 9. The Ahmedabad Commodity Exchange, Castorseed, cottonseed, its oil and Ahmedabad 10. oilcake

The East India Jute & Hessian Exchange Hessian & Sacking Ltd., Calcutta

11.

The East India Cotton Association Ltd., Cotton Mumbai

12.

The Spices & Oilseeds Exchange Ltd., Turmeric Sangli.

13.

National Board of Trade, Indore

Soya seed, Soyaoil and Soya meals, Rapeseed/Mustardseed its oil and oilcake and RBD

Palmolien 14. The First Commodities Exchange of India Copra/coconut, its oil & oilcake Ltd., Kochi 15. Central India Commercial Exchange Ltd., Gur and Mustard seed Gwalior 16. 17. E-sugar India Ltd., Mumbai Sugar

National Multi-Commodity Exchange of Several Commodities India Ltd., Ahmedabad

18.

Coffee

Futures

Exchange

India

Ltd., Coffee

Bangalore 19. Surendranagar Cotton Oil & Oilseeds, Cotton, Cottonseed, Kapas Surendranagar 20. 21. E-Commodities Ltd., New Delhi National Commodity & Sugar (trading yet to commence) Derivatives, Several Commodities

Exchange Ltd., Mumbai 22. 23. Multi Commodity Exchange Ltd., Mumbai Bikaner commodity Exchange Ltd., Bikaner Several Commodities Mustard seeds its oil & oilcake, Gram. Guar seed. Guar Gum 24. 25. Haryana Commodities Ltd., Hissar Bullion Association Ltd., Jaipur Mustard seed complex Mustard seed Complex

How Commodity market works?

.There are two kinds of trades in commodities. The first is the spot trade, in which one pays cash and carries away the goods. The second is futures trade. The underpinning for futures is the warehouse receipt. A person deposits certain amount of say, good X in a ware house and gets a warehouse receipt. Which allows him to ask for physical delivery of the good from the warehouse. But some one trading in commodity futures need not necessarily posses such a receipt to strike a deal. 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, by when the buyer or seller either closes (square off) his account or give/take delivery of the commodity. 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. Squiring off is done by taking an opposite contract so that the net outstanding is nil. For commodity futures to work, the seller should be able to deposit the commodity at warehouse nearest to him and collect the warehouse receipt. The buyer should be able to take physical delivery at a location of his choice on presenting the warehouse receipt. 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.

Today Commodity trading system is fully computerized. Traders need not visit a commodity market to speculate. With online commodity trading they could sit in the confines of their home or office and call the shots.

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. For instance, the price of a gold futures contract for October maturity is derived from the price of gold. Changes in the price of the underlying asset affect the price of the derivative security in a predictable way.

Evolution of derivatives

In the 17th century, in Japan, the rice was been grown abundantly; later the trade in rice grew and evolved to the stage where receipts for future delivery were traded with a high degree of standardization. This led to forward trading. In 1730, the market received official recognition from the Tokugawa Shogunate (the ruling clan of shoguns or feudal lords). The Dojima rice market can thus be regarded as the first futures market, in the sense of an organized exchange with standardized trading terms.

The first futures markets in the Western hemisphere were developed in the United States in Chicago. These markets had started as spot markets and gradually evolved into futures trading. This evolution occurred in stages. 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. Gradually these contracts became transferable and over a period of time, particularly delivery of the physical produce. Traders found that the agreements were easier to buy and sell if they were standardized in terms of quality of grain, market lot and place of delivery. This is how modern futures contracts first came into being. The Chicago Board of Trade (CBOT) which opened in 1848 is, to this day the largest futures market in the world.

Kinds of financial derivatives

1) Forwards

A forward contract refers to an agreement between two parties, to exchange an agreed quantity of an asset for cash at a certain date in future at a predetermined price specified in that agreement. The promised asset may be currency, commodity, instrument etc,

In a forward contract, 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. On the other hand, the user who promises to sell at an agreed price at a future date is said to be in short 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. The underlying asset could be foreign currency, a stock index, a treasury bill or any commodity. The specified price is known as the future price. Each contract also specifies the delivery month, which may be nearby or more deferred in time.

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. b) Short position is when the seller agrees to sell the asset.

Futures contract represents an institutionalized, standardized form of forward contracts. They are traded on an organized exchange, which is a physical place of trading floor where listed contract are traded face to face.

A futures trade will result in a futures contract between 2 sides- someone going long at a negotiated price and someone going short at that same price. Thus, if there were no transaction costs, futures trading would represent a Zero sum game what one side wins, which exactly match what the other side loses

3) Options

An option contract is a contract where it confers the buyer, the right to either buy or to sell an underlying asset (stock, bond, currency, and commodity) etc. at a predetermined price, on or before a specified date in the future. The price so predetermined is called the Strike price or Exercise price.

Depending on the contract terms, 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. Option Premium In return for the guaranteeing the exercise of an option at its strike price, the option seller or writer charges a premium, which the buyer usually pays upfront. Under favorable circumstances the buyer may choose to exercise it. Alternatively, the buyer may be allowed to sell it. If the option expires without being exercised, the buyer receives no compensation for the premium paid. Writer In an option contract, the seller is usually referred to as writer, since he is said to write the contract. If an option can be excised on any date during its lifetime it is called an American Option. However, if it can be exercised only on its expiration date, it is called an European Option. Option instruments

a. Call Option A Call Option is one, which gives the option holder the right to buy an underlying asset at a pre-determined price.

b. Put Option A put 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.

c. Double Option A Double Option is one, 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.

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.

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), who in turn pays the first party a price based on the prevailing market price (or an accepted index thereof) for the same quantity.

Commodity Futures
The commodity futures trading, consists of a futures contract, which is a legally bindingagreement providing for the delivery of the underlying asset or financial entities at specific date in thefuture. Like all future contracts, 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. So, for example, a cotton farmer may agree to sell his output to a textiles company many monthsbefore the crop is ready for actual harvesting. This allows him to lock into a fixed price and protect his earnings from a steep drop in cottonprices in the future. The textiles company, on the other hand, has protected itself against a possible sharprise in cotton prices. The complicating factor is quality. Commodity futures contracts have to specify the quality of goods beingtraded. The commodity exchanges guarantee that the buyers and sellers will stick to the terms of theagreement. When one buys or sells a futures contract, he is actually entering into a contractual obligationwhich can be met in one of 2 ways. First, is by making or taking delivery of the commodity. This is the exception, not the rulehowever, as less than 2% of all the futures contracts are met by actual delivery. The other way to meetones obligation, the method which everyone most likely will use, is by offset. Very simply, offset is making the opposite or offsetting sale or purchase of the same number ofcontracts sold, sometimes prior to the expiration of the date of the contract. This can be easily done becausefutures contracts are standardized. Investors choice The futures market in commodities offers both cash and delivery- based settlement. Investors canchoose between the two. If the buyer chooses to take delivery of the commodity, a transferable receipt fromthe warehouse where goods are stored is issued in favour of the buyer. On producing this receipt, the buyercan claim the commodity from the warehouse. All open contracts not intended for delivery are cash settled.While speculators and arbitrageurs generally prefer cash settlement, commodity stockiest and wholesalers gofor delivery. The options to square of the deal or to take delivery can be changed before the last date ofcontract expiry. In the case of delivery- based trades, the margin rises to 20-25% of the contract value andthe seller is required to pay sales tax on the transaction.

What makes commodity trading attractive?

A good low-risk portfolio diversifier A highly liquid asset class, acting as a counterweight to stocks, bonds and real estate Less volatile, compared with, say, equities Investors can leverage their investments and multiply potential earnings

Upfront margin requirement low Better risk- 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. 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, they provide immediate information regarding the price of the futures contract. The price is usually given as Bid -Ask. E.g.: - Price for wheat might be Rs.18,000 bid, Rs. 17,000 ask, meaning a buyer is willing to pay Rs. 17,000 a bushel, but the seller wants Rs. 18,000 bushel. 2) Risk Transfer In a futures transaction, risk is inherent part of doing business. The exchange provides a setting where risk can be transferred from the hedgers to the speculators. 3) Liquidity If risk is to be transferred efficiently, there must be a large group of individuals ready to buy or sell. When a hedger wants to sell futures contracts to protect his business position, he needs to know whether he can effect the transaction quickly. The futures exchange brings together a large number of speculators, thus making quick transaction possible. 4) Standardization The exchange writes the specifications for each contract, setting standards of grading, measurement methods of transfer, and times of delivery. By standardizing the contracts in this manner, the exchange opens the futures market to almost anyone willing to hedge risk. In the pits, then, the auction process is facilitated because only the price must be negotiated.

RISK ASSOCIATED WITH COMMODITY FUTURES TRADING

There are various risks in commodity futures trading, they are:-

Types of Risk

Operational Risk
Operational risk

Market Risk

Liquidity Risk

The risk that, errors (or fraud) may occur in carrying out operations, in placing orders, making payments oraccounting for them.

Market risk It is the risk of adverse changes in the market price of a commodity future. Liquidity risk Although commodity futures markets are liquid mostly, in few adverse situations, a person who has aposition in the market may not be able to liquidate his position.For E.g. 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, or sell the futures contract you want tobuy.

The Various Risk Management Techniques Used in Commodity Futures Trading

Considering the risks discussed previously, various risk management techniques are used in order tominimize the losses. There are mainly 3 techniques, they are 1. Averaging 2. Switching 3. Locking Averaging Averaging is a technique used when there is an existing position, and the price moves adversely. And thenat that particular price, enter into a similar new position. Then take the average of these 2 prices. And whenthe price moves to that price liquidate the position.

Example: 1. Silver bought 1 lot@ Rs. 50,000, expecting price to go up, but Price goes to Rs. 46,000, Buy another new lot @ Rs. 46,000 Now, the average price is Rs. 48000 When the price comes to Rs, 48,000, then liquidate both the lots and thus Profit = Rs. 2,000 Loss = (-) Rs. 2,000 ----------Net profit 0 ----------Switching Switching is yet another risk management technique, when, there is an existing position, and the prices move adversely and give all indication that it will go in the same direction for still some while. Then wehave to liquidate the first position and enter a new and opposite position at the same price. Example: Bought silver 1 lot @ Rs. 50,000 Price reaches @ 46,000 Then sold 2 lots of silver @ Rs. 46,000, one lot will be liquidating the first lot, and then the second one willbe a new position. Now when price goes to Rs. 41,000, liquidate the second lot, and book the profits. Profit = Rs. 5,000 Loss = (-) Rs. 4,000 ----------Net profit (+) Rs. 1,000 ----------Locking Locking is yet another risk management technique, where, when there is an existing position, and the pricesmove adversely and give an indication that it will move in that direction, but it will come back to itsoriginal position. Here two processes are involved locking and unlocking. It is the process where there is an existing position, and the price moves adversely, we lock by enteringinto a new opposite position. And then when the second price reaches a point where it will bounce back, weunlock by liquidating the second position and book profits, and then finally when the price reachessomewhere near the first position, liquidate the position, whereby we can minimize the loss.

Example:Bought silver 1 lot @ Rs.50,000 ---- (1st position) Price falls to Rs. 48000 Make new position, Sold silver 1 lot @ Rs.48,000 ----(2nd position) Price goes to Rs. 45,000; where it is expected to bounce back, liquidate the second lot. Bought silver 1 lot @ Rs. 45,000. (Liquidationof2nd position) Price comes to Rs.49000, and thenliquidates the first lot

Sold silver 1 lot @ to Rs.49000. (Liquidation of 1st position) nd Profit = Rs. 3,000 (from 2 position) Loss = (-) Rs. 1,000 (from 1st position) ---------Net profit (+) Rs. 2,000

---------Analysis
There are different types of risks involved in commodity futures trading. The most important one being, market risk. But to counter these price risks, various types of risk management techniques are used in order to minimize the risk. Among the risk management techniques, locking is the most commonly used one. Manipulation of price of the commodity is not possible as, these are global commodity prices, and in order to do so, he has to pump in huge volumes of money, which is very unlikely.

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.

Various analysis tools used to predict the price movements in commodity futures trading
In order to predict the future price of a commodity, the various analyses, tools are used. In order to make the daily or regular predictions, 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, which includes charts, and henceforth makes future predictions of the prices. The only important factor for analysing the market is price action. Bar Chart A Bar Chart is one of the most widely used charts. The market movement is reduced on a daily basis as avertical line between the high and low; the opening level being indicated as a horizontal dash to the left,the closing level being indicated as a horizontal dash to the right. As well as a daily record, similar chartscan be drawn for weekly or monthly price ranges. Although bar

charts are the most popular for technicalanalysts, their minor limitation is that they do not show how the market acted during the trading day. A line chart is the simplest chart, and generally drawn by the non-technical investor interested in gettingquick visual impression of the general movement of the market. Normally closing prices are used andjoined to form a line chart. They are not really adequate for market movement interpretation, 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. Moving averages Moving averages are used to iron out some of the more volatile short-term movements, and can give betterbuy and sell signals, than just by looking at a daily high-low-close pattern. For instance, a 20-day movingaverage refers to the average price, of the previous 20 days. In the above chart the red line is the 20-dayaverage. The green line is the 50-day average and the yellow line is the 100 day average. Gaps A Gap is formed when one days trading movement does not overlap the range of the previous day. Thismay be caused by the market opening sharply highly or lower than the previous days close, as a result ofimportant overnight news. Strong movements in overseas markets influencing our market or interest, orquite simply because the market has started to develop a strong momentum of its own. Break away gap This usually occurs soon after a new trend has been established as large numbers of new trend has beenestablished, as large numbers of new investors suddenly want to join the action. It is often regarded as aconfirmation that a new trend is well established. FUNDAMENTAL ANALYSIS Fundamental analysis is the study of supply and demand. The cause and effect of price movement isexplained by supply and demand. A good fundamentalist will be able to forecast a major price move well inadvance of the technician. E.g. if there is a drought in Brazil during the flowering phase of soybean plant one can rationally explainwhy bean prices are rising. There are various factors affecting the fundamentals of different commodities. 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, it will carryover from the previous year ii) Production This is the crop estimate for the current year.

iii) Imports This includes the commodities imported from different countries. iv) Total supply This is the beginning stocks+production+imports. b) Demand i) Crush This is the domestic demand by the crushers who buy new soybeans. And crush them into the products,meal and oil. ii) Exports This refers to the quantity of different commodities demanded by foreign countries. c) Ending carryover stocks Total supply minus total demand= the carryover, ending stocks d) Weather Weather is the single most important factor, which affects the process of all types of grains. If there is flooddrought, it will shoot up the price, due to increase in demand. e) Seasonality All other factors remaining equal, the grains and oil seeds do exhibit certain seasonal tendencies. Metals fundamentals These include copper, steel etc. Their fundamentals are i) Economic activity For any metal, industrialized demand is the key. If there is the threat of an economic slowdown, this willbe reflected in lower prices. ii) LME stocks Every day the London Metal Exchange releases its widely watched stocks report, where, it lists the stocks inthe exchange approved warehouses for aluminum, copper, zinc, tin, lead. iii) Mining strikes and production problems iv) War Copper in particular has been called the war metal. Demand traditionally soars for all the industry al metalsin times of increased defense spending. v) Inflation The industrial metals have been at times been called the poor mans gold and will heat up in aninflationary environment.

Analysis
Predictions in the commodity futures trading can be made through 2 tools i.e. fundamentalanalysis and technical analysis.Fundamental analysis seeks to protect the market by making use of the demand and supply factors. It helps to explain what the general tendency in the market is.Technical analysis is the process of using all kinds of tools and charts, in order to makepredictions, it helps to explain exactly at which point to enter a position or helps to explain at whatpoint will be the trend reversal.

Interpretation
From the above analysis, it can be concluded that, by making use of both the fundamental and technicalanalysis efficiently, and henceforth take a favourable position in the market and thus benefit from the pricemovements.

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, further it has even become the third largest in bullion and second largest in silver future trading in the world. Coming to trade pattern, though there are about 100 commodities traded on MCX, only 3 or 4 commodities contribute for more than 80 percent of total trade volume. As per recent data the largely traded commodities are Gold, Silver, Energy and base Metals. Incidentally the futures trends of these commodities are mainly driven by international futures prices rather than the changes in domestic demand-supply and hence, the price signals largely reflect international scenario. Among Agricultural commodities major volume contributors include Gur, Urad, Mentha Oil etc. Whose market sizes are considerably small making then vulnerable to manipulations.

Pattern on National Commodity & Derivatives Exchange (NCDEX):NCDEX is the second largest commodity exchange in the country after MCX. However the major volume contributors on NCDEX are agricultural commodities. But, most of them have common inherent problem of small market size, which is making them vulnerable to market manipulations and over speculation. About 60 per cent trade on NCDEX comes from guar seed, chana and Urad (narrow commodities as specified by FMC).

Pattern on National Multi Commodity Exchange (NMCE):NMCE is third national level futures exchange that has been largely trading in Agricultural Commodities. Trade on NMCE had considerable proportion of commodities with big market size as jute rubber etc. But, in subsequent period, the pattern has changed and slowly moved towards commodities with small market size or narrow commodities. Analysis of volume contributions on three major national commodity exchanges reveled the following pattern, Major volume contributors: - Majority of trade has been concentrated in few commodities that are Non Agricultural Commodities (bullion, metals and energy) Agricultural commodities with small market size (or narrow commodities) like guar, Urad, Mentha etc.

COMMODITY EXCHANGE TRADING REGULATIONS IN INDIA

Commodity Derivative markets started in India in cotton in 1875 and in oilseeds in 1900 at Bombay. Forward trading in raw jute and jute goods started at Calcutta in 1912. Forward markets in wheat have been functioning at Hapur since 1913 and in bullion at Bombay since 1920. After independence, the Constitution of India brought the subject of stock exchanges and futures markets into the Union list. As a result, the responsibility for regulation of commodity futures markets devolved on the Government of India. A Bill on forward contracts was referred to an expert committee headed by Prof. A.D.Shroff and select committees of two successive Parliaments and finally in December 1952, the Forward Contracts (Regulation) Act, 1952, was enacted. The Act provided for three-tier regulatory system: The Forward Markets Commission (FMC) (set up in September 1953) (http://www.fmc.gov.in)

 An association recognized by the Government of India on the recommendation of Forward Markets Commission The Central Government.

Forward Contracts (Regulation) Rules were notified by the Central Government in July 1954. The Act divides the commodities into three categories with reference to extent of regulation: Commodities in which futures trading is prohibited. Commodities in which futures trading can be organized under the auspices of a recognized association. 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.

In the seventies, most registered trade associations became inactive, as futures, as well as forward trading in the commodities for which they were registered, were either suspended or prohibited altogether.

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. The National Agriculture Policy announced in July 2000 and the declarations in the 2002-2003 Budget indicated the Governments resolve to put in place a mechanism of a futures market.

As a follow up, the government issued notifications on 1 April 2003 permitting futures trading in all commodities. 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), which began operations in 2004.

COMMODITY TRADING REGULATOR AND EXCHANGES IN INDIA

Participants of Commodity Derivatives

For a market to succeed, it must have all three kinds of participants 1) Hedgers 2) Speculators and 3) Arbitragers. The confluence of these participants ensures liquidity and efficient price discovery on the market. Commodity markets give opportunity for all three kinds of participants.

Hedgers
Many participants in the commodity futures market are hedgers. They use the futures market to reduce a particular risk that they face. 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. By selling his crop forward, he obtains a hedge by locking in to a predetermined price. Hedging does not necessarily improve the financial outcome; indeed, it could make the outcome worse. What it does however is, that it makes the outcome more certain. Hedgers could be government institutions, private corporations like financial institutions, trading companies and even other participants in the value chain, for instance farmers, extractors, ginners, processors etc., who are influenced by the commodity prices.

There are basically two kinds of hedges that can be taken. A company that wants to sell an asset at a particular time in the future can hedge by taking short futures position. This is called a short hedge. A short hedge is a hedge that requires a short position in futures contracts. As we said, a short hedge is appropriate when the hedger already owns the asset, or is likely to own the asset and expects to sell it at some time in the future.

Similarly, a company that knows that it is due to buy an asset in the future can hedge by taking long futures position. This is known as long hedge. 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.

Speculators
If hedgers are the people who wish to avoid price risk, speculators are those who are willing to take such risk. 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. An entity having an opinion on the price movements of a given commodity can speculate using the commodity market. While the basics of speculation apply to any market, speculating in commodities is not as simple as speculating on stocks in the financial market. For a speculator who thinks the shares of a given company will rise, it is easy to buy the shares and hold them for whatever duration he wants to. However, commodities are bulky products and come with all the costs and procedures of handling these products. The commodities futures markets provide speculators with an easy mechanism to speculate on the price of underlying commodities. To trade commodity futures on the NCDEX, a customer must open a futures trading account with a commodity derivatives broker. Buying futures simply involves putting in the margin money. This enables futures traders to take a position in the underlying commodity without having to actually hold that commodity. 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).

Arbitragers
A central idea in modern economics is the law of one price. This states that in a competitive market, if two assets are equivalent from the point of view of risk and return, they should sell at the same price. If the price of the same asset is different in two markets, there will be operators who will buy in the market where the asset sells cheap and sell in the market where it is costly. This activity termed as arbitrage. The buying cheap and selling expensive continues till prices in the two markets reach equilibrium. Hence, arbitrage helps to equalise prices and restore market efficiency.

Current Scenario in Indian Commodity Market

India is among top 5 producers of most of the Commodities, in addition to being a major consumer of bullion and energy products. Agriculture contributes about 22% GDP of Indian economy. 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%. All this indicates that India can be promoted as a major centre for trading of commodity derivatives.

View of an investor
Investor R.K. Gupta says he took a right decision when he started trading in commodities a year ago. Gupta, who began investing in the stock market some seven years back, says equity markets with their volatile trades are not easy to live with. As a result, I mostly trade in gold and other metals, prices of which are determined internationally and are much more stable, he insists. In the Indian stock exchanges, one can lose money in even the best known blue-chip company as volatility plays a much bigger role than the companys strong fundamentals. Increasingly, Gupta is not alone in coming to this conclusion even if it is not necessarily empirically valid across commodities and markets. Investors are increasingly putting more of their money in commodities as the equities market in India goes through a prolonged downturn. Futures trading in July at the countrys two main commodity exchangesMulti Commodity Exchange of India Ltd, or MCX, and National Commodity and Derivatives Exchange Ltd, or NCDEXhave more than doubled over year-ago July. In comparison, futures and options trading at National Stock Exchange, or NSE, rose on 38%, data available with the bourses show. For investor Gupta, trading in gold has an additional benefit. While in gold I will have to spend only 4% as margin but in a scrip like Ranbaxy or Reliance Industries, it would be anywhere between 25% and 30%, he says. With the money I save in paying margin, I can do more trades in gold. Margins are taken by commodity exchanges before a trade is initiated to cover price risks.

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, says Jayant Manglik, commodity analyst.Falling equity prices and volumes have led to renewed focus on scientific asset allocation by investors and traders. 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. Commodity price cannot remain at low prices or high prices there is a cycle of supply and demand. Factors irrelevant to the supply and demand wont have an impact in the prices. Far more easily predictable than any other form of investment. Commodities are used in a day to day basis so all the factors that influence the prices are readily made known. No single investors or group can influence commodity prices its a global market with high liquidity and maximum participants. If price moves are favourable, the producer realizes the greatest return with this marketing alternative. No premium charge is associated with futures market contracts

The negative part of invest in commodity market

Commodity Futures and Options are not the same as stocks; meaning they are not equity. They are basically contracts for future delivery, at a locked in price, of a wide range of products like soy onions got bumped from the list. 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, 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. 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. This is referred to as hedging, a term youll hear a lot in the futures market. Its simply insurance against the damages of price volatility. This market is risky and if the price goes in the opposite direction, investors can lose big. They could lose the chance of profits and even lose the chance the breaking even. Because the contract is usually insured, the buyer can lose the premium and associated costs, but the seller can lose much more.

The buying and selling of these commodities hardly ever happens. There are a lot of players in this market that are in it for the market itself; not the goods. Many buyers have no intention of taking delivery and many sellers have no intention a making delivery of the product. They just want to profit from the change in price. Theyre 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.

Some facts on commodity markets

Largest consumer of Gold, accounting for more than 23% of global demand. Third largest industrial consumer of Silver after America and Japan. One of the major producers of Soy bean. Largest importer of edible oils in the world. Worlds leading producer of 17 Agri Commodities. Over 25 major markets and 7500 mandies.

NEED FOR THE STUDY

As majority of Indian investors are not aware of organized commodity market; their perception about is of risky to very risky investment. Many of them have wrong impression about commodity market in their minds. It makes them specious towards commodity market. Concerned authorities have to take initiative to make commodity trading process easy and simple. Along with Government efforts NGOs should come forward to educate the people about commodity markets and to encourage them to invest in to it. There is no doubt that in near future commodity market will become Hotspot for Indian farmers rather than spot market. And producers, traders as well asconsumers will be benefited from it. But for this to happen one has to take initiative to standardize and popularize the Commodity Market.

OBJECTIVE OF THE PROJECT

To analyse the view of commodity traders. To make understand the process of future commodity trading in India. To know the investment pattern of commodity traders . To study the perception of investors of commodity market Study the awareness level about operating process of commodity market in India. Study the investment strategies taken by Indian Investors in commodity market. Study the risk taking nature of different investors in India. To identify the most suitable mode of communication.

SCOPE OF STUDY

For Academic and Reasrcher

This study will help in to know about Commodity Market, 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 customers trading behaviour.

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. 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. Personal interviews and informal discussions were held with only the positive respondents. Further applying simple statistical techniques, the collected data are processed.

SAMPLING PLAN

Population: Any investors located in Pune.

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. Due to time constraint non-probability sampling was chosen for the study.

Sampling procedure: From large number of investors, sample lot was randomly picked up by researcher.

Field Study: Directly approached respondents (businessmen, small shopkeepers, physical commodities traders and service class people).

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.

LIMITATION OF STUDY Since sample size is only 100, this is not a true representation of the population as a whole. 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

DATA ANALYSIS AND INTERPRETATION

By doing market survey we understand the investment pattern of people, competitors position in the market, what they are offering to their customer and compare with our service.

To survey the market we made a questionnaire with 19 questions. 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. (Among the people there are 20 garments shop keeper, 20 gold trader, 30 existing India Bulls clients and rest are moving public on the road.) Based on their answer we got this report.

1. Market investment.

0%

RESPONSE

0%

33%

67%

Out of the whole sample 33% people dont invest in market and rest 67% are investing in the market as per the survey.

2. 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%). after them there are service persons (35%). Then there are professionals like doctors, engineers, lawyers, CAs etc. (8%) and Retired persons (15%) respectively.

3. Most preferable place for Investment.

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 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.

The Postal deposits come to third position in terms of ranking (11%). After that people prefer to invest in the Equity Market (7%)Where there is high return and high risk also. Here it is very important to have a basic idea about current economic condition of the country and performances of the companies.Then comes Mutual funds (7%) where they get the net impact of some chosen stocks. Thus it minimizes the risk as well as return also. After that people prefer real estate (5%) and Commodity comes last according to peoples choice (3%)

4. 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.

5. Where do you invest?

Among the whole sample investment in Equity is approx. 32.5 %, following by commodity 15% and Mutual funds 6 %. Investment in the other sectors is approx. 46.5 % of whole investment

6. 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. 61%) who invest in stock market keep themselves updated with the help of television through various business news channels (like CNBC, NDTV- profit, CNBC-Awaz, CNN, ZEE Business etc.). Business newspaper is another option which gives information about stock market. It is one of the oldest medium of getting information but still effective and comes to the Second position (approx. 22%). Internet is mostly use by those people who would like to trade online. 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. 4%). 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. 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.

7. If dont 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 DONT HAVE TIME TO MONITOR MARKET

This is a testto find out the back logs and pitfalls of Stock market and all the broking companies. When we asked the people that why they do not invest in stock market then we get this result. Most of the people (approx. 46%) want to stay out of the stock market because of high risk and market volatility. They have a fear in their mind that they might a loss. They dont want to lose their hard earned money in stock market. Many people think that stock market is like a lottery where the possibility of profit is very less and risk is very high. Some people (approx. 32%) dont invest in stock market because they are not aware of stock market. They dont know what is Sensex or Nifty and why these indicators changes so rapidly. People belong to this category asked several question to us and give them feedback from our company. Approx. 6% of people leave stock market because they already faced a loss in the market and thus they dont want to waste their money any more. Some people (approx. 16%) dont invests in stock market because they dont have time to monitor stock market. They used to be very busy at that particular time when stock market operation is going on. 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.

8. 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.

We have found that among the people who invest in stock market approx. 16 % of them prefer to trade on daily basis and want to take profit or loss on that day itself.We called them the intraday trader. 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.

9. For how long have you been investing in commodity / equity market?

There is a group of people (approx. 28%) who would like to hold a stock for a long period of time usually more than a year. 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, the value of that stock increases due to economic development or value appreciation after a long period. Then they sell that stock and earn a huge profit. They are called Investor. The worlds 2nd richest person Mr. Waren Buffet is an Investor. He holds most of the stocks for minimum of 20 to 25 years. There are some people who neither act as intraday trader nor as an Investor. They prefer to hold stocks for a short period of time usually a week or a month. Their proportion is approx. 21% (weekly investor) and approx. 36 % (monthly investor).

10. Factors behind choosing a broking house.

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. I have tried to ranking those priorities which a customer seeks while choosing a broking house by collecting the opinion of people. Most of the people (approx. 41%) prefer a company which has a high brand value. 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. The other group of people (approx. 27%) looks at the brokerage rate that a company offers to its customer. The lower it the better for them because usually they trade with a high volume on intraday basis and dont want to give much brokerage as their profit margin is small. The third group (approx. 13%) wants better research and useful tips. Their main intention is to earn profit. If they get proper useful tips which increase the possibility of profit they will be satisfied. Here brokerage rate doesnt matter to them. This group mainly consists of those people who have a limited knowledge about stock market and thus depend up on company tips. This group of people (approx. 19%) gives importance to the relationship with the broker. They build a strong relationship with the broker and trade according to their opinion. They have trust on that particular broker. If the broker changes the company then the customers also change the company. Company policy, brand name, brokerage rate is secondary object to them.

11. Commodity market investor preference.

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).

12. 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; 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.

13. 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, that commodity market advertisements do not give all the necessary information. 100 Not Informative

14. 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, and the MCX is one of the fastest growing exchanges. MCX has large volumes especially in gold and silver. And 32 % invests in NCDEX

15. The amount investors prefer to invest at a time in Commodity market?

45 40 35 30 25 20 15 10 5 0 LESS THAN 50,000 50,000-1,00,00 1,00,000-5,00,000 MORE THAN 5,00,000

According to my survey 25 % of the sample who invest in the commodity market prefers to invest more than Rs. 5, 00,000 at a time. And approx 43% like to invests Rs. 1,00,000 to Rs. 5,00,000, 12% invests Rs. 50,000 to Rs. 1,00,000 and 20% invests less than Rs.50,000 .

16. What is the profit percentage you are getting, per annum, from commodity / equity investment?

70 60 50 40 30 20 10 0 10-20% 20-30% 30-40%

17. Are you satisfied with the return?

0% 0%

NO 33%

YES 67%

18. 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%

21. Are you satisfied with the services provided by your broking firm?

Column1
0% 0%

YES 41%

NO 59%

CHAPTER FINDINGS & RECOMMEDATION

FINDINGS
The level of awareness among the investors about commodity market is low. Investment in the stock market mostly done by the business man. Investors are inclined towards the equity market and few are interested about investing in the commodities market. The most popular source of information about the market among the investors is television and newspaper followed by internet and business magazines. In commodity market maximum people are interested to invest in precious metal (gold, silver etc.) and energy product (crude oil). Most of the investor prefers MCX than NCDEX . The investors provided valuable suggestions about better service of a broking firm. The most popular suggestions are:Good tips and calls. Less brokerage. Easy money transfer (pay-in and pay-out). Good trading software. Regular research reports. Educating the clients about the market. Good relation with the dealers and the relationship manager.

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. Introduce some programs which will help to attract more of office going clients. Most of the investors are businessmen, and very few of the office goers invest in these markets. 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. The investors mainly follow the television and the newspapers to update themselves about the market. So it will be beneficial for India Bulls. 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. The service of the company can be improved keeping in mind the suggestions provided by the investors. Once in Every month, the client must be invited for feedback and suggestions.

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. For diversification of portfolio beyond shares, fixed deposits and mutual funds, commodity trading offers a good option for long-term investors and arbitrageurs and speculators. And, now, with daily global volumes in commodity trading touching three times that of equities, trading in commodities cannot be ignored by Indian investors. Now a days investor become more careful in investment with considering the factor like global economy, availability of commodity etc.. In the trading system people consider above factor for investment so we can conclude that investor are more moving towards the exchange traded market. The trading system also includes trading and intermediary participants, who ensure the correct pricediscovery. Thus, the trading system is one of the factors, 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.It can be concluded that one can use commodity futures for the hedging purposes rather than for the speculative. This can be emphasized bythe fact that therehas been an increasing trend in the volume traded in most of the commodities. Thus, commodity futures area growing market.From all the above conclusions of it can be concluded,Commodity futures can beused as a risk reduction and a sound investment instrument

Questionnaire

Name: Contact No: Address: Occupation:

1.

Do you invest in market? a. Yes b. No

2. What is you Occupation? a. Service b. Business. c. Professional d. Retired

3. According to you, which is the best place for investment? a. Equity b. Commodity c. Bank FD d. Mutual Fund e. Postal savings f. Life Insurance g. Real Estate

4. What type of investment do you prefer? a. Only Equity b. Only Commodity c. Equity and Commodity both

5. In which sector do you invest? a. Equity b. Commodity c. Insurance d. Mutual fund e. Others

6. How people get information about stock market ? a. News Paper b. TV c. Internet d. Magazines

7. If not investing in the Commodity Market, what is the reason? a. Not aware of stock market b. High Risk c. Already faced a loss d. Dont have time to monitor market

8. How often do you trade? a. Daily b. Weekly c. Fortnight d. Monthly e. Yearly

9. For how long have you been investing in commodity / equity market? a. < 1 month b. 1 month to 6 months c. 7 month to 1 year d. >1 year

10. What are the Factors behind choosing a Broking House? a. Brand Name. b. Broking Rate c. Better research d. Good relation/ better service

11. Among the commodities where do you invest? a. Metals b. Energy Product c. Agro based commodity d. Others

12. What is you perception about commodity Market ? a. Less Risky b. Risky c. Very Risky

13. What is your opinion about the information available for commodity market/ a. Informative b. Not so much Informative c. Not informative

14. Where do you invest? a.MCX b. NCDX

15. How much do you prefer to invest at a time in commodity? a. <50000 b. 50000-100000 c. 100000- 500000 d. > 500000 e. Nil

16. What is the profit percentage you are getting, per annum, from commodity / equity Investment? ___________ %

17. Are you satisfied with the return? Yes No

18. Is your portfolio diversified? Yes No

19. Do you hedge your portfolio ? Yes No

20. Do you use stop loss while trading? Yes No

21. Are you satisfied with the services provided by your broking firm? Yes No

22. What services do you expect from your broking firm?

a. b. c. d.