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PROJECT REPORT ON
COMMODITY TRADING ANALYSIS
AT
KOTAK COMMODITY SERVICES PRIVATE LTD
SUBMITTED BY
OSMANIA UNIVERSITY,
HYDERABAD.
ATTAPUR, HYDERABAD .
(2022-2023 )
ST. JOSEPH’S DEGREE COLLEGE
ATTAPUR, HYDERABAD. PH. NO: 61759749
WEBSITE: www.st-josephs.in, EMAIL ID: st22109@gmail.com ph: 040-61759749
CERTIFICATE
This is to certify that Mr. MOHD JIBRAN is a bonafide student of BBA III YEAR of this
institution with Hall Ticket No: 2801-2068-4070 for this Academic year 2022-2023. He has
submitted a project on COMMODITY TRADING ANALYSIS from the organization
KOTAK COMMODITY SERVICES PRIVATE LTD under the supervision of
Ms. SALIMA DESHMUKH.
DATE: PRINCIPAL
ST. JOSEPH’S DEGREE COLLEGE
ATTAPUR, HYDERABAD . PH. NO: 61759749
WEBSITE: www.st-josephs.in, EMAIL ID: st22109@gmail.com ph: 040-61759749
CERTIFICATE
This is to certify that Mr. MOHD JIBRAN of BBA III YEAR with Hall Ticket No:
2801-2068-4070 for the academic year 2022-2023 has completed a project on
COMMODITY TRADING ANALYSIS from KOTAK COMMODITY SERVICES
PRIVATE LTD under the supervision of Ms. SALIMA DESHMUKH.
CERTIFICATE
This is to certify that the project is submitted by Mr. MOHD JIBRAN bearing Hall Ticket
No: 2801-2068-4070 of BBA III YEAR on the project COMMODITY TRADING
ANALYSIS from KOTAK COMMODITY SERVICES PRIVATE LTD during the
academic year 2022-2023
Place: Hyderabad
Date:
I also express my sincere thanks to the Sri. SIRAJUDDIN, Hon. Secretary & correspondent
of St. Joseph’s Degree College and Smt. S.JYOTHI LAKHSMI, Principal St. Joseph’s
Degree College who provided me the opportunity and complete cooperation facilities and all
the necessary infrastructure to complete my project.
Last but not the least it is my good fortune to have a dedicated faculty and guide for my
project, their whole-hearted co-operation helped in completing the project in time and
acquiring the knowledge.
2801-2068-4070
ABSTRACT
The aim of the study is to know the clear picture involved in commodities trading and its
impact on the investors who are interested in different diversified portfolios, which involves
high risk and high returns. This risk analysis and investors perception on commodities market
has given a clear idea of trading involved in relation with equities, futures and options, and
commodities, in comparison with other investments existing in the market. More fortunes are
made and lost more quickly in the commodity futures markets than anywhere else. It is a
game of consequence where profits won by one player are lost by another. The stakes are
high, but for those who know how to play well, the rewards can be immense. Financial
Trading Commodities shows you how to play the game to win. For investors' purposes there
are currently about 50 major INVESTORS PERCEPTION TOWARDS PN COMMODITY
TRADING ANALYSISs worldwide that facilitate investment trade in nearly 100 primary
commodities. There are numerous ways to invest in commodities. An investor can purchase
stock in corporations whose business relies on commodities prices, or purchase mutual funds,
index funds or exchange-traded funds (ETFs) that have a focus on commodities-related
companies. The most direct way of investing in commodities is by buying into a futures
contract. This is to recommend that all the people who are interested in investments should
have the basic idea about the trends in the market, and the impact of decisions on the market,
which are given by business tycoons, and also the influence of political involvement on the
market.
CONTENTS
Introduction 1-8
Research Methodology
Limitations
Findings 57-60
CHAPTER-5 Suggestions
Conclusions
Bibliography 61-62
CHAPTER- I
INTRODUCTION
1
1.1 Introduction
Commodities Futures’ trading in India has a long history. The first commodity futures
market appeared in 1875. But the new standardized form of trading in the Indian
capital market is an attractive package for all the people who earn money through
speculation by trading into FUTURES. It is a well-known fact and should be
remembered that the trading in commodities through futures’ exchanges is merely,
“Old wine in a new bottle”.
“Physical substance, such as food, grains, and metals, which is interchangeable with
another product of A the same type, and which investors buy or sell, usually through
futures contracts.” The price of the commodity is subject to supply and demand. Risk
is actually the reason exchange trading of the basic agricultural products began.
For example- A farmer risks the cost of producing a product ready for market at
sometime in the future because he doesn't know what the selling price will be.
More generally, a product which trades on a commodity exchange; this would also
include foreign currencies and financial instruments and indexes
The trading in commodities was started with the first transaction that took place
between two individuals the initial hiccups due to the problems like: store of value,
medium of exchange, deferred payment, measure of. We can relate this to the ancient
method of trading i.e., BARTER SYSTEM. This method faced wealth etc.. This led to
the invention of MONEY. As the market started to expand, the problem of scarcity
piled up.
The farmers/traders then felt the need to protect themselves against the fluctuations in
the price for their produce. In the ancient times, the commodities traded were – the
Agricultural Produce, which was exposed to higher risk i.e., the natural calamities and
had to face the price uncertainty. It was certain that during the scarcity, the farmer
realized higher prices and during the oversupply he had to lose his profitability. On
the other hand, the trader had to pay higher price during the scarcity and vice versa. It
was at this time that both joined hands and entered into a contract for the trade i.e.,
delivery of the produce after the harvest, for a price decided earlier. By this both had
reduced the future uncertainty.
2
One stone still remained unturned- ‘surety of honoring the contract on part from either
of the parties’. This problem was settled in the year 1848, when a group of traders in
CHICAGO came forward to standardize the trading. They initiated the concept of “to-
arrive” contract and permitted the farmers to lock in the price upfront and deliver the
grain at a contracted date later. This trading was carried on a platform called
CHICAGO BOARD OF TRADE, one of the most popular commodities trading
exchanges’ today. It was this time that the trading in commodity futures’ picked up
and never looked back.
Although in the 19th century only agricultural produce was traded as a futures
contract, but now, the commodities of global or at least domestic importance are
being traded over the commodity futures’ exchanges. This form of trading has proved
useful as a device for HEDGING and SPECULATION. The commodities that are
traded today are:
3
Until 1990, the Gold Control Act forbade the private holding of gold bars in India.
There was physical investment in smuggled ten tola bars, but it was limited and often
amounted to keeping a few bars ready to be made into jewellery for a family wedding.
Gold investment essentially was in 22 carat jewellery.
Since 1990, investment in small bars, both imported ten tolas and locally-made small
bars, which have proliferated from local refineries, has increased substantially. GFMS
estimate that investment has exceeded 100 tones (3.2 million oz) in some years,
although it is hard to segregate true investment from stocks held by the 16,000 or
more gold dealers spread across India. Certainly gold has been used to conceal
wealth, especially during the mid-1990s, when the local rupee price
increased…steadily.
It was also augmented in 1998 when over 40 tones (1.3 million oz) of gold from
bonds originally issued by the Reserve Bank of India were restituted to the public.
In the cities, however, gold has to compete with the stock market, investment in
internet industries, and a wide range of consumer goods. In the rural areas 22 carat
jewellery remains the basic investment.
4
1.2 OBJECTIVES OF THE STUDY
5
1.3 SCOPE OF THE STUDY
The study mainly focuses on Indian commodity market, its history and latest
developments in the country in commodities market (Silver, Gold and Aluminum).
The study also keeps a birds-eye view on global commodity market and its
development. The study vastly covered the aspects of commodity trading (Silver,
Gold and Aluminum), clearing and Settlement mechanisms in Indian commodity
exchanges. The scope of the study is limited to Indian commodity market
A network of 2500 business locations spread over 500 cities across India facilitates
the smooth acquisition and servicing of a large customer base. Most of our offices are
connected with the corporate office in Mumbai with cutting edge networking
technology. The group helps service more than a million customers, over a variety of
mediums viz. online; we cannot study all the data in the organization
6
1.4 RESEARCH METHODOLOGY
The present study is conducted to provide information to the company regarding the
investor perception towards commodity market.
Secondary data
Secondary data was collected from companies and from commodities (Silver, Gold
and Aluminum) trading websites.
TYPE OF RESEARCH
Based on the objectives of the study, the descriptive research method is used.
Descriptive study is taken up when the student is interested in knowing the investor
perception in commodities market. The conclusions are arrived at from the collected
data. Statistical tools were used to analyze the data collected from the survey.
Forward
Future
7
1.5 LIMITATIONS OF THE STUDY
Brokers can only transact futures trades if they are registered with the CFTC
and the NFA.
Only certain types of commodities (Silver, Gold and Aluminum) can be the
basis for futures trading.
8
CHAPTER- II
REVIEW OF LITERATURE
9
REVIEW OF LITERATURE
Christian Dunis
10
Since the introduction of co integration theory, a growing body of literature has
empirically tested market efficiency of commodity futures around the world. If the
non-stationary spot and futures prices are co integrated, it ensures that there exists a
long-run equilibrium relationship between them. However, if these two prices series
are not co integrated, they diverge without bound, such that the futures price would
provide little information about the movement of the spot price (Lai and Lai, 1991,
569). Therefore, co integration between the spot price and the futures price is
necessary condition for market efficiency (ibid 568).
Fama (1970)
Classified market efficiency into three categories weak from efficiency, semi-strong
form efficiency, and strong form efficiency. Unlike weak form efficiency, the semi-
strong efficiency indicates that all public information is calculated into current prices,
while the strong form efficiency indicates that all information in a market, whether
public or private, is accounted for in prices.
Bose (2008)
11
Goyari and Jena (2011)
examine the commodity futures market from June 2005 to January 2008 using the
daily spot and futures prices of gold, crude oil and guar seed. The results of their co-
integration test state that the spot price and the futures price are co-integrated for three
commodities, suggesting that they have a long-run relationship. An essay in the
Manchester Guardian Commercial in 1923 by John M.Keynes initiated the concept of
the theory of normal backwardation. In his view, futures prices are unreliable
estimates of the cash or spot price prevailing on the date of expiry of the futures
contract. He believed it ‘normal’ for the futures price to be a downward biased
estimate of the forthcoming spot price. This theory, in effect, argues that speculators
sell ‘insurance’ to hedgers and that the market is ‘normally’ inefficient because the
futures price is a biased estimate of the subsequent spot price.
Dusak (1973)
tested for the existence of a risk premium within the context of the capital asset
pricing model. Following Cootner (1960), she viewed the futures price as comprising
two components: an expected risk premium and a forecast of a forthcoming spot
price. With this approach, she argues the Keynesian notion of a risk premium takes on
a new interpretation, namely, the risk premium required on a futures contract should
depend on the extent to which the variations in prices are systematically related to
variations in the return on total wealth. If the capital asset pricing model applies, and
if the risk of a futures contract is independent of the risk of changes in the value of all
assets taken together, then investors will not have to be paid for that risk since they
can diversify it away. The Keynesian ‘insurance’ interpretation, on the other hand,
identifies the risk of a futures asset solely with its own price variability. Dusak tested
for both types of risk in the futures market, and her results suggest that wheat, corn,
and soybeans futures contracts are not risky assets whether they are held
independently or as part of a larger portfolio of assets.
12
FINANCIAL DERIVATIVES
The term derivatives refer to a large number of financial instruments whose value is
derived from the underlying assets. Derivative instruments like the options and futures
facilitate the trading in financial contracts. The most important underlying instruments
in the market are in the form of Equity, treasury bills, and foreign exchange. The
trading in the financial derivatives has attracted the prominent players of the equity
markets.
The primary purpose of a derivative contract is to transfer risk from one party to
another i.e. risk is transferred from a party that wants to get rid of it to another party
i.e. willing to take it. The major players seen in the derivatives segment are the
SPECULATORS whose sole objective is to buy and sell for a profit alone. The
HEDGERS are the other breeds of players, who aim merely to have a hedge positions.
They are risk free investors whose intention is to have a safety mechanism and wish
to protect their portfolio. Nevertheless, they are pursued as a cheap and efficient way
of moving risk within the economic system. But the world of derivatives is riddled
with jargons making it more awesome.
The trading in equity through the derivatives in India was introduced in the year 2000
by the Securities and Exchange Board of India [SEBI] and this was described as the
“India’s derivative explosion”. Although this took a definite form in 2000 but the idea
was initiated in the year 1995. it was then in the year 2000 that SEBI permitted the
trading the in the options on the platforms of India’s premier exchange platforms i.e.,
the National Stock Exchange Of India limited [NSE] and The Bombay Stock
Exchange [BSE] in the individual securities. But the futures contracts took 17 long
months to get launched on November 09’ 2001.
The trading in options and futures in the individual stocks were permitted to trade on
the stable stocks only. The small and highly volatile stocks were an exemption from
the trade in derivatives. Futures and options are important tools that help the investors
to derive profit. The futures facilitate the investor to enter into a contract to deliver the
underlying security at a future date whereas, the options allow it to his discretion as to
whether he wants to buy (call) or sell (put) the contract.
13
The current trading behavior in the derivatives segment reveals that single stock
futures continues to account for a sizeable proportion. A recent report indicates that
the trading in the individual stock futures in the Indian exchanges has reached global
volumes. One possible reason for such a behavior of the trader could be that futures
closely resemble the erstwhile ‘BADLA’ system.
COMMODITY DERIVATIVES
The need for a futures market in the commodities, especially, in the primary
commodities was emphasized because such a market not only provides ample
opportunities for effective management of price risk, but also, assists inefficient
discovery of prices which can serve as a reference for the trade in the physical
commodities in both the external as well as in the internal market.
India, a commodity based economy where two-third of the one billion population
depends on agricultural commodities, surprisingly has an under developed commodity
market. Unlike the physical market, futures markets trades in commodity are largely
used as risk management (hedging) mechanism on either physical commodity itself or
open positions in commodity stock.
There was an effort to revive these markets but all went in vain due to improper
infrastructure and facilities. However, after India joined the WORLD TRADE
ORGANIZATION the need to protect the agricultural community against the price
fluctuations cropped up. The National agricultural policy 2000 was formulated and
proposed to expand the coverage of the futures market to minimize the volatility in
the commodities prices and hedging the risk arising out of the fluctuations in the
prices. As a result of this there is a standardized form of commodity futures trading in
the country, today and a lot number of people are active in the commodities
exchanges, taking it to a great high.
14
The active players in these exchanges are Traders, Speculators and the Hedgers. It is
said that now-a days the prices of the commodities in the Physical Market (Mandis) is
derived in accordance to the spot prices in the commodity exchanges.
Clearly, in the nascent stage, the derivatives market in India is heading in the right
direction. In the terms of the number of contracts in a single commodity/stock it is
probably the largest market globally. It is no longer a market that can be ignored by
any of the serious participants. The Indian economy, now, is at the verge of greater
expansion the any other economies in the globe today. This has attracted a large
number of institutional investors, both – the Indian as well as foreign, to invest in to
the Indian stocks and commodities, thereby bringing in a lot of forex reserves. As
predicted by the popular investment Gurus’ and the great Economists worldwide,
“India will be a major player in the global economy by the end of this decade”. We
can conclude that, with the institutional participation set to increase and a broader
product rollout inevitable, the market can only widen and deepen further.
TRADING INSTRUMENTS
Derivatives in the recent times have become very popular because of their wide
application. Before getting into the hard talks about the commodities trade, let us
know about the trading instruments in the derivatives, as they are similarly applicable
to the commodities derivatives.
Forward contract
Future contract
Options contract
Swap
Futures and Options are actively used in many exchanges whereas; Forwards and
Swaps are mostly trade Over the Counter (OTC).
FORWARDS CONTRACT
15
A spot or cash market is the most commonly used for trading. A majority of our day-
to-day transactions are in the cash market. In addition to the cash purchase, another
way trading is by entering into a Forward contract. A Forward contract is an
agreement to buy or sell an asset on a specified date of a specified price. These
contracts are usually entered between a financial institution and its corporate clients or
two financial institutions themselves. In the context to the Commodity trading, prior
to the standardization, the trade was carried out as a forwards contract between the
Associations, Producers and Traders where the Association used to act as counter for
the trade.
A forward contract has been in existence in the organized commodities exchanges for
quite sometimes. The first forward contract probably started in Japan in the early 18th
century, while the establishment of the CHICAGO BOARD OF TRADE (CBOT) in
1848 led to the start of a formal commodities exchange in the USA.
Forward contracts are very useful in HEDGING and SPECULATION. The essential
idea of entering into the forward contract is to Hedge the price thereto avoid the price
risk. By entering into a forward contract one is assured of the price at which the
goods/assets are bought and sold. The classic Hedging example would be that of an
exporter who expects to receive payment in foreign currency after three months. As
he is exposed to greater amount of risk in the fluctuations in the exchange rates, he
can, with the use of forwards, lock-in the rate today and reduce the uncertainty.
Similarly, if a speculator has the information of an upswing in the prices of the asset,
he can go long on the forward market instead of the cash market and book the profit
when the target price is achieved.
The forward contract is settled at the maturity date. The holder of the short position
delivers the assets to the holder of the long position on the maturity against a cash
payment that equals to the delivery price by the buyer. The price agreed in the
forwards contract is the DILIVERY PRICE. Since the delivery price is chosen at the
time of entering into the contract, the value of the contract becomes zero to both the
parties and costs nothing to either the holder of the long position or to the holder of
the short position.
16
It is a bilateral contract and hence is exposed to counter party risk.
Every contract is unique and is custom designed in the terms of: expiration
date and the asset type and quality.
The contract price is not available in the public domain.
Of the party wishes to reverse the contract, he has to go to the same counter-party,
which may result o attract some charges.
FUTURES CONTRACT
“Financial futures represent the most significant financial innovations of the last
twenty years.” - As quoted by MERTON MILLER, a noble laureate’ 1999.
The father of financial derivatives is Leo Me lamed. The first exchange that traded in
the financial derivatives was INTERNATIONAL MONETARY MARKET, wing of
the Chicago Mercantile Exchange, Chicago, in the year 1972.
The futures market was designed to solve the problems, existing in the forwards
market. A financial future is an agreement between two parties to buy or sell a
standard quantity of a specified good/asset on a future date at an agreed price.
Accordingly, future contracts are promises: the person who initially sells the contract
promises to deliver a specified underlying asset to a designated delivery point during
a certain month, called delivery month. The underlying asset could, well be, a
commodity, stock market index, individual stock, currency, interest rates etc.. The
party to the contract who determines to pay a price for the goods is assumed to take a
long position, while the other who agrees to sell is assumed to be taking a short
position.
17
Location of the settlement.
It is due to the standardization that the futures contract has an edge with the
forward contract, in the terms of: Liquidity, safety and the security to honoring
the contract which is otherwise not secured in an OTC trading forwards
contract.
Spaced out purchases possible rather than large cash purchases and its storage.
Hedged positions of producers and processors would reduce the risk of default
faced by banks.
OPTIONS CONTRACT
Options have existed over a long period but were traded over the counter (OTC) only.
These contracts are fundamentally different from that of futures and forwards. In the
recent years options have become fundamental to the working of global capital
18
markets. They are traded on a wide variety of underlying assets on both, the
exchanges and OTC. Options like the futures are also available on many traditional
products such as equities, stock indices, commodities and foreign exchange interest
rates etc., options are used as a derivate instrument only in financial capital market in
India and not in commodity derivatives. It is in the process in introduction.
Options, like futures, also speculative in nature. Options is a legal contract which,
facilitate the holder of the contract, the right but not the obligations to buy or sell the
underlying asset at the fixed rate on a future date. It should be highlighted that, unlike
that the futures and forward contract the options gives the buyer of the contract, the
right to enter into a contract and he doesn’t have to necessarily exercise the right to
give, take the delivery. When a contract is made the buyer has to pay some money as
a ‘Premium’ to the seller to acquire such a right.
Call options
Put options
Call options: A call options gives the buyer the right to buy the underlying asset at a
strike price specified in the option. The profit/loss depends on the expiration date of
the contract if the spot price exceeds the strike price the holder of the contract books a
profit and vice-versa. Higher the spot price more is the profit.
Put options: A put option give the buyer the right to sell the underlying asset at the
strike price specified in the option. The profit/loss that the buyer makes on the option
depends on the spot price of the underlying asset. If the spot price is below the strike
price he makes profit and vice-versa. If the spot price is higher than the strike price he
will wait up to the expiry or else book the profit early.
SWAPS:
19
agreements are used to manage risk in the financial markets and exploit the available
opportunity for arbitrage in the capital market.
The swaps market originated in the late 1970’s, when simultaneous loans were
arrange between British and the US entities to bypass regulatory barriers on the
movement of foreign currency .the land mark transaction
Between the World Bank and the IBM in august 1981, paved the way for the
development of a market that has grown from a nominal volume in the early 1980’s to
an outstanding turnover of US $ 46.380tn in 1999.
There are three major participants in the derivatives market. They are:
Hedgers
Speculators
Arbitragers
HEDGERS
He is the person who enters the derivatives market to lock-in their prices to avoid
exposure to adverse movements in the price of an asset. While such locking may not
be extremely profitable the extent of loss is known and can be minimized. They are in
20
the position where they face risk associated with the price of an asset. They use
derivatives to reduce or eliminate risk.
For example, a farmer may use futures or options to establish the price for his crop
long before he harvests it. Various factors affect the supply and demand for that crop,
causing prices to rise and fall over the growing season. The farmer can watch the
prices discovered in trading at the CBOT and, when they reflect the price he wants,
will sell futures contracts to assure him of a fixed price for his crop.
A perfect hedge is almost impossible. While hedging Basis risk could arise. Basis =
Spot price of asset to be hedged – Futures price of the contract used. Basis risk arises
as a result of the following uncertainties:
The exact date when the asset will be bought or sold may not be known.
The hedge may require that the Futures contract be closed before expiration.
PRICE
FUTURES PRICE
BASIS
SPOT PRICE
SPECULATORS:
A speculator is a one who accepts the risk that hedgers wish to transfer. A speculator
takes positions on expectations of futures price movements and in order to make a
21
profit. In general a speculator buy futures contracts when he expect futures prices to
rise and sell futures contract when he expects futures prices to fall, but has no desire
to actually own the physical commodity.
Speculators wish to bet on the future movement in the price of an asset. They use
derivatives to get extra leverage. They take positions in the market and assume risk to
profit from fluctuations in the prices. In fact, the speculators consume the information,
make forecast about the prices and put their money in these forecast. By taking
positions, they are betting that the price would go up or they are betting it would go
down. Depending on their perception, they may long or short positions on the futures
or /and options, or may hold spread positions.
ARBITRAGEURS
“Simultaneous purchase of securities in one market where the prices thereof are low
and sale thereof in another market, where the price thereof is comparatively higher.
These are done when the same securities are been quoted at different prices in the two
markets, with a view to make a profit and carried on with the conceived intention to
derive advantage from difference in prices of securities prevailing in the two
markets”. -As defined by The Institute of Chartered Accountants of India.
Thus, the arbitrage involves making risk-less profit by simultaneously entering into
transactions in two or more markets. With the introduction of derivate trading the
scope of arbitrageurs’ activities extends to arbitrage over time i.e., he can buy
securities in an index today and sell the futures, maturing in the month or two.
22
Exchanges
Over the counter
EXCHANGE TRADING
An asset (commodity/stock) is traded over the counter usually because the company is
small and unable to meet listing requirements of the exchanges and facilitates the
trading in those areas where the exchanges are not located. Also known as unlisted the
assets are traded by brokers/dealers who negotiate directly with one another over
computer networks and by phone.
Instruments such as bonds do not trade on a formal exchange and are thus considered
over-the- counter securities. Investment banks making markets for specific issues
trade most debt instruments. If someone wants to buy or sell a bond, they call the
bank that makes the market in that asset.
The OTC derivatives markets have witnessed rather sharp growth over the last few
years, which have accompanied the modernization of commercial and investment
banking and globalization of financial activities. The recent developments in
information technology have contributed to a great extent to these developments.
While both exchange-traded and OTC derivative contracts offer many benefits, the
former have rigid structures compared to the latter. It has been widely discussed that
the highly leveraged institutions and their OTC derivative positions were the main
cause of turbulence in financial markets in 1998. These episodes of turbulence
23
revealed the risks posed to market stability originating in features of OTC derivative
instruments and markets.
The OTC derivatives markets have the following features compared to exchange-
traded derivatives:
COMMODITIES MARKET
Global Perspective
Oil accounts for 40 per cent of the world's total energy demand.
United States (20 million bbl/d), followed by China (5.6 million bbl/d) and Japan (5.4
million bbl/d) are the top oil consuming countries.
Balance recoverable reserve was estimated at about 142.7 billion tons (in 2002), of
which OPEC was 112 billion tons
INDIAN PERSPECTIVE
There are three major exchanges for the commodity trading in India. They are:
25
National Commodity & Derivatives Exchange Limited (NCDEX)
NCDEX is a public limited company incorporated on April 23, 2003 under the
Companies Act, 1956. It obtained its Certificate for Commencement of Business on
May 9, 2003. It has commenced its operations on December 15, 2003
NCDEX is located in Mumbai and offers facilities to its members in more than 390
centers throughout India. The reach will gradually be expanded to more centers.
26
NCDEX currently facilitates trading of thirty six commodities - Cashew, Castor Seed,
Chana, Chilly, Coffee, Cotton, Cotton Seed Oilcake, Crude Palm Oil, Expeller
Mustard Oil, Gold, Guar gum, Guar Seeds, Gur, Jeera, Jute sacking bags, Mild Steel
Ingot, Mulberry Green Cocoons, Pepper, Rapeseed - Mustard Seed, Raw Jute, RBD
Palmolein, Refined Soy Oil, Rice, Rubber, Sesame Seeds, Silk, Silver, Soy Bean,
Sugar, Tur, Turmeric, Urad (Black Matpe), Wheat, Yellow Peas, Yellow Red Maize
& Yellow Soybean Meal. At subsequent phases trading in more commodities would
be facilitated.
Head quartered in Mumbai, an expert management team with deep domain knowledge
of the commodity futures markets leads MCX. Through the integration of dedicated
resources, robust technology and scalable infrastructure, since inception MCX has
recorded many first to its credit.
Agri Commodities,
Bullion, Metals- Ferrous & Non-ferrous,
Pulses,
Oils & Oilseeds,
27
Energy, Plantations,
Spices
MCX has built strategic alliances with some of the largest players in commodities
eco-system, namely, Bombay Bullion Association, Bombay Metal Exchange, Solvent
Extractors' Association of India, Pulses Importers Association, Shetkari Sanghatana,
United Planters Association of India and India Pepper and Spice Trade Association.
Vision
Mission
29
CHAPTER- III
30
INDUSTRY PROFILE
The market for long term securities like bonds. Equity stock and preferred
stocks are divided in two primary and secondary markets. The primary market deals
with the new issues of securities. Outstanding securities are traded in the secondary
market which is commonly known as stock market or stock exchange. In the
Secondary market the investors can sell n buy securities. Stock markets
predominantly deal in the equity share. Debt instruments like bonds and debentures
are also traded in the stock market. Well regulated and active stock market promotes
capital formation. Growth of the primary market depends on the stock market. The
health of the company reflected by the growth of the stock market.
The origin of the stock exchange in India can be traced back to the later of the
19th century. After the American civil war (1860-61) due to the share mania of public,
the number of brokers dealing in share increased. The brokers organized an informal
association of brokers dealing in share increased. The brokers association” in 1975. At
presently in India there are 23 stock Exchanges are there and situated in various part
of the country. All the stock exchanges in India are controlled by SEBI (Security
Exchange Board of India).
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Commodity Derivatives Market Regulation Department
Division of Inspection
Conducting inspections of Recognized Stock Exchanges and Clearing
Corporations having Commodity Derivatives segment including inspection for
new recognitions and recommencement of trading.
Monitoring and inspection of IT infrastructure including Disaster Recovery and
Business Continuity Planning and systems audit of Recognized Stock Exchanges
and Clearing Corporations having Commodity Derivatives segment.
Conducting Visits to various ancillary infrastructures such as warehouses,
assaying labs etc., involved in Commodity derivatives segment.
Work related to Technical Advisory Committee.
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Division of Risk Management
Recognition, administration and policy relating to functioning and operations
of Recognized Clearing Corporations having Commodity Derivatives
Segment.
Prescribing and monitoring risk management and settlement practices in
clearing corporation.
Division of Complaints
Dealing with complaints pertaining to Commodity Derivatives Segment of the
Recognized Stock Exchanges,
Dealing with Investors Grievances, Investor Education and policy related
thereto.
Assesment work related to risk management aspects of the CPMI and IOSCO
Divsion of Products
Approval of agricultural as well as non-agricultural commodity products /
contracts to be traded on Recognized Stock Exchanges, including those in
GIFT IFSC.
Work related to NSEL related matter
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COMPANY PROFILE
Kotak Commodity Services Private Ltd (formerly known as Kotak Commodity
Services ltd) Limited (KCSPL) is promoted by the Kotak family that has decades of
experience in commodity trading. KCSPL is a trading-cum-clearing member of the
leading national commodity exchanges - MCX & NCDEX. It is also a member of
NCDEX Spot Exchange.
KCSPL is also associated with All India Cottonseed Crushers Association, Cotton
Association of India and The Solvent Extractors Association of India.
We have an extensive network spread across the country through our branches and
registered franchisees.
The Commodities Broking Services cater to the retail private investor segment, while
the Hedging Services are offered through our corporate desk to the
producing/consuming firms that have either direct or economic exposure to the
underlying commodity. Our offerings also include Arbitrage products that are backed
by our experts.
We at KCSPL have a strong top management team that has a multi-decade experience
in the commodity and financial services industry, leading the company with a vision
and willingness to take it to the next big level.
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DIRECTORS
1. Mr. Suresh Kotak is a visionary, a highly respected and reputed commodity expert
in India with over five decades of experience in the commodity markets.He not only
brings with him the rich legacy of the Kotak family, but also a huge undisputable
knowledge on the commodity markets. His vision and guidance will be a great asset
to the company. Mr. Kotak is also the Chairman of Kotak & Co., Kotak Chemicals
Ltd., and Kotak Ginning & Pressing Industries Ltd.
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4. Mr. Shripal Shah is a qualified Chartered Accountant, Company Secretary and
LL.B. He is currently working asan Executive Director - Kotak Commodity Services
Private Ltd (formerly known as Kotak Commodity Services ltd).He has over 20 years
of diverse corporate experience in financial services, Securities and commodity
market.
At Kotak Commodity, we are always looking for the right people with the desire,
drive and creativity to find solutions that help meet our clients' needs; individuals who
want the chance to learn, grow with the company and explore their career
opportunities. We place a premium on high performance, quality service and the
ability to execute strategy.
Above all, we are committed to serving our clients, so we seek employees with the
highest ethical standards, who want to make a difference in people's lives.
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What we are
A strong market player in terms of products, services & learnings.
A committed partner with quality services and high ethical standards.
What we offer
A strong platform for you to grow and explore your career opportunities.
A chance to learn and experience the changes in the field of commodity trading.
A place not just to work, but also to innovate and contribute.
Individual Trading desk enables a client to trade in any commodity futures, listed on
the national commodity exchanges, with a slew of value-added services attached to it
at no extra cost.
The Kotak Commodity Corporate Desk offers trading and hedging solutions to
corporate clients. It acts only on the clients' instructions / orders. And, based on their
independent decision, KCSPL helps them in their hedging process, including
implementation and continuous monitoring of their positions.
Our guidance helps clients withstand the vagaries of commodity price fluctuations in
their businesses, which may generate higher risk-adjusted return on their capital.
The exclusive benefits available to our corporate customers, who are Proprietary
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Firms, Partnership Firms, Public and Private Limited Companies and HUFs, on
subscription are:
Kotak Commodity offers a range of limited risk products through its Arbitrage Desk.
These products may offer a steady source of returns irrespective of market
movements.
The products are based on commodity price discrepancies and mean price deviation of
a particular commodity in different traded markets. These include spot-futures
trading; inter exchange and intra exchange spreads. Arbitrage trade has the potential
to generate returns equal to or greater than the returns provided by the traditional
money / debt markets. However, it should be clearly understood that the returns are
not guaranteed or assured and may vary from time to time based on market
opportunities.
The Arbitrage Desk keeps track of price movement of commodities across markets
and spots arbitrage opportunities on real time basis. The desk then, based on the
clients' instructions / orders helps them from the stage of procuring the commodity,
storage and selling, till making delivery of the same. With its wide spread network,
Kotak Commodity's Arbitrage Desk has a reach in all major mandis across the
country.
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Execute necessary documentation with Kotak Commodity, including form(s) to
understand the client's risk appetite and
investment objective
Valid Sales-tax Registration. In case the client does not have a Sales-tax Number,
he / she can avail the Physical
Desk Services offered by Kotak Commodity
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Portfolio Tracker
Kotak Commodities provides you a tool known as Portfolio Tracker that helps you
track your trades of different commodities for your online trading account.
Get realised gain and loss statement: With Portfolio Tracker you can now get a
realised Gain and Loss statement of all your trades. This statement will give you
details for any date range within the current financial year. This helps you in making
your tax statements.
View commodity wise allocation: You can get commodity wise allocation for all
your trades and also view a Pie Chart showing the exact percentage of the allocation.
View your tax statement: You also have access to a statement which saves the
trouble of calculating returns on each purchase and sell for computing your tax. You
can simply take a print out of this statement and use it for computing profit and loss.
It's an online trading application in which you can view positions, select commodities,
sectors, view order confirmations and much more.
Features of KC Trader
Real-time streaming data - Watch the market at real time with free streaming quotes
from MCX & NCDEX. Available information also has details of Market Lot, Top
Gainers/Losers, Top Active Contracts and Option Calculator.
Live Account Information - Track your account information live, view placed
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orders, trade confirmation, limits, positions, changing profit and loss etc.
Customizable - KC Trader allows you create your own personalized view of the
market so you can watch the data you want. You can create multiple watchlists that
can have up to 50 contracts in each of them; these watchlists can be set in tabs as well.
Benefits
Set multiple watchlists
Create tab-wise access to watchlist
View placed order and trade confirmation online
Trade long contracts
Limits, Positions tabs available in the Risk Report
View changing profit and loss
View last 3 days placed orders
Attractive Graphical User Interface (GUI)
Customize User Interface
View live Market Depth
All these and much more, so you can manage your portfolio actively, take advantage
of potential opportunities and move ahead with market trends.
Access to KC Trader
As a Kotak Commodities online trading customer, you can easily get free access to
KC Trader. All you need to do is download the Desktop Application and install it on
your machine. Just be connected to the internet and start the application to witness
high speed trading.
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We at Kotak Commodity believe in educating beginners in commodities market to
know more about this investment option. Knowledge will always help you to take
better investment decision.
This section covers basics of trading in commodities markets. Here, you get to know
the following by registering for this section:
Dematerialization
Entities in Dematerialization
Process Flow in Dematerialization
Process Flow in Commodity Futures Trading
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Kotak Commodity Services Private Ltd (formerly known as Kotak Commodity
Services ltd) Private Ltd (formerly known as Kotak Commodity Services Private Ltd
(formerly known as Kotak Commodity Services ltd) ltd). provides quality research to
enable customers to make informed decisions. Research is pivotal for clients,
therefore, strong emphasis is laid on providing timely, independent and objective
research reports to clients. It offers Daily, Weekly, Special and Technical research
reports to guide customers on investing.
This service covers daily, weekly, technical calls for majority of highly traded
commodities. These calls are sent to you during market hours, giving you opportunity
to get maximum advantage from the market. This service is available to all the
customers of Kotak Commodities at nominal charge.
Kotak Commodities brings Call & Trade service for your online trading account. This
facility allows you to capitalize on market opportunities even when your computer is
inaccessible. Call & Trade essentially provides you the convenience of trading in
Derivatives and delivery over the phone. The facility is extremely convenient
especially while investing derivatives, where you can avoid completing tedious
registration formalities by just placing a call on our number.
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CHAPTER – IV
DATA ANALYSIS &
INTERPRETATION
44
DATA ANALYSIS & INTERPRETATION
TABLE-I
TV(Rs OI(In
Date Open(Rs.) High(Rs.) Low(Rs.) Close(Rs.) TQ
Lacs) Lots)
45
26-12-2020 115.20 116.10 115.10 115.25 9895000 11,442.71 2396
46
25-11-2020 115.60 115.60 115.60 115.60 5000 5.78 189
47
GRAPH-I
OI(In Lots)
5000
4500
4000
3500
3000
2500
OI(In Lots)
2000
1500
1000
500
0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49
INTERPRETATION
BUYER SELLER
Because buyer future price will decrease so, he can get loss. Seller future price also increase
so, profit decrease, Incase seller future will decrease, and he can get profit. The closing price
of Aluminum Metal at the end of the contract period is 4339 and this is considered as
settlement price.
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TABLE-II
TV(Rs OI(In
Date Open(Rs.) High(Rs.) Low(Rs.) Close(Rs.) TQ
Lacs) Lots)
49
24-12-2020 32,229.00 32,300.00 32,181.00 32,213.00 18000 580.28 90
50
22-11-2020 32,319.00 32,361.00 32,274.00 32,314.00 8000 258.51 17
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GRAPH –II
TQ
120000
100000
80000
60000
TQ
40000
20000
0
1 3 5 7 9 1113151719212325272931333537394143454749
INTERPRETATION
BUYER SELLER
Because buyer future price will increase so, he can get profit. Seller future price also increase
so, profit decrease, Incase seller future will decrease, and he can get profit. The closing price
of Gold Metal at the end of the contract period is 31587.00 and this is considered as
settlement price.
52
TABLE-III
TV(Rs OI(In
Date Open(Rs.) High(Rs.) Low(Rs.) Close(Rs.) TQ
Lacs) Lots)
53
24-12-2020 60,598.00 61,310.00 60,553.00 61,188.00 1000 639.42 121
54
22-11-2020 64,653.00 64,653.00 64,100.00 64,353.00 0 231.85 46
55
GRAPH- III
TV(Rs Lacs)
1800
1600
1400
1200
1000
800 TV(Rs Lacs)
600
400
200
0
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49
INTERPRETATION
BUYER SELLER
Because buyer future price will increase so, he can get profit. Seller future price also increase
so, profit decrease, Incase seller future will decrease, and he can get profit. The closing price
of Silver Metal at the end of the contract period is 60850.00 and this is considered as
settlement price.
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CHAPTER- V
FINDINGS, SUGGESTIONS
AND CONCLUSION
57
FINDINGS
Due to the increasing of inflation in the country the silver, Gold and aluminum
got very much importance and it was increased and the commodities market.
It shown that the more of the given share is known as commodities i.e. 69%
and other got very less as compared to commodities.
The value of the commodity market increased because of increasing in the
values of the commodities and also the availability is also not easy because it
is a prestigious metal.
Due to the increase in the purchase of products got very much importance for
commodity and it was increased
Majority of the Investor’s trade in the Commodities Market but few Done &
Left due to Losses & Settlement Problems.
Investors purchased commodities from Kotak Commodity Services because of
the company’s policies and information availability.
Due to the increase in the population in the country the commodity products
got very much importance and it was increased and also increased interest in
the purchase of silver.
Most of the investors feel that commodity trading id very good and remaining
says good for investing
Trading in Commodities Futures is More Beneficial & More Leveraging got
more percentage
.
Due to the increase in the services in the country the Services they prefer from
a Financial Advisory Institution is telephone.
Due to the increase in the population in the country the general market got
very much importance and it was increased and also increased interest in the
purchase of Jewelers.
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Most of the investors preferring Kotak Commodity Services for investing in
the commodity market.
SUGGESTIONS
Investor must show interest in steady and fast growth shares only.
Avoid companies with low PIE ratio relative to the market as always.
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CONCLUSION
Commodities market, contrary to the beliefs of many people has been in existence in
India through the ages. However the recent attempt by the Government to permit
Multi-commodity National levels exchanges has indeed given it, a shot in the arm.
Commodity includes all kinds of goods. FCRA defines “goods” as “every kind of
movable property other than actionable claims, money and securities”. Futures trading
are organized in such goods or commodities as are permitted by the Central
Government. Firstly, the price movements are more predictable, purely based on
demand and supply of that commodity, unlike in other markets where price
manipulations are very much possible, hence the investor is fixed.
To that extent market price risk is reduced. Secondly, the markets are working
virtually round the clock,(NCDEX works from 10:00 AM to 4:00 PM and next
session from 7:00 PM to 11:00PM)so any drastic news is digested. In case of other
markets this provision is not there, just think of September 11th episode, next day
equity markets opened far down and the Investors are left hanging. The future
contracts available on a wide spectrum of commodities like Gold, Silver, Cotton,
Steel, Soya oil, Soya beans, Wheat, Sugar, Channa etc., provide excellent
opportunities for hedging the risks of the formers ,importers, exporters, traders and
large scale consumer. Kotak Commodity Services is another venture of the prestigious
Karvy Ltd. With our well establish presence in the multifarious facets of the modern
financial services industry from Stock Broking to registry services.
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BIBILOGRAPHY
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BIBILOGRAPHY
WEBSITES:
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