ACKNOWLEDGEMENT

Team work is the ability to work together towards

common on his achivement of my study is dedicated to
mr. sachin shrivastava who has given us an opportunity
to do his project and co-operative extend by all the
member of my class & staff. I dedicated my work to my
parents without whose help & co-operation. I would have
never felt enough conident to achive high endeavers
every time.

I am extremely thankful to
the mr.Sachin sir under whose guidence and support. I
was able to complete my project and also helped me in
gathering necessary data and information about
commodity market in india.

Thank You
Anoop Mishra
 DECLARATION

I am Anoop Mishra here by declare that the project work,

which is being presented in the report, entitled
“Commodity Market & scope in India” Prepared for the
award of the degree of “Master of Business
Administration” from the Aditya College of Technology &
Science Satna.

I also declare that project is the result of my effort & I

have not submitted the matter embodied in this report
for the award of any other degree or diploma program.

(Candidate’s Name)
Anoop Mishra
MBA
 Histery

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 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 commodity futures traded in commodity exchanges are regulated by the Government
under the Forward Contracts Regulations Act, 1952 and the Rules framed there under. The
regulator for the commodities trading is the Forward Markets Commission, situated at Mumbai,
which comes under the Ministry of Consumer Affairs Food and Public Distribution
National Commodities & Derivatives Exchange Limited (NCDEX)

National Commodities & Derivatives Exchange Limited (NCDEX)

promoted by ICICI Bank Limited (ICICI Bank), Life Insurance Corporation of India (LIC),
National Bank of Agriculture and Rural Development (NABARD) and National Stock Exchange
of India Limited (NSC). Punjab National Bank (PNB), Credit Ratting Information Service of India
Limited (CRISIL), Indian Farmers Fertilizer Cooperative Limited (IFFCO), Canara Bank and
Goldman Sachs by subscribing to the equity shares have joined the promoters as a share
holder of exchange. NCDEX is the only Commodity Exchange in the country promoted by
national level institutions.
 NCDEX is a public limited company incorporated on 23 April 2003. NCDEX
is a national level technology driven on line Commodity Exchange with an independent Board of
Directors and professionals not having any vested interest in Commodity Markets.
It is committed to provide a world class commodity exchange platform for market participants to
trade in a wide spectrum of commodity derivatives driven by best global practices, professionalism
and transparency.
In India there are 25 recognized future exchanges, of which there are
three national level multi-commodity 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.
 Commodity

A commodity is a product that has commercial value, which can be

produced, bought, sold, and consumed. Commodities are basically the
products of the primary sector of an economy. The primary sector of an
economy is concerned with agriculture and extraction of raw materials
such as metals, energy (crude oil, natural gas), etc., which serve as basic
inputs for the secondary sector of the economy.

Market
A market is conventionally defined as a place where buyers and sellers
meet to exchange goods or services for a consideration. This
consideration is usually money. In an Information Technology-enabled
environment, buyers and sellers from different locations can transact
business in an electronic marketplace. Hence the physical marketplace is
not necessary for the exchange of goods or services for a consideration.
Electronic trading and settlement of transactions has created a revolution
in global financial and commodity markets.
 Commodity Market

Commodity markets are markets where raw or primary

products are exchanged. These raw commodities are
traded on regulated commodities exchanges, in which
they are bought and sold in standardized contracts. It
covers physical product (food, metals, electricity) markets
but not the ways that services, including those of
governments, nor investment, nor debt, can be seen as a
commodity. Articles on reinsurance markets, stock
markets, bond markets and currency markets cover those
concerns separately and in more depth. One focus of this
article is the relationship between simple commodity
money and the more complex instruments offered in the
commodity markets.
 Size of the market
The trading of commodities consists of direct physical trading and
derivatives trading.The commodities markets have seen an
upturn in the volume of trading in recent years. In the five
years up to 2007, the value of global physical exports of
commodities increased by 17% while the notional value
outstanding of commodity OTC (over the counter) derivatives
increased more than 500% and commodity derivative trading
on exchanges more than 200%.

The notional value outstanding of banks’ OTC commodities’ derivatives contracts

increased 27% in 2007 to $9.0 trillion. OTC trading accounts for the majority of
trading in gold and silver. Overall, precious metals accounted for 8% of OTC
commodities derivatives trading in 2007, down from their 55% share a decade
earlier as trading in energy derivatives rose.

Global physical and derivative trading of commodities on exchanges increased

more than a third in 2007 to reach 1,684 million contracts. Agricultural contracts
trading grew by 32% in 2007, energy 29% and industrial metals by 30%. Precious
metals trading grew by 3%, with higher volume in New York being partially offset
by declining volume in Tokyo. Over 40% of commodities trading on exchanges
was conducted on US exchanges and a quarter in China. Trading on exchanges in
China and India has gained in recent importance in years due to their emergence as
significant commodities consumers and producers.

Commodity futures
 A Commodity futures is an agreement between two parties to buy or sell a
specified and standardized quantity of a commodity at a certain time in future at a price
agreed upon at the time of entering into the contract on the commodity futures
exchange.
The need for a futures market arises mainly due to the hedging function
that it can perform. Commodity markets, like any other financial instrument involve risk
associated with frequent price volatility.

The objectives of Commodity future:-

Hedging with the objective of transferring risk related to the possession of physical
assets through any adverse moments in price. Liquidity and Price discovery to ensure
base minimum volume in trading of a commodity through market information and
demand supply factors that facilitates a regular and authentic price discovery
mechanism.

Maintaining buffer stock and better allocation of resources as it augments reduction in

inventory requirement and thus the exposure to risks related with price fluctuation
declines. Resources can thus be diversified for investments.
Price stabilization along with balancing demand and
supply position. Futures trading leads to predictability in assessing the domestic prices,
which maintains stability, thus safeguarding against any short term adverse price
movements. Liquidity in Contracts of the commodities traded also ensures in
maintaining the equilibrium between demand and supply.

Benefits of Commodity Futures Markets:-

The primary objectives of any futures exchange are authentic price discovery and
an efficient price risk management. The beneficiaries include those who trade in the
commodities being offered in the exchange as well as those who have nothing to do with futures
trading. It is because of price discovery and risk management through the existence of futures
exchanges that a lot of businesses and services are able to function smoothly.

1.Price Discovery:-Based on inputs regarding specific market information, the

demand and supply equilibrium, weather forecasts, expert views and comments, inflation rates,
Government policies, market dynamics, hopes and fears, buyers and sellers conduct trading at
futures exchanges. This transforms in to continuous price discovery mechanism. The execution
of trade between buyers and sellers leads to assessment of fair value of a particular commodity
that is immediately disseminated on the trading terminal.

2. Price Risk Management: - Hedging is the most common method of price risk
management. It is strategy of offering price risk that is inherent in spot market by taking an
equal but opposite position in the futures market. Futures markets are used as a mode by
hedgers to protect their business from adverse price change. This could dent the profitability of
their business. Hedging benefits who are involved in trading of commodities

like

farmers,

processors,

merchandisers,

manufacturers, exporters, importers etc.

3 .Import- Export competitiveness: - The exporters can hedge their price risk and
improve their competitiveness by making use of futures market. A majority of traders which are
involved in physical trade internationally intend to buy forwards. The purchases made from the
physical market might expose them to the risk of price risk resulting to losses. The existence of
futures market would allow the exporters to hedge their proposed purchase by temporarily
substituting for actual purchase till the time is ripe to buy in physical market. In the absence of
futures market it will be meticulous, time consuming and costly physical transactions.

4.Predictable Pricing: - The demand for certain commodities is highly price elastic.
The manufacturers have to ensure that the prices should be stable in order to protect their
market share with the free entry of imports. Futures contracts will enable predictability in
domestic prices. The manufacturers can, as a result, smooth out the influence of changes in
their input prices very easily. With no futures market, the manufacturer can be caught between
severe short-term price movements of oils and necessity to maintain price stability, which could
only be possible through sufficient financial reserves that could otherwise be utilized for making
other profitable investments.

5.Benefits for farmers/Agriculturalists: - Price instability has a direct bearing on

farmers in the absence of futures market. There would be no need to have large reserves to
cover against unfavorable price fluctuations. This would reduce the risk premiums associated
with the marketing or processing margins enabling more returns on produce. Storing more and
being more active in the markets. The price information accessible to the farmers determines
the extent to which traders/processors increase price to them. Since one of the objectives of
futures exchange is to make available these prices as far as possible, it is very likely to benefit
the farmers. Also, due to the time lag between planning and production, the market-determined
price information disseminated by futures exchanges would be crucial for their production
decisions.

6.Credit accessibility: - The absence of proper risk management tools would attract
the marketing and processing of commodities to high-risk exposure making it risky business
activity to fund. Even a small movement in prices can eat up a huge proportion of capital owned
by traders, at times making it virtually impossible to payback the loan. There is a high degree of
reluctance among banks to fund commodity traders, especially those who do not manage price
risks. If in case they do, the interest rate is likely to be high and terms and conditions very
stringent. This posses a huge obstacle in the smooth functioning and competition of
commodities market. Hedging, which is possible through futures markets, would cut down the
discount rate in commodity lending.

7.Improved product quality: - The existence of warehouses for facilitating delivery

with grading facilities along with other related benefits provides a very strong reason to upgrade
and enhance the quality of the commodity to grade that is acceptable by the exchange. It
ensures uniform standardization of commodity trade, including the terms of quality standard: the
quality certificates that are issued by the exchange-certified warehouses have the potential to
become the norm for physical trade.

.
 Main Commodities Exchanges over the World

( Largest commodities exchanges)

Exchange Country Volume per month $M

New York Mercantile Exchange USA 19

Tokyo Commodity Exchange Japan -

NYSE Euronext EU -

Dalian Commodity Exchange China -

Multi Commodity Exchange India -

Commodity Exchange of India
 MCX

Multi Commodity
Exchange

Type Private

Industry Business Services

Founded 2003

Headquart Exchange Square,

ers Suren Road,
Chakala, Andheri
(East), Mumbai,
India

Key people Joseph Massey, MD & CEO

Products Options/Futures exchange

Rs 104.39 crore (2005-

Revenue
2006)

Website http://www.mcxindia.com/

Multi Commodity Exchange (MCX) is an independent commodity exchange

based in India. It was established in 2003 and is based in Mumbai. The turnover of
the exchange for the period Apr-Dec 2008 was INR 32 Trillion . MCX offers
futures trading in Agricultural Commodities, Bullion, Ferrous & Non-ferrous
metals, Pulses, Oils & Oilseeds, Energy, Plantations, Spices and other soft
commodities.
MCX has also setup in joint venture the National Spot Exchange a purely
agricultural commodity exchange and National Bulk Handling Corporation
(NBHC) which provides bulk storage and handling of agricultural products.

MCX is regulated by forward market commission:

• MCX is India's No. 1 commodity exchange with 84% Market share in
2008($0.84 trillion)
• The exchange's competitor is National Commodity & Derivatives Exchange
Ltd
• Globally, MCX ranks no. 1 in silver, no. 2 in natural gas, no. 3 in crude oil and
gold in futures trading
• The crude volume touched 23.49 Miliion barrels on January 3, 2009
• The highest traded item is gold with an average monthly turnover of Rs 1.42
Trillion ($29 Billion).
• MCX has 10 strategic alliances with leading commodity exchange across the
globe
• The average daily turnover of MCX is about US$ 2.4 billion
• MCX now reaches out to about 500 cities in India with the help of about
10,000 trading terminals
• MCX COMDEX is India's first and only composite commodity futures price
index

METAL BULLION

Aluminium, Gold, Gold HNI,

Copper, Gold M, i-gold,
Lead, Silver, Silver
Nickel, HNI, Silver M
Sponge
Iron, Steel
Long
(Bhavnagar
), Steel
Long
(Govindgar
h), Steel
Flat, Tin,
Zinc

FIBER ENERGY

Brent Crude Oil,

Cotton L
Crude Oil,
Staple,
Furnace Oil,
Cotton M
Natural Gas, M.
Staple,
E. Sour Crude
Cotton S
Oil, ATF,
Staple,
Electricity(Now
Cotton
Delisted),
Yarn, Kapas
Carbon Credit

SPICES PLANTATIONS

Arecanut,
Cardamom,
Cashew Kernel,
Jeera,
Coffee
Pepper,
(Robusta),
Red Chilli
Rubber

PETROCHEMIC
PULSES
ALS

Chana, HDPE,
Masur, Polypropylene(
Yellow Peas PP), PVC

OIL & OIL SEEDS

Castor Oil, Castor Seeds,

Coconut Cake, Coconut Oil,
Cotton Seed, Crude Palm
Oil, Groundnut Oil, Kapasia
Khalli, Mustard Oil, Mustard
Seed (Jaipur), Mustard Seed
(Sirsa), RBD Palmolein,
Refined Soy Oil, Refined
Sunflower Oil, Rice Bran
DOC, Rice Bran Refined Oil,
Sesame Seed, Soymeal, Soy
Bean, Soy Seeds

CEREALS OTHERS
 Guargum, Guar
Seed,
Gurchaku,
Mentha Oil,
Maize Potato (Agra),
Potato
(Tarkeshwar),
Sugar M-30,
Sugar S-30

Key shareholders Of MCX

State Bank of India and its associates

National Bank for Agriculture and Rural Development (NABARD)

National Stock Exchange of India Ltd. (NSE)

Fid Fund (Mauritius) Ltd. - an affiliate of Fidelity International

Corporation Bank

Union Bank of India

Canara Bank

Bank of India

Bank of Baroda

HDFC Bank

SBI Life Insurance Co. Ltd.

ICICI ventures

IL&FS

Merrill Lynch
 NCDEX
National Commodity and Derivatives Exchange

National Commodity & Derivatives

Exchange

PROFILE

Type Online commodity exchange

Founded Dec 15, 2003

Headquarter
Mumbai, Maharashtra, India
s

Website http://www.ncdex.com/

National Commodity & Derivatives Exchange Limited (NCDEX) is an online commodity

exchange based in India. It was incorporated as a private 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 a
closely held private company which is promoted by national level institutions and has an
independent Board of Directors and professionals not having vested interest in commodity
markets.

NCDEX is regulated by Forward Market Commission (FMC) in respect of futures trading in

commodities. Besides, NCDEX is subjected to various laws of the land like the Companies Act,
Stamp Act, Contracts Act, Forward Commission (Regulation) Act and various other legislations,
which impinge on its working. On February 3rd, 2006, the FMC found NCDEX guilty of
violating settlement price norms and ordered the exchange to fire one of their executive.

NCDEX is located in Mumbai and offers facilities in more than 550 centres in India. is a game of
dismanage of market

Commodities Traded

NCDEX currently facilitates trading of 57 commodities -

Agri-based commodities - Castor Seed

Chana
Chilli
Coffee - Arabica, Coffee - Robusta
Cotton Seed Oilcake
Crude Palm Oil
Expeller Mustard Oil
Groundnut (in shell)
Groundnut Expeller Oil
Guar gum
Guar Seeds
Gur, Jeera
Jute sacking bags
Kidney Beans
Indian 28 mm Cotton
Indian 31 mm Cotton
Masoor Grain Bold
Medium Staple Cotton
Mentha Oil
Mulberry Green Cocoons
Mulberry Raw Silk
Rapeseed - Mustard Seed
Pepper
Raw Jute
RBD Palmolein
Refined Soy Oil
Rubber
Sesame Seeds
Soy Bean
Sugar - Small
Sugar - Medium
Turmeric
Urad (Black Matpe)
V-797 Kapas
Yellow Peas
Yellow Red Maize
Yellow Soybean Meal.

Bullion -
Gold 1 KG
Gold 100gm
Silver 30 KG
Silver 5 KG

Energy -
Brent Crude Oil
Furnace Oil
Light Sweet Crude Oil.

Ferrous metals
Mild Steel Ingot

Plastics
Polypropylene
Linear Low Density Polyethylene
Polyvinyl Chloride.

Non-ferrous metals
Aluminum Ingot,
Copper Cathode
Nickel Ingot
Zinc Cathode

At subsequent phases trading in more commodities would be facilitated.

Consortium of Shareholders

• Life Insurance Corporation of India (LIC)

• National Bank for Agriculture and Rural Development (NABARD)
 • National Stock Exchange of India(NSE)
• Punjab National Bank (PNB)
• CRISIL Limited (formerly the Credit Rating Information Services of India
Limited)
• Indian Farmers Fertiliser Cooperative Limited (IFFCO)
• Canara Bank
• Goldman Sachs
• ICE

Chapter 4
INTERNATIONAL COMMODITY EXCHANGES

Futures’ trading is a result of solution to a problem related to the maintenance of

a year round supply of commodities/ products that are seasonal as is the case of agricultural
produce. The United States, Japan, United Kingdom, Brazil, Australia, Singapore are homes to
leading commodity futures exchanges in the world.
The New York Mercantile Exchange (NYMEX):-

The New York Mercantile Exchange is the world’s biggest exchange for
trading in physical commodity futures. It is a primary trading forum for energy products and
precious metals. The exchange is in existence since last 132 years and performs trades trough
two divisions, the NYMEX division, which deals in energy and platinum and the COMEX
division, which trades in all the other metals.

Commodities traded: - Light sweet crude oil, Natural Gas, Heating

Oil, Gasoline, RBOB Gasoline, Electricity Propane, Gold, Silver, Copper,

Aluminum, Platinum, Palladium, etc.

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.
The commodity trading system consists of certain

prescribed steps or stages as follows:

I. Trading: - At this stage the following is the system implemented-

- Order receiving

- Execution

- Matching
- Reporting
- Surveillance
- Price limits
- Position limits

II. Clearing: - This stage has following system in place-

- Matching
- Registration
- Clearing
- Clearing limits
- Notation
- Margining
- Price limits
- Position limits
- Clearing house.

III. Settlement: - This stage has following system followed as follows-

- Marking to market
- Receipts and payments

- Reporting
- Delivery upon expiration or maturity.

Chapter 6

How to invest in a Commodity Market?

With whom investor can transact a business?

An investor can transact a business with the approved clearing member of previously
mentioned Commodity Exchanges. The investor can ask for the details from the Commodity
Exchanges about the list of approved members.
What is Identity Proof?

When investor approaches Clearing Member, the member will ask for identity proof. For
which Xerox copy of any one of the following can be given
a) PAN card Number

b) Driving License

c) Vote ID

d) Passport

What statements should be given for Bank Proof?

The front page of Bank Pass Book and a canceled cheque of a concerned bank.
Otherwise the Bank Statement containing details can be given.
What are the particulars to be given for address proof?

In order to ascertain the address of investor, the clearing member will insist on Xerox copy
of Ration card or the Pass Book/ Bank Statement where the address of investor is given.
What are the other forms to be signed by the investor?

The clearing member will ask the client to sign

a) Know your client form
b) Risk Discloser Document
 The above things are only procedure in character and the risk involved and only after
understanding the business, he wants to transact business.
What aspects should be considered while selecting a

commodity broker?

While selecting a commodity broker investor should ideally keep certain aspects in
mind to ensure that they are not being missed in any which way. These factors include
18
•

Net worth of the broker of brokerage firm.

•

The clientele.
•

The number of franchises/branches.

•

The market credibility.

•

The references.
•

The kind of service provided- back office functioning being

most important.
•

Credit facility.
•

The research team.

These are amongst the most important factors to calculate

the credibility of commodity broker.

Broker:-

The Broker is essentially a person of firm that liaisons between individual traders and the
commodity exchange. In other words the Commodity Broker is the member of Commodity
Exchange, having direct connection with the exchange to carry out all trades legally. He is also
known as the authorized dealer.
 How to become a Commodity Trader/Broker of Commodity

Exchange?

To become a commodity trader one needs to complete certain legal and binding
obligations. There is routine process followed, which is stated by a unit of Government that lays
down the laws and acts with regards to commodity trading. A broker of Commodities is also
required to meet certain obligations to gain such a membership in exchange.To become a
member of Commodity Exchange the broker of
brokerage firm should have net worth amounting to Rs. 50 Lakh. This

sum has been determined by Multi Commodity Exchange.

How to become a Member of Commodity Exchange?

To become member of Commodity Exchange the person

should comply with the following Eligibility Criteria.

1. He should be Citizen of India.
2. He should have completed 21 years of his age.
3. He should be Graduate or having equivalent qualification.
4. He should not be bankrupt.
5.

He has not been debarred from trading in Commodities by

statutory/regulatory authority,

There are following three types of Memberships of Commodity

Exchanges.

Trading-cum-Clearing Member (TCM):-

 A TCM is entitled to trade on his own account as well as on account of his clients, and clear
and settle trades himself. A sole proprietor, Partnership firm, a joint Hindu Undivided Family
(HUF), a corporate entity, a cooperative society, a public sector organization or any other
Government or non-Government entity can become a TCM.
There are two types of TCM, TCM-1 and TCM-2. TCM-1 refers to
transferable non-deposit based membership and TCM-2 refers to non-transferable deposit
based membership.
A person desired to register as TCM is required to submit an application as per
the format prescribed under the business rules, along with all enclosures, fee and other
documents specified therein. He is required to go through interview by Membership Admission
Committee and committee is also empowered to frame rules or criteria relating to selection or
rejection of a member.
Institutional Trading-cum-clearing Member (ITCM):-

Only an Institution/ Corporate can be admitted by the Exchange as a member,

conferring upon them the right to trade and clear through the clearing house of exchange as an
Institutional Trading- cum-clearing Member (ITCM). The member may be allowed to make deals
for himself as well as on behalf of his clients and clear and settle such deals. ITCMs can also
appoint sub-brokers, authorized persons and Trading Members who would be registered as
trading members.
Professional Clearing Member (PCM):-

A PCM entitled to clear and settle trades executed by other members of the
exchange. A corporate entity and an institution only can apply for PCM. The member would be
allowed to clear and settle trades of such members of the Exchange who choose to clear and
settle their trades through such PCM.

Membership Details for NCDEX:-1

Trading-cum-clearing Member: - TCM

Sr.

No.Particulars

NCDEX: TCM

Interest

Free

Cash
Security Deposit

15.00 Lakhs

Collateral Security Deposit 15.00 Lakhs

Admission Fee

5.00 Lakhs

Annual Membership Fees

0.50 Lakhs

Advance

Minimum 0.50 Lakhs

Transaction Charges

Net worth Requirement

50.00 Lakhs
Transaction Charges

Net worth Requirement

50.00 Lakhs

Professional Clearing Membership: - PCM

Sr.

No.Particulars

NCDEX: PCM

Interest

Free

Cash

Security Deposit
25.00 Lakhs

Collateral Security Deposit25.00 Lakhs

Annual

Subscription

Charges

1.00 Lakhs

Advance

Minimum

Transaction Charges

1.00 Lakhs

Net worth Requirement

5000.00 Lakhs

Membership Details for MCX:-2

Chapter 7

2 MCX Certified Commodity Professional Reference Material

Current Scenario in Indian Commodity Market

Need of Commodity Derivatives for India:-

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 labor 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.
Trends in volume contribution on the three National

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 percent trade on NCDEX comes from
guar seed, chana and Urad (narrow commodities as specified by FMC).
Pattern on National Multi Commodity Exchange (NMCE):-

22

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.

 Trade strategy:-

It appears that speculators or operators choose commodities or contracts where the

market could be influenced and extreme speculations possible.
In view of extreme volatilities, the FMC directs the exchanges to impose restrictions on
positions and raise margins on those commodities. Consequently, the operators/speculators
chose another commodity and start operating in a similar pattern. When FMC brings restrictions
on those commodities, the operators once again move to the other commodities. Likewise, the
speculators are moving from one commodity to other (from methane to Urad to guar etc) where
the market could be influenced either individually or with a group.
Beneficiaries: - So far the beneficiaries from the current nature of

trading are
Exchangers: - making profit from mounting volumes
Arbitragers
Operators
In order to understand the extent of progress the trading the trading in Commodity
Derivatives has made towards its specified objectives (price discovery and price risk
management), the current trends are juxtaposed against the specification
Specified and actual pattern of futures trade

Thus it is evident that the realization of specified objectives is still a distinct

destination. It is further, evident from the nature of the commodities largely traded on national
exchanges that the factors driving the current pattern of futures trade are purely speculative.
Reasons for prevailing trade pattern:-

No wide spread participation of all stake holders of commodity markets. The actual
benefits may be realized only when all the stake holders in commodity market including
producers, traders, consumers etc trade actively in all major commodities like rice, wheat, cotton
etc.
Some Suggestions to make futures market as a level playing field

for all stake holders:-

•

Creation of awareness among farmers and other rural participants to use the futures trading
platform for risk mitigation.
•

Contract specifications should have wider coverage, so that a large number of varieties
produced across the country could be included.
•
Development of warehousing and facilities to use the warehouse receipt as a financial
instrument to encourage participation farmers.
•

Development of physical market through uniform grading

and

standardization

and

more

transparent

price

mechanisms.
•

Delivery system of exchanges is not good enough to attract investors. E.g.- In many
commodities NCDEX forces the delivery on people with long position and when they tend to
give back the delivery in next month contract the exchange simply refuses to accept the delivery
on pretext of quality difference and also auctions the product. The traders have to take a
delivery or book losses at settlement as there are huge differences between two contracts and
also sometimes few contracts are not available for trading for no reason at all.
•

Contract sizes should have an adequate range so that smaller traders can participate and can
avoid control of trading by few big parties.
•

Setting of state level or district level commodities trading helpdesk run by independent
organization such as reputed NGO for educating farmers.

Warehousing and logistics management structure also needs to be created at state or area level
whenever commodity production is above a certain share of national level.
•

Though over 100 commodities are allowed for Derivatives trading, in practice only a few
commodities derivatives are popular for trading. Again most of the trade takes place only on few
exchanges. This problem can possibly solved by consolidating some exchanges.
•

Only about 1% to 5% of total commodity derivatives traded in country are settled in physical
delivery due to insufficiencies in present warehousing system. As good delivery system is the
back bone of any Commodity trade, warehousing problem has to be handled on a war footing.
•

At present there are restrictions in movement of certain goods from one state to another.
These needs to be removed so that a truly national market could develop for commodities and
derivatives.
•

Regulatory changes are required to bring about uniformity in Octri and sales tax etc. VAT has
been introduced in country in 2005, but, has not yet been uniformly implemented by all states.
•

A difficult problem in Cash settlement of Commodities Derivatives contract is that, under

Forward Contracts Regulation Act 1952 cash settlement of outstanding contracts at maturity is
not allowed. That means outstanding contracts at maturity should be settled in physical delivery.
To avoid this participants square off their their positions before maturity. So in practice contracts
are settled in Cash but before maturity. There is need to modify the law to bring it closer to the
wide spread practice and save participants from unnecessary hassle.

Chapter 8

Commodities

Steel: -

General Characteristics: -

Steel is an alloy of iron and carbon, containing less than 2% carbon, 1% manganese
and small amount of silicon, phosphorus, sulphur and oxygen. Steel is most important engineering
and construction material in the world. It is most important, multi functional and the most adaptable of
materials. Steel production is 20 times higher a compared to production of all non-ferrous metals put
together.
Steel compared to other materials of its type has low production costs. The
energy required for extracting iron from ore is about 25% of what is needed for extracting
aluminum.
There are altogether about 2000 grades of steel developed of which
1500 grades are high-grade steels. The large number of grades gives steel the characteristics
of basic production material.
Categories of Steel: -
 Steel market is primarily divided in to two main categories- flat and long. A flat
carbon steel product is a plate product or a (hot or cold) rolled strip product. Plate products vary
in dimensions from 10 mm to 200 mm and thin flat rolled products from 1 mm to 10 mm. Plate
products are used for ship building, construction, large diameter welded pipes and boiler
applications. Thin flat products find end use applications in automotive body panels, domestic
‘white goods’ products, ‘tin cans’ and the whole host of other products from office furniture to
heart pacemakers. Plates, HR coils and HR Sheet, CR Sheet and CR coils, GP/GC (galvanized
plates and coils) pipes etc. are included in this category.
A long steel product is a road or a bar. Typical rod product are the reinforcing
rods made from sponge iron for concrete, ingots, billets, engineering products, gears, tools, etc.
Wiredrawn products and seamless pipes are also part of the long products group. Bars, rods,
structures, railway materials, etc are included in this category.
Sponge Iron/ Direct reduced iron (DRI): This is a high quality product
produced by reducing iron ore in a solid state and is primarily used as an iron input in electric
arc furnace (EAF) steel making process. This industry is an integral part of the steel sector

India is one of the leading countries in terms of sponge iron production. There are a number of
coal-based sponge iron/DRI plants (in the eastern and central region) and also three natural gas
based plants (in western part of the country) in the country.
Global Scenario: -

The total output of the word crude steel in 2006 stood at 945

million tons, resulting in a growth of 6.7% over the previous year.

China is the word’s largest crude steel producer in the year 2006 with around
220.12 million tons of steel production, followed by Japan and USA. USA was largest importer
of steel products, both finished and semi finished, in 2005, followed by China and Germany.
The words largest exporter of semi-finished and finished steel

was Japan in 2005, followed by Russia and Ukraine.

China is the largest consumer now and consumption of steel by

China is estimated to increase by 12-13% in 2007.

Indian Scenario: -

India is the 8th largest producer of the steel with an annual production of 36.193
million tons, while the consumption is around 30 million tons.
Iron & steel can be freely exported and imported from India.

India is a net exporter of steel.

 The Government of India has taken a number of policy measures, such as
removal of iron & steel industry from the list of industries reserved for public sector, deregulation
of price and distribution of iron & steel and lowering import duty on capital goods and raw
materials, since liberalization for the growth and development of Indian iron & steel industry.
After liberalization India has seen huge scale addition to its steel making capacity.
The country faces shortage of iron and steel materials.
Factors Influencing Demand & Supply of Steel Long and Steel

Flat: -

The demand for steel is dependent on the overall health of the economy and the in
fracture development activities being undertaken. The steel prices in the Indian market primarily
depend on the domestic demand and supply conditions, and international prices. Government
and different producer and consumer associations regularly monitor steel prices.
The duty imposed on import of steel and its fractions also have an impact on steel
prices. The price trend in steel in Indian markets has been a function of World’s economic
activity

India is one of the leading countries in terms of sponge iron production. There are a number of
coal-based sponge iron/DRI plants (in the eastern and central region) and also three natural gas
based plants (in western part of the country) in the country.
Global Scenario: -

The total output of the word crude steel in 2006 stood at 945

million tons, resulting in a growth of 6.7% over the previous year.

China is the word’s largest crude steel producer in the year 2006 with around
220.12 million tons of steel production, followed by Japan and USA. USA was largest importer
of steel products, both finished and semi finished, in 2005, followed by China and Germany.
The words largest exporter of semi-finished and finished steel

was Japan in 2005, followed by Russia and Ukraine.

China is the largest consumer now and consumption of steel by

China is estimated to increase by 12-13% in 2007.

Indian Scenario: -

India is the 8th largest producer of the steel with an annual production of 36.193
million tons, while the consumption is around 30 million tons.
Iron & steel can be freely exported and imported from India.
India is a net exporter of steel.

The Government of India has taken a number of policy measures, such as

removal of iron & steel industry from the list of industries reserved for public sector, deregulation
of price and distribution of iron & steel and lowering import duty on capital goods and raw
materials, since liberalization for the growth and development of Indian iron & steel industry.
After liberalization India has seen huge scale addition to its steel making capacity.
The country faces shortage of iron and steel materials.
Factors Influencing Demand & Supply of Steel Long and Steel

Flat: -

The demand for steel is dependent on the overall health of the economy and the in
fracture development activities being undertaken. The steel prices in the Indian market primarily
depend on the domestic demand and supply conditions, and international prices. Government
and different producer and consumer associations regularly monitor steel prices.
The duty imposed on import of steel and its fractions also have an impact on steel
prices. The price trend in steel in Indian markets has been a function of World’s economic
activity

Key market moving Factors:

Price tends to be lower as harvesting progresses and produce starts coming in to the

market. At the time sowing and before harvesting price tend to rise in a view of tight supply

situation. Weather has profound influence on wheat production. Temperature plays crucial role

towards maturity of wheat and productivity.

Change in Minimum Support Price (MSP) by Govt. and the stock available with Food

corporation of India and the release from official stock influence of the price. Though,

international trade is limited, the ups and downs in the production and consumption at all the

major/minor producing and consuming nation dose influence the long term price trend.

ANALYSIS

Survey was conducted across Mumbai City (in areas like Andheri, Santacruz,
Bandra Church gate) to judge the awareness of peoples regarding investment in Commodity
Market.
Sample size 30 peoples

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.

6. Opinion about Commodity Market Advertisements

(Expressed by those who know commodity market)

100

Not Info rmative

There is no second opinion amongst commodity investors, that commodity market

advertisements do not give all the necessary information

Qualitative Analysis

1. Investment preferences: -

Most of the investors prefer least risky investment which gives higher returns. That
is why majority (70% of sample) of people interested in investments other than Share and
commodity market.

Very less number of people (only 7%) showed their interest in investment in
commodity market. Main reason for this is lack of awareness and complete information about
commodity market.

2. Commodity Exchanges: -

People who are interested in commodity investment showed more concern

towards NCDEX; for its brand name and people think there might be surety of transaction at
NCDEX.

3. Commodities: -

Bullion is most preferred commodity for investment. Because one can expect maximum
returns from such investment due to rapidly increasing prices of bullion in market.

4. Advertisements: -

Commodity market Advertisements should be more informative. And it is the

failure of commodity market’s advertisement campaign to attract people’s attention; as majority
of people are not aware about commodity market.
ANNEXURE

Terms and Definitions related to Commodity Market: -

•

Accruals:- Commodities on hand ready for shipment, storage

and manufacture
•

Arbitragers: - Arbitragers are interested in making purchase

and sale in different markets at the same time to profit from

price discrepancy between the two markets.

•

At the Market: - An order to buy or sell at the best price

possible at the time an order reaches the trading pit.

•

Basis: - Basis is the difference between the cash price of an

asset and futures price of the underlying asset. Basis can be negative or positive depending on
the prices prevailing in the cash and futures.
•

Basis grade: - Specific grade or grades named in the exchanges

future contract. The other grades deliverable are subject to price

of underlying futures
•

Bear: - A person who expects prices to go lower.

•

Bid: - A bid subject to immediate acceptance made on the floor

of exchange to buy a definite number of futures contracts at a

specific price.
•

Breaking: - A quick decline in price.

•

Bulging: - A quick increase in price.

•

Bull: - A person who expects prices to go higher.

•

Buy on Close: - To buy at the end of trading session at the price

within the closing range.

•

Buy on opening: - To buy at the beginning of trading session at

a price within the opening range.

•

Call: - An option that gives the buyer the right to a long position

in the underlying futures at a specific price, the call writer (seller) may be assigned a short
position in the underlying futures if the buyer exercises the call.

Cash commodity: - The actual physical product on which a

futures contract is based. This product can include agricultural commodities, financial
instruments and the cash equivalent of index futures.
•

Close: - The period at the end of trading session officially

designated by exchange during which all transactions are

considered made “at the close”.

•

Closing price: - The price (or price range) recorded during the
period designated by the exchange as the official close.
•

Commission house: - A concern that buys and sells actual

commodities or futures contract for the accounts of customers.

•

Consumption Commodity: - Consumption commodities are

held mainly for consumption purpose. E.g. Oil, steel

•

Cover: - The cancellation of the short position in any futures

contract buys the purchase of an equal quantity of the same

futures contract.
•

Cross hedge: - When a cash commodity is hedged by using

futures contract of other commodity.

•

Day orders: - Orders at a limited price which are understood to

be good for the day unless expressly designated as an open

order or “good till canceled” order.

•

Delivery: - The tender and receipt of actual commodity, or in

case of agriculture commodities, warehouse receipts covering such commodity, in settlement of

futures contract. Some contracts settle in cash (cash delivery). In which case open positions are
marked to market on last day of contract based on cash market close.
•

Delivery month: - Specified month within which delivery may

be made under the terms of futures contract.

•

Delivery notice: - A notice for a clearing member’s intention to

deliver a stated quantity of commodity in settlement of a short

futures position.

48

Derivatives: - These are financial contracts, which derive their

value from an underlying asset. (Underlying assets can be equity, commodity, foreign
exchange, interest rates, real estate or any other asset.) Four types of derivatives are trades
forward, futures, options and swaps. Derivatives can be traded either in an exchange or over
the counter.
•

Differentials: - The premium paid for grades batter than the

basis grade and the discounts allowed for the grades. These

differentials are fixed by the contract terms on most exchanges.

•

Exchange: - Central market place for buyers and sellers.

Standardized contracts ensure that the prices mean the same to everyone in the market. The
prices in an exchange are determined in the form of a continuous auction by members who are
acting on behalf of their clients, companies or themselves.
•

Forward contract: - It is an agreement between two parties to

buy or sell an asset at a future date for price agreed upon while signing agreement. Forward
contract is not traded on an exchange. This is oldest form of derivative contract. It is traded in
OTC Market. Not on an exchange. Size of forward contract is customized as per the terms of
agreement between buyer and seller. The contract price of forward contract is not transparent,
as it is not publicly disclosed. Here valuation of open position is not calculated on a daily basis
and there is no requirement of MTM. Liquidity is the measure of frequency of trades that occur
in a particular commodity forward contract is less liquid due to its customized nature. In forward
contracts, counter- party risk is high due to customized & bilateral nature of the transaction.
Forward contract is not regulated by any exchange. Forward contract is generally settled by
physical delivery. In this case delivery is carried out at delivery center specified in the
customized bilateral agreement.
•

Futures Contract:-It is an agreement between two parties to

buy or sell a specified and standardized quantity and quality of an asset at certain time in the
future at price agreed upon at the time of entering in to contract on the futures exchange. It is
entered on centralized trading platform of exchange. It is standardized in terms of quantity as
specified by exchange. Contract price of futures contract is transparent as it is available on
centralized trading screen of the exchange. Here valuation of Mark-to-Mark position is
calculated as per the official closing price on daily basis and MTM margin requirement exists.
Futures contract is more liquid as it is traded on the exchange. In futures contracts the clearing-
house becomes the counter party to each transaction, which is called novation. Therefore,
counter party risk is almost eliminated. A regulatory authority and the exchange regulate futures
contract. Futures contract is generally cash settled but option of physical settlement is available.
Delivery tendered in case of futures contract should be of standard quantity and quality as
specified by the exchange.
•

Futures commission merchant: - A broker who is permitted

to accept the orders to buy and sale futures contracts for the

consumers.
•

Futures Funds: - Usually limited partnerships for investors who prefer to participate in the
futures market by buying shares in a fund managed by professional traders or commodity
trading advisors.
•

Futures Market:-It facilitates buying and selling of standardized

contractual agreements (for future delivery) of underlying asset as the specific commodity and
not the physical commodity itself. The formulation of futures contract is very specific regarding
the quality of the commodity, the quantity to be delivered and date for delivery. However it does
not involve immediate transfer of ownership of commodity, unless resulting in delivery. Thus, in
futures markets, commodities can be bought or sold irrespective of whether one has possession
of the underlying commodity or not. The futures market trade in futures contracts primarily for
the purpose of risk management that is hedging on commodity stocks or forward buyers and
sellers. Most of these contracts are squared off before maturity and rarely end in deliveries.
•

Hedging: - Means taking a position in futures market that is

opposite to position in the physical market with the objective of

reducing or limiting risk associated with price.

•

In the money: - In call options when strike price is below the

price of underlying futures. In put options, when the strike price is above the underlying futures.
In-the-money options are the most expensive options because the premium includes intrinsic
value.
•

Index Futures: - Futures contracts based on indexes such as

the S & P 500 or Value Line Index. These are the cash

settlement contracts.
•

Investment Commodities: - An investment commodity is

generally held for investment purpose. e.g. Gold, Silver

•

Limit: - The maximum daily price change above or below the

price close in a specific futures market. Trading limits may be

changed during periods of unusually high market activity.

•

Limit order: - An order given to a broker by a customer who

has some restrictions upon its execution, such as price or time.

•

Liquidation: - A transaction made in reducing or closing out a

long or short position, but more often used by the trade to mean

a reduction or closing out of long position.

•

Local: - Independent trader who trades his/her own money on

the floor of the exchanges. Some local act as a brokers as well,

but are subject to certain rules that protect customer orders.

•

Long: - (1) The buying side of an open futures contract or

futures option; (2) a trader whose net position in the futures or options market shows an excess
of open purchases over open sales.
•

Margin: - Cash or equivalent posted as guarantee of fulfillment

of a futures contract (not a down payment).
•

Margin call: - Demand for additional funds or equivalent

because of adverse price movement or some other contingency.

•

Market to Market: - The practice of crediting or debating a

trader’s account based on daily closing prices of the futures

contracts he is long or short.

•

Market order: - An order for immediate execution at the best

available price.
•

Nearby: - The futures contract closest to expiration.

51

Net position: - The difference between the open contracts long

and the open contracts short held in any commodity by any

individual or group.
•

Offer: - An offer indicating willingness to sell at a given price

(opposite of bid).
•

On opening: - A term used to specify execution of an order

during the opening.

•

Open contracts: - Contracts which have been brought or sold

without the transaction having been completed by subsequent

sale, repurchase or actual delivery or receipt of commodity.

•

Open interest: - The number of “open contracts”. It refers to

unliquidated purchases or sales and never to their combined

total.
•

Option: - It gives right but not the obligation to the option

owner, to buy an underlying asset at specific price at specific

time in the future.

•

Out-of-the money: - Option calls with the strike prices above

the price of the underlying futures, and puts with strike prices

below the price of the underlying futures.

•

Over the counter: - It is alternative trading platform, linked to

network of dealers who do not physically meet but instead

communicates through a network of phones & computers.

•

Pit: - An octagonal platform on the trading floor of an exchange,

consisting of steps upon which traders and brokers stand while

trading (if circular called ring).

•

Point: - The minimum unit in which changes in futures prices

may be expressed (minimum price fluctuation may be in

multiples of points).
•

Position: - An interest in the market in the form of open

commodities.
•
Premium: - The amount by which a given futures contract’s price

or commodity’s quality exceeds that of another contract or

commodity (opposite of discount). In options, the price of a call

or put, which the buyer initially pays to the option writer (seller).
•

Price limit: - The maximum fluctuation in price of futures

contract permitted during one trading session, as fixed by the

rules of a contract market.

•

Purchase and sales statement: - A statement sent by FMC to a customer when his futures
option has been reduced or closed out (also called ‘P and S”)
•

Put: - In options the buyer of a put has the right to continue a

short position in an underlying futures contract at the strike price until the option expires; the
seller (writer) of the put obligates himself to take a long position in the futures at the strike price
if the buyer exercises his put.
•

Range: - The difference between high and low price of the

futures contract during a given period.

•

Ratio hedging: - Hedging a cash position with futures on a less

or more than one-for-one basis.

•

Reaction: - The downward tendency of a commodity after an

advance.
•

Round turn: - The execution of the same customer of a

purchase transaction and a sales transaction which offset each

other.
•

Round turn commission: - The cost to the customer for

executing a futures contract which is charged only when the

position is liquidated.
•

Scalping: - For floor traders, the practice of trading in and out

of contracts through out the trading day in a hopes for making a

series of small profits.

•

Settlement price: - The official daily closing price of futures

contract, set by the exchange for the purpose of setting margins

accounts.

Short: - (1) The selling of an option futures contract. (2) A

trader whose net position in the futures market shows an excess

of open sales over open purchases.

•

Speculator: - Speculator is an additional buyer of the

commodities whenever it seems that market prices are lower

than they should be.

•

Spot Markets:-Here commodities are physically brought or sold

on a negotiated basis.
•

Spot price: - The price at which the spot or cash commodity is

selling on the cash or spot market.

•
Spread: - Spread is the difference in prices of two futures

contracts.
•

Striking price: - In options, the price at which a futures

position will be established if the buyer exercises (also called

strike or exercise price).

•

Swap: - It is an agreement between two parties to exchange

different streams of cash flows in future according to

predetermined terms.
•

Technical analysis (charting): - In price forecasting, the use

of charts and other devices to analyze price-change patters and changes in volume and open
interest to predict future market trends (opposite of fundamental analysis).
•

Time value: - In options the value of premium is based on the

amount of time left before the contract expires and the volatility of the underlying futures
contract. Time value represents the portion of the premium in excess of intrinsic value. Time
value diminishes as the expiration of the options draws near and/or if the underlying futures
become less volatile.
•

Volume of trading (or sales): - A simple addition of

successive futures transactions (a transaction consists of a

purchase and matching sale).

54

Writer: - A sealer of an option who collects the premium

payment from the buyer.

 Summary

This decade is termed as Decade of Commodities. Prices of all commodities

are heading northwards due to rapid increase in demand for commodities. Developing countries
like China are voraciously consuming the commodities. That’s why globally commodity market is
bigger than the stock market.
India is one of the top producers of large number of commodities and also has a
long history of trading in commodities and related derivatives. The Commodities Derivatives
market has seen ups and downs, but seems to have finally arrived now. The market has made
enormous progress in terms of Technology, transparency and trading activity. Interestingly, this
has happened only after the Government protection was removed from a number of
Commodities, and market force was allowed to play their role. This should act as a major lesson
for policy makers in developing countries, that pricing and price risk management should be left
to the market forces rather than trying to achieve these through administered price mechanisms.
The management of price risk is going to assume even greater importance in future with the
promotion of free trade and removal of trade barriers in the world.
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 NGO’s 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 Hot spot for Indian farmers rather than spot market.
And producers, traders as well as consumers will be benefited from it. But for this to happen one
has to take initiative to standardize and popularize the Commodity Market.
BIBLIOGRAPHY
•

Trading Commodities and Financial Futures: A Step by Step guide to Mastering the Market, 3rd
Edition by George Kleinman
•

Options, Futures and Other Derivatives by Johan C. Hull

Speaker 1: - Introduction:- What is commodity? commodity exchange?

what is commodity futures? objective of commodity futures

Speaker 2: - Benifits of commodity futures, Evalution of history of

commodity markets

Speaker 3: -India and commodity markets history + legal frame

work+ FMC

Speaker 4: -Commodity Exchanges in India & International exchanges

Speaker 5: - Amar: -how commodity market works+ how to invest in

commodity market+ how to become a member

Speaker 6: -Current scenario+suggestions