Prepared By: - Vishnu mantri

INDEX

Chapter Topic Page

No No.
1 Introduction
2 Company profile
3 Mission and vision
4 Objective
5 SWOT analysis
6 Competitors
7 Product and service

8 Introduction to
Commodity Market

9 History of Commodity
Market in India

10 Commodity
exchanges in India

11 NCDEX

12 MCX

1
 NMCX

Analysis
13 International
Commodity
Exchanges
Quantitative Analysis
14 How Commodity
market works?

15 How to invest in a
Commodity Market?
16 Current Scenario in
Indian Commodity
Market
17 Limitations

18 Analyse

19 Annexure
20 Bibliography

2
INTRODUCTION
FINANCIAL SYSTEM
The financial is one of the most important inventions of the modern society. The
phenomenon of imbalance in the distribution of capital or funds existed in every
economic system. There are areas or people with surplus funds and there are
those with a deficit. A financial system functions as an intermediary and
facilitates the flow of funds from the areas of surplus to the areas of deficit. A
financial system is a composition of various institutions, markets, regulations and
laws, practices, money managers, analysts, transactions and claims and
liabilities.

The functions performed by a financial system are:

THE SAVINGS FUNCTION:
LIQUIDITY FUNCTION:
PAYMENT FUNCTION:
RISK FUNCTION:
POLICY FUNCTION:

COMPANY PROFILE

SHAREKHAN LIMITED

Sharekhan is one of the top retail brokerage houses in India with a strong online
trading platform. The company provides equity based products (research,
equities, derivatives, depository, margin funding, etc.). It has one of the largest
networks in the country with 704 share shops in 280 cities and India’s premier
online trading portal www.sharekhan.com. With their research expertise,
customer commitment and superior technology, they provide investors with end-
to-end solutions in investments. They provide trade execution services through
multiple channels - an Internet platform, telephone and retail outlets.
Sharekhan was established by Morakhia family in 1999-2000 and Morakhia
family, continues to remain the largest shareholder. It is the retail broking arm of
the Mumbai-based SSKI [SHANTILAL SHEWANTILAL KANTILAL ISWARNATH
LIMITED] Group. SSKI which is established in 1930 is the parent company of
Sharekhan ltd. With a legacy of more than 80 years in the stock markets, the
SSKI group ventured into institutional broking and corporate finance over a
decade ago. Presently SSKI is one of the leading players in institutional broking
and corporate finance activities. Sharekhan offers its customers a wide range of

3
equity related services including trade execution on BSE, NSE, and Derivatives.
Depository services, online trading, Investment advice, Commodities, etc.
Sharekhan Ltd. is a brokerage firm which is established on 8th February 2000
and now it is having all the rights of SSKI. The company was awarded the 2005
Most Preferred Stock Broking Brand by Awwaz Consumer Vote. It is first
brokerage Company to go online. The Company's online trading and investment
site - www.Sharekhan.com - was also launched on Feb 8, 2000. This site gives
access to superior content and transaction facility to retail customers across the
country. Known for its jargon-free, investor friendly language and high quality
research, the content-rich and research oriented portal has stood out among its
contemporaries because of its steadfast dedication to offering customers best-
of-breed technology and superior market information.
Share khan has one of the best states of art web portal providing fundamental
and statistical information across equity, mutual funds and IPOs. One can surf
across 5,500 companies for in-depth information, details about more than 1,500
mutual fund schemes and IPO data. One can also access other market related
details such as board meetings, result announcements, FII transactions,
buying/selling by mutual funds and much more.
Sharekhan's management team is one of the strongest in the sector and has
positioned Sharekhan to take advantage of the growing consumer demand for
financial services products in India through investments in research, pan-Indian
branch network and an outstanding technology platform. Further, Sharekhan's
lineage and relationship with SSKI Group provide it a unique position to
understand and leverage the growth of the financial services sector. We look
forward to providing strategic counsel to Sharekhan's management as they
continue their expansion for the benefit of all shareholders."
SSKI Corporate Finance Private Limited (SSKI) is a leading India-based
investment bank with strong research-driven focus. Their team members are
widely respected for their commitment to transactions and their specialized
knowledge in their areas of strength. The team has completed over US$5 billion
worth of deals in the last 5 years - making it among the most significant players
raising equity in the Indian market. SSKI, a veteran equities solutions company
has over 8 decades of experience in the Indian stock markets.
If we experience their language, presentation style, content or for that matter the
online trading facility, we'll find a common thread; one that helps us make
informed decisions and simplifies investing in stocks. The common thread of
empowerment is what Sharekhan's all about!
"Sharekhan has always believed in collaborating with like-minded Corporate into
forming strategic associations for mutual benefit relationships" says Jaideep
Arora, Director - Sharekhan Limited.
Sharekhan is also about focus. Sharekhan does not claim expertise in
too many things. Sharekhan's expertise lies in stocks and that's what he
talks about with authority. So when he says that investing in stocks
should not be confused with trading in stocks or a portfolio-based
strategy is better than betting on a single horse, it is something that is
spoken with years of focused learning and experience in the’ stock
markets. And these beliefs are reflected in everything Sharekhan does

4
 for us! Sharekhan is a part of the SSKI group, an Indian financial
services power house, with strong presence in Retail equities
Institutional equities Investment banking.

Share khan Services:

Share khan is one of India's leading financial services company. It provides a complete
life cycle of investment solution in Equities, Derivatives, Commodities, IPO, Mutual
Funds, Depository services, Portfolio Management Services and Insurance. Share khan
also offer personalized wealth management services for High Net worth individuals.
With a physical presence in over 300 cities of India through more than 800 "Share
Shops", and an online presence through Sharekhan.com, India's premier online
destination, it reaches out to more than 800,000 trading customers.

5
 Mission & Vision

Mission :
To create long term value by empowering individual investors through
superior financial services supported by culture based on highest level of
teamwork, efficiency and integrity.

Vision :
To provide the most useful and ethical Investment Solutions - guided by
values driven approach to growth, client service and employee
development.

OBJECTIVE:
• To project Sharekhan as an authority in the retail stock trading business.

6
 • To execute business for the company by selling demat accounts and

mutual funds.

• To study the various products of the company.

• To know how to open and close the calls.

• To learn the online terminal used for trading.

• To know the various policies of the company.

• To know how to handle various types of customers.

• To know various reasons for market fluctuations.

• To learn to manage time.

• To gain practical knowledge of the market.

• To have a practical experience of working in a reputed organization.

SWOT ANALYSIS OF
SHAREKHAN

STRENGTHS WEAKNESSES
• First brokerage firm to go online. • High brokerage charges but
now they have overcome this by
• Products
a new prepaid scheme in which
• PMS Services. brokerage is reduced to half.

• Technology

• Online fund transfer.

7
• Research reports.

Clients (average of 15,000 accounts

per year)
• Recommendations from clients.

• Free Demat a/c opening.

• Low annual maintenance charge

OPPORTUNITIES THREATS
• Huge market. • Volatility of the share market.

• Competitors.

Competitors:

Share khan is one of the major player in on line Trading. The

main competitors of Share khan are:

1. Religare Enterprises
2. India Info line
3. ICICI DIRECT
4. INDIA BULLS
5. RELIANCE MONEY
6. Kotak Securities
7. MOTILAL OSWAL

8
 8. 5 Paisa
9. HDFC
10. Angel Trade
11. Standard Chartered

Product & services:-

Share khan customers have the advantage of trading in all the market
segments together in the same window, as we understand the need of
transactions to be executed with high speed and reduced time. At the
same time, they have the advantage of having all Advisory Services for
Life Insurance, General Insurance, Mutual Funds and IPO’s also.
Unicon is a customer focused financial services organization providing a
range of investment solutions to our customers. We work with clients to
meet their overall investment objectives and achieve their financial
goals. Our clients have the opportunity to get personalized services
depending on their investment profiles. Our personalized approach
enables clients to achieve their Total Investment Objectives.

Key product offerings are as follows:-

1.Equity

2. Commodity

9
3. Depository

4. Distribution

A. IPO B. Mutual Fund

C. Insurance D. Properties

5. Fixed Income

6. NRI Services

7. Back Office

10
 8. Online services

Introduction to Commodity Market

What is “Commodity”?
The word commodity came into use in English in the 15th century, it
came from the French, "commodité", to benefit or profit. Going further
back, the French word derived from the Latin commoditatem (nominative
commoditas) meaning "fitness, adaptation,". The Latin root commod-
meant variously "appropriate", "proper measure, time or condition" and
advantage, or benefit.

A commodity is something for which there is demand, but which is

supplied without qualitative differentiation across a market. It is a product
that is the same no matter who produces it, such as petroleum, notebook
paper, or milk.[1] In other words, copper is copper. The price of copper is
universal, and fluctuates daily based on global supply and demand.
Unicon customers have the advantage of trading in all the market
segments together in the same window, as we understand the need of
transactions to be executed with high speed and reduced time. At the
same time, they have the advantage of having all Advisory Services for
Life Insurance, General Insurance, Mutual Funds and IPO’s also.
Unicon is a customer focused financial services organization providing a
range of investment solutions to our customers. We work with clients to
meet their overall investment objectives and achieve their financial
goals. Our clients have the opportunity to get personalized services
depending on their investment profiles. Our personalized approach
enables clients to achieve their Total Investment Objectives.
Key product offerings are as follows
The word commodity came into use in English in the 15th century, it came

11
from the French, "commodities", to benefit or profit. Going further back, the
French word derived from the Latin commoditize
Stereos, on the other hand, have many levels of quality..

One of the characteristics of a commodity good is that its price is determined as

a function of its market as a whole. Well-established physical commodities have
actively traded spot and derivative markets. Generally, these are basic resources
and agricultural products such as iron ore, crude oil, coal, ethanol, salt,
sugar, coffee beans, soybeans, aluminum, rice, wheat, gold and silver.
Commoditization occurs as a goods or services market loses differentiation
across its supply base, often by the diffusion of the intellectual capital
necessary to acquire or produce it efficiently. As such, goods that formerly
carried premium margins for market participants have become commodities,
such as generic pharmaceuticals and silicon chips

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.

This article focuses on the history and current debates regarding global
commodity markets. 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

12
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.

History of Evolution of Commodity Markets:-

The modern commodity markets have their roots in the trading of

agricultural products. While wheat and corn, cattle and pigs, were widely
traded using standard instruments in the 19th century in the United
States, other basic foodstuffs such as soybeans were only added quite
recently in most markets. For a commodity market to be established,
there must be very broad consensus on the variations in the product that
make it acceptable for one purpose or another.

The economic impact of the development of commodity markets is hard

to overestimate. Through the 19th century "the exchanges became
effective spokesmen for, and innovators of, improvements in
transportation, warehousing, and financing, which paved the way to
expanded interstate and international trade."

Early history of commodity markets

Commodities future trading was evolved from need of assured

continuous supply of seasonal agricultural crops. The concept of
organized trading in commodities evolved in Chicago, in 1848. But one
can trace its roots in Japan. In Japan merchants used to store Rice in
warehouses for future use. To raise cash warehouse holders sold
receipts against the stored rice. These were known as “rice tickets”.
Eventually, these rice tickets become accepted as a kind of commercial
currency. Latter on rules came in to being, to standardize the trading in
rice tickets. In 19th century Chicago in United States had emerged as a
major commercial hub. So that wheat producers from Mid-west attracted
here to sell their produce to dealers & distributors. Due to lack of
organized storage facilities, absence of uniform weighing & grading
mechanisms producers often confined to the mercy of dealers discretion.

13
These situations lead to need of establishing a common meeting place
for farmers and dealers to transact in spot grain to deliver wheat and
receive cash in return.
Gradually sellers & buyers started making commitments to exchange the
produce for cash in future and thus contract for “futures trading” evolved.
Whereby the producer would agree to sell his produce to the buyer at a
future delivery date at an agreed upon price. In this way producer was
aware of what price he would fetch for his produce and dealer would
know about his cost involved, in advance. This kind of agreement proved
beneficial to both of them. As if dealer is not interested in taking delivery
of the produce, he could sell his contract to someone who needs the
same. Similarly producer who not intended to deliver his produce to
dealer could pass on the same responsibility to someone else. The
price of such contract would dependent on the price movements in the
wheat market. Latter on by making some modifications these contracts
transformed in to an instrument to protect involved parties against
adverse factors such as unexpected price movements and unfavorable
climatic factors. This promoted traders entry in futures market, which had
no intentions to buy or sell wheat but would purely speculate on price
movements in market to earn profit.
Trading of wheat in futures became very profitable which encouraged
the entry of other commodities in futures market. This created a platform
for establishment of a body to regulate and supervise these contracts.
That’s why Chicago Board of Trade (CBOT) was established in 1848. In
1870 and 1880s the New York Coffee, Cotton and Produce Exchanges
were born. Agricultural commodities were mostly traded but as long as
there are buyers and sellers, any commodity can be traded. In 1872, a
group of Manhattan dairy merchants got together to bring chaotic
condition in New York market to a system in terms of storage, pricing,
and transfer of agricultural products. In 1933, during the Great
Depression, the Commodity Exchange, Inc. was established in New
York through the merger of four small exchanges – the National Metal
Exchange, the Rubber Exchange of New York, the National Raw Silk
Exchange, and the New York Hide Exchange.

14
The largest commodity exchange in USA is Chicago Board of Trade,
The Chicago Mercantile Exchange, the New York Mercantile Exchange,
the New York Commodity Exchange and New York Coffee, sugar and
cocoa Exchange. Worldwide there are major futures trading exchanges
in over twenty countries including Canada, England, India, France,
Singapore, Japan, Australia and New Zealand.

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 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 importance in recent years
due to their emergence as significant commodities consumers and
producers.

Recent Trends in Commodities

15
The 2008 global boom in commodity prices - for everything from coal to
corn – was fueled by heated demand from the likes of China and India,
plus unbridled speculation in forward markets. That bubble popped in the
closing months of 2008 across the board. As a result, farmers are
expected to face a sharp drop in crop prices, after years of record
revenue. Other commodities, such as steel, are also expected to tumble
due to lower demand.

Returns

It is generally agreed that commodities have an expected return of 5% in

real terms which is based on the risk premium for 116 different
commodities weighted equally since 1888 (Source Report 219171-
Wharton Business School). Investment professionals often too
mistakenly claim there is no risk premium in commodites.

Spot trading

Spot trading is any transaction where delivery either takes place

immediately, or with a minimum lag between the trade and delivery due
to technical constraints. Spot trading normally involves visual inspection
of the commodity or a sample of the commodity, and is carried out in
markets such as wholesale markets. Commodity markets, on the other
hand, require the existence of agreed standards so that trades can be
made without visual inspection.

Forward contracts

A forward contract is an agreement between two parties to exchange at some

fixed future date a given quantity of a commodity for a price defined today. The

fixed price today is known as the forward price.

Futures contracts:-

16
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.

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

17
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

18
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.

History of Commodity Market in India

19
The history of organized commodity derivatives in India goes back to the
nineteenth century when Cotton Trade Association started futures
trading in 1875, about a decade after they started in Chicago. Over the
time datives market developed in several commodities in India.
Following Cotton, derivatives trading started in oilseed in Bombay
(1900), raw jute and jute goods in Calcutta (1912), Wheat in Hapur
(1913) and Bullion in Bombay (1920).
However many feared that derivatives fuelled unnecessary speculation
and were detrimental to the healthy functioning of the market for the
underlying commodities, resulting in to banning of commodity options
trading and cash settlement of commodities futures after independence
in 1952. The parliament passed the Forward Contracts (Regulation) Act,
1952, which regulated contracts in Commodities all over the India. The
act prohibited options trading in Goods along with cash settlement of
forward trades, rendering a crushing blow to the commodity derivatives
market. Under the act only those associations/exchanges, which are
granted reorganization from the Government, are allowed to organize
forward trading in regulated commodities. The act envisages three tire
regulations: (i) Exchange which organizes forward trading in
commodities can regulate trading on day-to-day basis; (ii) Forward
Markets Commission provides regulatory oversight under the powers
delegated to it by the central Government. (iii) The Central Government-
Department of Consumer Affairs, Ministry of Consumer Affairs, Food and
Public Distribution- is the ultimate regulatory authority.
The commodities future market remained dismantled and remained
dormant for about four decades until the new millennium when the
Government, in a complete change in a policy, started actively
encouraging commodity market. After Liberalization and Globalization in
1990, the Government set up a committee (1993) to examine the role of
futures trading. The Committee (headed by Prof. K.N. Kabra)
recommended allowing futures trading in 17 commodity groups. It also
recommended strengthening Forward Markets Commission, and certain
amendments to Forward Contracts (Regulation) Act 1952, particularly
allowing option trading in goods and registration of brokers with Forward

20
Markets Commission. The Government accepted most of these
recommendations and futures’ trading was permitted in all
recommended commodities. It is timely decision since internationally the
commodity cycle is on upswing and the next decade being touched as
the decade of Commodities.
Commodity exchange in India plays an important role where the prices
of any commodity are not fixed, in an organized way. Earlier only the
buyer of produce and its seller in the market judged upon the prices.
Others never had a say.
Today, commodity exchanges are purely speculative in nature. Before
discovering the price, they reach to the producers, end-users, and even
the retail investors, at a grassroots level. It brings a price transparency
and risk management in the vital market. A big difference between a
typical auction, where a single auctioneer announces the bids and the
Exchange is that people are not only competing to buy but also to sell.
By Exchange rules and by law, no one can bid under a higher bid, and
no one can offer to sell higher than someone else’s lower offer. That
keeps the market as efficient as possible, and keeps the traders on their
toes to make sure no one gets the purchase or sale before they do.
Since 2002, the commodities future market in India has experienced an
unexpected boom in terms of modern exchanges, number of
commodities allowed for derivatives trading as well as the value of
futures trading in commodities, which crossed $ 1 trillion mark in 2006.
Since 1952 till 2002 commodity datives market was virtually non-
existent, except some negligible activities on OTC basis.
In India there are 25 recognized future exchanges, of which there are
three national level 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)

21
Ahmedabad. There are other regional commodity exchanges situated in
different parts of India.

Legal framework for regulating commodity futures

in India:-
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

Forward Markets Commission (FMC):-

It is statutory institution set up in 1953 under Forward Contracts
(Regulation) Act, 1952. Commission consists of minimum two and
maximum four members appointed by Central Govt. Out of these
members there is one nominated chairman. All the exchanges have
been set up under overall control of Forward Market Commission (FMC)
of Government of India.

Commodity exchanges in India

What is a commodity exchange?

A commodity exchange is an association or a company or
any other body corporate organizing futures trading in
commodities for which license has been granted by
regulating authority.

List of Exchanges in India:-

1. Bhatinda Om & Oil Exchange Ltd., Batinda.

22
2. The Bombay Commodity Exchange Ltd., Mumbai

3. The Rajkot Seeds oil & Bullion Merchants` Association Ltd

4. The Kanpur Commodity Exchange Ltd., Kanpur

5. The Meerut Agro Commodities Exchange Co. Ltd., Meerut

6. The Spices and Oilseeds Exchange Ltd.

7. Ahmedabad Commodity Exchange Ltd.

8. Vijay Beopar Chamber Ltd., MuzaffarnagarA commodity exchange is

an association or a company or any other body corporate organizing
futures trading in commodities for which license has been granted by
regulating authority.

1. Bhatinda Om & Oil Exchange Ltd., Batinda.

2. The Bombay Commodity Exchange Ltd., Mumbai

3. The Rajkot Seeds oil & Bullion Merchants` Association Ltd

4. The Kanpur Commodity Exchange Ltd., Kanpur

5. The Meerut Agro Commodities Exchange Co. Ltd., Meerut

6. The Spices and Oilseeds Exchange Ltd.

7. Ahmedabad Commodity Exchange

9. India Pepper & Spice Trade Association, Kochi

10. Rajdhani Oils and Oilseeds Exchange Ltd., Delhi

11. National Board of Trade, Indore

12. The Chamber Of Commerce, Hapur

23
13. The East India Cotton Association, Mumbai

14. The Central India Commercial Exchange Ltd., Gwalior

15. The East India Jute & Hessian Exchange Ltd.

16. First Commodity Exchange of India Ltd, Kochi

17. Bikaner Commodity Exchange Ltd., Bikaner

18. The Coffee Futures Exchange India Ltd, Bangalore

19. Esugarindia Limited

20. National Multi Commodity Exchange of India Limited

21. Surendranagar Cotton oil & Oilseeds Association Ltd

22. Multi Commodity Exchange of India Ltd

23. National Commodity & Derivatives Exchange Ltd

24. Haryana Commodities Ltd., Hissar

25. e-Commodities Ltd

Of these 25 commodities exchanges the MCX, NCDEX

and NMCEIL are the major Commodity Exchanges.

NCDEX

(National Commodities & Derivatives Exchange Limited)

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

24
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.
NCDEX is regulated by Forward Markets Commission (FMC). NCDEX is
also subjected to the various laws of land like the Companies Act, Stamp
Act, Contracts Act, Forward Contracts Regulation Act and various other
legislations.
NCDEX is located in Mumbai and offers facilities to its members in more
than 550 centers through out India. NCDEX currently facilitates trading
of 57 commodities.

Commodities Traded:-

Commodities Traded at NCDEX:-

• Bullion:-
Gold KG, Silver, Brent
• Minerals:-
Electrolytic Copper Cathode, Aluminum Ingot, Nickel
Cathode, Zinc Metal Ingot, Mild steel Ingots
• Oil and Oil seeds:-
Cotton seed, Oil cake, Crude Palm Oil, Groundnut (in shell),

25
 Groundnut expeller Oil, Cotton, Mentha oil, RBD Pamolein
seed oil cake, Refined soya oil, Rape seeds, Mustard seeds,
Caster seed, Yellow Electrolytic Copper Cathode, Aluminum Ingot,
Cathode, Zinc Metal Ingot, Mild steel Ingots
Cotton seed, Oil cake, Crude Palm Oil, Groundnut (in shell),
Groundnut expeller Oil, Cotton, Mentha oil, RBD Pamolein
seed oil cake, Refined soya oil, Rape seeds, Mustard seeds,
Caster seed, Yellow ,soybean, Meal
• Pulses:-
Urad, Yellow peas, Chana, Tur, Masoor,

• Grain:-
\Wheat, Indian Pusa Basmati Rice, Indian parboiled Rice (IR-
36/IR-64), Indian raw Rice (ParmalPR-106), Barley, Yellow
red maize
• Spices:-
Jeera, Turmeric, Pepper
• Plantation:-
Cashew, Coffee Arabica, Coffee Robusta
• Fibers and other:-
Guar Gum, Guar seeds, Guar, Jute sacking bags, Indian 28
mm cotton, Indian 31mm cotton, Lemon, Grain Bold, Medium
Staple, Mulberry, Green Cottons, , , Potato, Raw Jute,
Mulberry raw Silk, V-797 Kapas, Sugar, Chilli LCA334
• Energy:-
Crude Oil, Furnace oil
(NCDEX currently facilitates trading of 57 commodities)

Agro-based major commodities:–

Chilli:-

26
Chili is sold worldwide fresh, dried and powdered. In the United States, it
is often made from the Mexican chile ancho variety, but with small
amounts of cayenne added for heat. In the Southwest United States,
dried ground chili peppers, cumin, garlic and oregano is often known as
chili powder. Chipotles are dry, smoked red (ripe) jalapeños.

Indian cooking has multiple uses for chilis, from simple snacks like bhaji
where the chilis are dipped in batter and fried, to wonderfully complex
curries. Chilis are dried, roasted and salted as a side dish for rice
varieties such as dadhyodanam ("dadhi" curd, "odanam" rice in Sanskrit)
or Thayir sadam (curd rice) or Daal Rice (rice with lentils). The soaked
and dried chillies are a seasoning ingredient in recipes such as kootu. It
is called "mirapa" (మరప)in telugu.

Chana:-

27
There are two main kinds of chana:-

• Desi, which has small, darker seeds and a rough coat, cultivated
mostly in the Indian subcontinent, Ethiopia, Mexico, and Iran.
• Kabuli, which has lighter coloured, larger seeds and a smoother coat,
mainly grown in Southern Europe, Northern Africa, Afghanistan, and
Chile, also introduced during the 18th century to the Indian subcontinent.
[6]

Groundnut (in shell):-

The peanut, or groundnut (Arachis hypogaea), is a species in the

legume family (Fabaceae) native to South America, Mexico and Central
America. [1] It is an annual herbaceous plant growing to 30 to 50 cm (1
to 1.5 ft) tall. The leaves are opposite, pinnate with four leaflets (two
opposite pairs; no terminal leaflet), each leaflet 1 to 7 cm (⅜ to 2¾ in)
long and 1 to 3 cm (⅜ to 1 inch) broad. The flowers are a typical
peaflower in shape, 2 to 4 cm (¾ to 1½ in) across, yellow with reddish
veining. After pollination, the fruit develops into a legume 3 to 7 cm (1 to
2 in) long, containing 1 to 4 seeds, which forces its way underground to
mature.

28
Jeera:-

Cuminseed (Jeera) is a native of the Levant and Upper Egypt. Now it is

grown mainly in hot countries, especially India, North Africa, China and
the Americas.

Cumin is stomachic, diuretic, carminative, stimulant, astringent,

emmenagogic and antispasmodic. It is valuable in dyspepsia, diarrhoea
and hoarseness, and may relieve flatulence and colic. It is a widely used
spice in India.

Indian 28 mm Cotton:-

29
Cotton is a soft, staple fiber that grows in a form known as a boll around the
seeds of the cotton plant, a shrub native to tropical and subtropical regions
around the world, including the Americas, India and Africa. The fiber most
often is spun into yarn or thread and used to make a soft, breathable textile,
which is the most widely used natural-fiber cloth in clothing today.

Facilities offered

NCDEX also offers as an information product, an agricultural commodity

index. This is a composite index, called NCDEXAGRI that convers 20
commodities currently being offered for trading by NCDEX. This is a
spot-price based index. NCDEX also offers as an information product,
the index futures, called FUTEXAGRI. This is essentially a what-if index.
It indicates, that if futures on the index could be traded, then the current
FUTEXAGRI value should be the no-arbitrage value for the index
futures. However, indexes and index futures are not allowed to be traded
under the current regulatory structure. Hence, these are only available
for information, as of now.

MCX

(Multi Commodity Exchange)

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 [1]. 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.

30
It is now regulated by forward market commission.

• MCX is India's No. 1 commodity exchange with 84% Market share in

2008($0.84 trillion) [2]
• The exchange's competitor is National Commodity & Derivatives
Exchange Ltd ([1])
• Globally, MCX ranks no. 1 in silver, no. 2 in natural gas, no. 3 in crude
oil and gold in futures trading ([2])
• The crude volume touched 23.49 Miliion barrels [3] 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 [4]
• 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, Copper,
Lead, Nickel, Sponge
Gold, Gold HNI, Gold M, i-
Iron, Steel Long
gold, Silver, Silver HNI, Silver
(Bhavnagar), Steel
M
Long (Govindgarh),
Steel Flat, Tin, Zinc

FIBER ENERGY

Cotton L Staple, Brent Crude Oil, Crude Oil,

Cotton M Staple, Furnace Oil, Natural Gas, M.
Cotton S Staple, E. Sour Crude Oil, ATF,

31
Cotton Yarn, Kapas Electricity, Carbon Credit

SPICES PLANTATIONS

Cardamom, Jeera, Arecanut, Cashew Kernel,

Pepper, Red Chilli Coffee (Robusta), Rubber

PULSES PETROCHEMICALS

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

Peas 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, Potato
Maize
(Agra), Potato (Tarkeshwar),
Sugar M-30, Sugar S-30

(MCX deals wit about 100 commodities.)

Major commodities traded:-

Gold:-

32
Gold is the oldest precious metal known to man. Therefore, it is a timely
subject for several reasons. It is the opinion of the more objective market
experts that the traditional investment vehicles of stocks and bonds are
in the areas of their all-time highs and may be due for a severe
correction.

To fully appreciate why 8,000 years of experience say " gold is forever",
we should review why the world reveres what England's most famous
economist, John Maynard Keynes, cynically called the "barbarous relic."

Why gold is "good as gold" is an intriguing question. However, we think

that the more pragmatic ancient Egyptians were perhaps more accurate
in observing that gold's value was a function of its pleasing physical
characteristics and its scarcity.

Gold is primarily a monetary asset and partly a commodity.

More than two thirds of gold's total accumulated holdings account as

'value for investment' with central bank reserves, private players and
high-carat Jewellery.Less than one third of gold's total accumulated
holdings is as a 'commodity' for Jewellery in Western markets and usage
in industry.The Gold market is highly liquid and gold held by central
banks, other major institutions and retail Jewellery keep coming back to
the market.

Due to large stocks of Gold as against its demand, it is argued that the
core driver of the real price of gold is stock equilibrium rather than flow
equilibrium.South Africa is the world's largest gold producer with 394
tons in 2001, followed by US and Australia.

33
India is the world's largest gold consumer with an annual demand of 800

tons.

Silver:-

Silver's unique properties make it a very useful 'Industrial Commodity',

despite it being classed as a precious metal.Demand for silver is built on
three main pillars; industrial uses, photography and Jewellery &
silverware accounting for 342, 205 and 259 million ounces respectively
in 2002.Just over half of mined silver comes from Mexico, Peru and
United States, respectively, the first, second and fourth largest producing
countries. The third largest is Australia.Primary mines produce about 27
percent of world silver, while around 73 percent comes as a by-product
of gold, copper, lead, and zinc mining.The price of silver is not only a
function of its primary output but more a function of the price of other
metals also, as world mine production is more a function of the prices of
other metals.Often a faster growth in demand against supply leads to
drop in stocks with government and investors.

NMCX

(National Multi-Commodity Exchange of India Limited)

The first De-Mutualised Electronic Multi-Commodity Exchange of India

granted the National status on a permanent basis by the Government of
India and operational since 26th November 2002.NMCE facilitates

34
electronic derivatives trading through robust and tested trading platform,
Derivative Trading Settlement System (DTSS), provided by CMC.

When an order is placed on the exchange, the server at NMCE scans

through the orders posted on it from all its trading terminals. It then
locates and matches the best counter-offers/bids by maintaining
anonymity of the counter-parties. Anonymity helps is eliminating
formation of cartels and other unfair practices, thereby protecting the
efficiency of price-discovery at the Exchange. NMCE was the first
commodity exchange to provide trading facility through internet, through
Virtual Private Network (VPN).

NMCE follows best international risk management practices. The

contracts are marked to market on daily basis. The system of upfront
margining based on Value at Risk is followed to ensure financial security
of the market. In the event of high volatility in the prices, special intra-day
clearing and settlement is held. NMCE has also set up a Trade
Guarantee Fund. Well-capitalized in-house clearinghouse assumes
counter-party risk of settlement. NMCE was the first to initiate process of
dematerialization and electronic transfer of warehoused commodity
stocks. The unique strength of NMCE is its settlements via a Delivery
Backed System, an imperative in the commodity trading business. These
deliveries are executed through a sound and reliable Warehouse
Receipt System, leading to guaranteed clearing and settlement.

List of Commodity traded:-

Cardamom , Castor Seed, Oil & Oilcake , Chana ,Coffee ,Copra,

Coconut Oil & Coconut Oil cake ,Cuminseed ,Gold Study ,Groundnut
seed, oil & oil cake , Guar SeedS, Isabgul Seed ,Lin Seed ,Menthol
Crystal ,Pepper ,Pulses ,Rape/Mustard Seed, Oil & Oil cake ,Raw Jute,
Rubber ,Sacking ,Safflower seed ,Salient features of Oil ,Sesame Seed

35
Silver Study ,Soy Seed, Oil & Oil cake ,Sugar ,Sunflower seed
,Turmeric Wheat

Major commodity traded:-

Coffee:-

Coffee is a brewed beverage prepared from roasted seeds, commonly

called coffee beans, of the coffee plant. Due to its caffeine content,
coffee has a stimulating effect in humans. Today, coffee is one of the
most popular beverages worldwide.[1]

Coffee was first consumed in the ninth century, when it was discovered
in the highlands of Ethiopia.[2] From there, it spread to Egypt and Yemen,
and by the 15th century, had reached Armenia, Persia, Turkey, and
northern Africa. From the Muslim world, coffee spread to Italy, then to
the rest of Europe, to Indonesia, and to the Americas.[3]

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.

36
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.

London Metal Exchange:-

The London Metal Exchange (LME) is the world’s premier non-ferrous
market, with highly liquid contracts. The exchange was formed in 1877
as a direct consequence of the industrial revolution witnessed in the 19th
century. The primary focus of LME is in providing a market for
participants from non-ferrous based metals related industry to safeguard
against risk due to movement in base metal prices and also arrive at a
price that sets the benchmark globally. The exchange trades 24 hours a
day through an inter office telephone market and also through a
electronic trading platform. It is famous for its open-outcry trading

between ring dealing members that takes place on the market floor.

Commodities traded:- Aluminum, Copper, Nickel, Lead, Tin,

Zinc, Aluminum Alloy, North American Special Aluminum Alloy
(NASAAC), Polypropylene, Linear Low Density Polyethylene, etc.

The Chicago Board of Trade:-

The first commodity exchange established in the world was the Chicago
Board of Trade (CBOT) during 1848 by group of Chicago merchants who

37
were keen to establish a central market place for trade. Presently, the
Chicago Board of Trade is one of the leading exchanges in the world for
trading futures and options. More than 50 contracts on futures and
options are being offered by CBOT currently through open outcry and/or
electronically. CBOT initially dealt only in Agricultural commodities like
corn, wheat, non storable agricultural commodities and non-agricultural

products like gold and silver.

Commodities Traded: - Corn, Soybean, Oil, Soybean meal, Wheat,

Oats, Ethanol, Rough Rice, Gold, Silver etc.

Tokyo Commodity Exchange (TOCOM):-

The Tokyo Commodity Exchange (TOCOM) is the second largest
commodity futures exchange in the world. It trades in to metals and
energy contracts. It has made rapid advancement in commodity trading
globally since its inception 20 years back. One of the biggest reasons for
that is the initiative TOCOM took towards establishing Asia as the
benchmark for price discovery and risk management in commodities like
the Middle East Crude Oil. TOCOM’s recent tie up with the MCX to
explore cooperation and business opportunities is seen as one of the
steps towards providing platform for futures price discovery in Asia for
Asian players in Crude Oil since the demand-supply situation in U.S. that
drives NYMEX is different from demand-supply situation in Asia. In Jan
2003, in a major overhaul of its computerized trading system, TOCOM
fortified its clearing system in June by being first commodity exchange in
Japan to introduce an in-house clearing system. TOCOM launched
options on gold futures, the first option contract in Japanese market, in
May 2004.

Commodities traded: - Gasoline, Kerosene, Crude Oil, Gold,

Silver, Platinum, Aluminum, Rubber, etc

38
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.

39
 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.

40
 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

41
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
• 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?

42
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.

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.

43
Trends in volume contribution on the three
National Exchanges:-

Pattern on Multi Commodity Exchange (MCX):-

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

making then vulnerable to manipulations.

Pattern on National Commodity & Derivatives

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

44
Pattern on National Multi Commodity Exchange
(NMCE):-
NMCE is third national level futures exchange that has been largely
trading in Agricultural Commodities. Trade on NMCE had considerable
proportion of commodities with big market size as jute rubber etc. But, in
subsequent period, the pattern has changed and slowly moved towards
commodities with small market size or narrow commodities.

Analysis of volume contributions on three major national commodity

exchanges reveled the following pattern,
Major volume contributors: - Majority of trade has been
concentrated in few commodities that are

• Non Agricultural Commodities (bullion, metals and energy)

• Agricultural commodities with small market size (or narrow
commodities) like guar, Urad, Mentha etc.

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.

45
LIMITATIONS:
 Due to bad market conditions people are becoming more and more

pessimistic about investing in the share market. After the Reliance IPO,

SENSEX fell tremendously from 21000 to 15000. In this crash many

people lost their money amounting from 2 Lakhs to 4-5 crore or even

more. So when we approach them they tell us how much they used to

trade in shares and how much money they have lost in the share market.

They even tell us that we are doing our training (SIP) at very wrong time.

 While telecalling sometimes the clients do not give positive response, may

be because they are really busy or may be not interested in the demat

accounts and mutual funds.

 While cold calling when we met the owners of big shops. They said that if

they had spare money they will invest it in their shops and not in the share

market. They don`t want to take risk.

 There are some negative rumors in the market about Sharekhan ltd. some

people have very bad experience with Sharekhan in terms of services and

charges. This may not be the fault of the company but of some of the

marketing executives who don`t disclose all the details about charges and

products and once the demat account has been opened they don`t pay

46
 any attention to their old clients and thus fail to give proper services to the

clients.

 Sharekhan takes no charges for opening Demat accounts but there is a

initial deposit of Rs.10,000/-. It is just a margin money which has to be

kept with Sharekhan till the account opens. As soon as the account opens

this money can be kept as it is in the demat account or it can be

completely used for buying shares or it can be partially used and the rest

of the amount can be withdrawn. But clients fail to understand this. They

think that these are the charges they start suspecting it. So it’s very

difficult to convince them to deposit that much amount and open a demat

account.

Quantitative Analysis
ANALYSIS
(Sample size 50 peoples)

47
Survey was conducted across Ahmedabad City (in areas like C.G.Road,
Navarangpura) to judge the awareness of peoples regarding investment
in Commodity Market.

1. Investor’s preferences: -

Other
7%

23% Share Market

43%

Bank F.D.

27% Commodity
Market

Investment Prefrences specified in other category

3%
30%
Real Estate
Jwelary
Not Specified
67%

Analysis of data revels that majority of people prefer investment in Real

Estate (28.81% of total sample) which specified in other category
investment and it is greater than share market investment preference.

48
2. People’s knowledge about Commodity Market: -

13%

Know

Don’t Know

87%

Very few people heard of commodity market. Vast majority of people are
unaware about Commodity Market.

3. Investor’s interested to invest in Commodity Market: -

(Out of those, who know Commodity Market)

49
 Interested

50% 50% Not Interested

Though some people heard of commodity market due to lack of

complete knowledge about it half of then are not interested in investing
in Commodity Market.

4.Commodity Market Investors Preferences

13%
37% Bullion
20%
Metals
Agricultural
Fossils/Energy
30%

Above data revels that majority of commodity investors like to invest in

Bullion (Gold & Silver).

5. Perception about Commodity Market:-

50
 25%

Less Risky
Risky
50% Very Risky

25%

Analysis of data shows that majority of people who are aware about
commodity market; feel that investment in commodity market is very
risky. So efforts should be done to minimize the risk in commodity
investment and make peoples about minimum risk in commodity
investment.
6. Opinion about Commodity Market Advertisements:-
(Expressed by those who know commodity market)

No t Info rmative

100

There is no second opinion amongst commodity investors, that

commodity market advertisements do not give all the necessary
information.

51
ANNEXURE

Terms and Definitions related to Commodity Market: -

• Accruals:- Commodities on hand ready for shipment, storage and

manufacture
• 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.
• 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.
• Close: - The period at the end of trading session officially designated
by exchange during which all transactions are considered made “at the
close”.

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• 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.
• 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.
• 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.
• 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.
• 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

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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.
• 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.
• 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.
• 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.

• 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.
• 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).
• 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.

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• 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.
• 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”)
• Range: - The difference between high and low price of the futures
contract during a given period.
• Settlement price: - The official daily closing price of futures
contract, set by the exchange for the purpose of setting margins
accounts.
• 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.

COMMODITY MARKET

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(Questionnaire for Investors)

Name:-……………………………………………………
Address: ……………………………………………………
…………………………………………………….
Phone No. :-…………………………………………………..

1. Do you have any investment plan?

a. YES b. NO
(If no move to question no. 4)

2. If, yes, where you would like to invest/trade your money?

a. Bank F.D. b. Share Market c. Commodity Market d. Other (specify)

3. Why you prefer specific investment?

------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------

4. If no, why?
a. Not aware about invest avenues b. Insufficient income c. Other
(specify)

5. Do you aware about Commodity Market?

a. YES b. NO
(If no move to question no 12)

6. Are you willing to invest in Commodity Market?

(If in Q. 2 Commodity Market, skip this question)

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a. If YES, why?
------------------------------------------------------------------------------------------------
----------------------------------------------------
b. If NO, why?
------------------------------------------------------------------------------------------------
-----------------------------------------------------
(If no move to the Question no.10)

7. If yes, which Commodity Exchange you will prefer for

investment?
a. MCX b. NCDEX c. NMCE d. Other (specify) f. Can’t Say

8. Why you prefer specific Commodity Exchange for investment?

(if answer to Q.7 f, skip this question)
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------

9. In which Commodities you will prefer to Invest? And why?

a. Bullion b. Agricultural c. Metals d. Fossils/Energy
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------

10. What is your perception about Commodity Market?

a. Less Risky b. Risky c. Very Risky

11. What you think Commodity Market Advertisements (hoardings, prints

etc) are explanatory enough to give needed useful information?
a. YES b. NO

12. Gender
a. Male b. Female

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 13. Age Group
a. Below 21 Years b. 21 years – 30 years
c. 31 years – 40 years d. 41 years – 50 years
e. Above 50 years

14. Occupation
a. Govt. Job b. Private Job c. Business d. Other (specify)

15. Income Group (Per month)

a. Nil b. Below 1,20,000/-
c. 1,20,000–2,40,000/- d. 2,40,000 – 3,60,000/-
e. Above 3, 60,000/-

……………………………………………………………………………………
……………………………………………………………………………………
……………………………………………………………………………………
……………………………………………………………………………………
……………………….

Conclusions

Commodity market in India is still in a nascent stage. It should be given a helping

hand by the concerned authorities to increase its depth. The infrastructure
facilities like warehouses, transportation etc. should be improved so that the
genuine buyers can take physical delivery of goods instead of settling
transaction in cash. This may also control speculation to an extent.

There is also an urgent need for an independent regulator for these markets.
Instead of bureaucratic Ministry of Consumer Affairs & Food, professional
agency like Forwards Market Commission (FMC) needs to be at the helm.

Apart for these more products like Commodity Options need to be introduced.
This will further help deepen the market & would help in increasing the popularity

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of such exchanges. This will finally lead to a wider investor base & lesser power
in the hands of ruthless traders & speculators.

Taking these few but firm steps, I believe, there is a bright future ahead for the
Futures Market.

Recommendations And Suggestions:

Developing countries (democratic or not) have been moved to harden their

currencies, accept IMF rules, join the WTO, and submit to a broad regime of
reforms that amount to a hedge against being isolated. China's entry into the
WTO signalled the end of truly isolated nations entirely managing their own
currency and affairs. The need for stable currency and predictable clearing and
rules-based handling of trade disputes, has led to a global trade hegemony -
many nations hedging on a global scale against each other's anticipated
protectionism, were they to fail to join the WTO.

There are signs, however, that this regime is far from perfect. U.S. trade
sanctions against Canadian softwood lumber (within NAFTA) and foreign steel
(except for NAFTA partners Canada and Mexico) in 2002 signalled a shift in
policy towards a tougher regime perhaps more driven by political concerns -
jobs, industrial policy, even sustainable forestry and logging practices.

1. Good perspective for earnings.

2. Having good Career Scope.
3. This Should be promoted and awareness should be among public.
4. Training programme should be organized .

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BIBLIOGRAPHY

• http://commodities.in

• http://finance.indiamart.com/markets/commodity/

• http://www.commoditiescontrol.com

• http://www.mcxindia.com

• http://www.ncdex.com

• www.sharekhan.com

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