A study on commodity futures as an investment avenue

- Sairam Bathulla 11-E06

 To examine the various risk factors in using commodity future. To study the influence of futures trading, on price and price variation To evaluate the effectiveness of the various measures of commodity futures as investment avenues in India

Research Objectives

 Indian commodity exchange and progress Rules governing commodity derivatives exchanges Use of commodity derivatives for Hedging Speculation Arbitrage.

Literature Review

 Data collection
Primary data questionnaire Secondary data - books, internet, newspaper articles

Convenient Sampling Sample size - 30

Research Methodology

Age of Respondents

13%

18 24 years 43% 25 30 years 31 & Above

44%

Analysis & Interpretation

Annual income level

23% 27%

1,00,000 2,00,000 2,00,000 3,00,000 3,00,000 5,00,000 20% 5,00,000 & above 30%

Analysis & Interpretation

Do you trade in commodity futures ?

0%

Yes No

100%

Analysis & Interpretation

what is the frequency of trading?

20%

Regular Trader Potential Customer

80%

Analysis & Interpretation

Reasons behind regular trading:

17% 25%

Trade on an organized exchange

Standardized contract terms

25%

follows of daily settlement

location of settlement
33%

Analysis & Interpretation

Is futures trading influence the price and price variation ?

18 16 14 12

10
8 6 4 2 0 Yes No

Analysis & Interpretation

If influences then on which factors

6 5 4 3 2 1 0 Seasonal price variation Inter & intra seasonal price variation Short term oscillation Average received by producer and paid by consumer

Analysis & Interpretation

If dose not influence commodity futures then what influence among following?
8 7 6 5 4 3 2 1 0 By hedging By speculation By arbitrage

Analysis & Interpretation

Satisfaction about future trading in commodity exchange

9
8 7 6 5 4 3 5 5 5 5 8

2
1 0 Transparent trading Fair price discovery Automated Unique trading system identification number

To provide To bring nationwide together the reach and entities that consistent the market can offering trust

Analysis & Interpretation

Satisfaction on current regulatory mechanism of commodity futures in India -

20%

17%

b
c
20% 30%

d e

13%

Analysis & Interpretation

a. Limit on net open position as on the close of the trading hours. b. Limit on price fluctuation to allow cooling of market in the event of abrupt upswing or downswing prices. c. Special margin deposit to be collected on outstanding purchase or sales when price fluctuate. d. Minimum\maximum prices-these are prescribed to prevent futures prices from falling below as rising above not warranted prospective supply or demand. e. Skipping trading in certain derivatives of the contract, closing the market for a special period and even closing out the contract.

 The risk can be eliminated by Speculation Hedging Arbitrage

Seasonal price fluctuation

The beta calculation The weighting scheme

Conclusion

A negotiable document An agency is to be set up A Clearing House Commodities trading must be settled in determined form Widespread market awareness Healthy competition The market should be made broader

Suggestion & Recommendations

Thank You..