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INTRODUCTION
INTRODUCTION
Commodity market is an important constituent of the financial
markets of any country. It is the market where a wide range of products, viz.,
precious metals, base metals, crude oil, energy and soft commodities like palm oil,
coffee etc. are traded. It is important to develop a vibrant, active and liquid
commodity market. This would help investors hedge their commodity risk, take
speculative positions in commodities and exploit arbitrage opportunities in the
market.
Derivatives as a tool for managing risk first originated in the commodities
markets. They were then found useful as a hedging tool in financial markets as well.
In India, trading in commodityfutures has been in existence from the nineteenth
century with organised trading in cottonthrough the establishment of Cotton Trade
Association in 1875. Over a period of time, othercommodities were permitted to be
traded in futures exchanges. Regulatory constraints in1960s resulted in virtual
dismantling of the commodity futures market. It is only in the lastdecade that
commodity futures exchanges have been actively encouraged however, the markets
have not grown to significant levels.
A commodity derivatives market (or exchange) is, in simple terms, nothing
more or less than a publicmarketplace where commodities are contracted for
purchase or sale at an agreed price for delivery at aspecified date. These purchases
and sales, which must be made through a broker who is a member of an organized
exchange, are made under the terms and conditions of a standardized futures
contract.Commodity prices do vibrate more rapidly and provide profitable
opportunities,
accordinglyrecessions,
depressions
and
booms
offer
many
Indian markets have recently thrown open a new avenue for retail investors and
traders to participate commodity derivatives. For those who want to diversify their
portfolios beyond shares, commodities bonds and real estate are the best options.
The retail investors could have done very little to actually invest in
commodities such as gold and silver or oilseeds in the futures market. This was nearly
impossible in commodities except for gold and silver as there was practically no retail
avenue for pumping in commodities.
However, with the setting up of three multi-commodity exchanges in the country,
retail investors can now trade in commodity futures without having physical stocks!
Commodities actually offer immense potential to become a separate asset class for
market survey investors, arbitrageurs and speculators. Retail investors, who claim to
understand the equity markets, may find commodities an unfathomable market. But
commodities are easy to understand as far as fundamentals of demand and supply are
concerned. Retail investors should understand the risks and advantages of trading in
commodities futures before taking a leap.
futures has been less volatile compared with equity and bonds, thus providing an
efficient portfolio diversification option.
Currently, the various commodities across the country clock an annual turnover
of Rs.1,40,000crore ( Rs.1,400 billion). With the introduction of futures trading, the
sizes of the commodities market grow many folds here on.
Like any other market, the one for commodity futures plays a valuable role in
information pooling and risk sharing. The market mediates between buyers and
sellers of commodities, and facilitates decisions related to storage and consumption
of commodities. In the process, they make the underlying market more liquid.
OBJECTIVES
To study commodity derivatives and their significance in Indian financial markets.
To understand the futures trading in Gold and Silver.
To study the price volatility of Gold & Silver in the spot and future markets.
To ascertain the basis / pay offs of Gold and Silver futures.
SCOPE OF THE STUDY
The study mainly focuses on Indian commodity market, its history and
latest development in the Indian commodity market.
The scope of the study limited to Indian commodity market. The study
vastly covered the accepts of commodity market, clearing house and settlement
mechanisms in Indian commodity market.
A study also keeps a birds-eye view on global commodity market and its
development. The study of conducted for a period of 45 days
exists
in
CHAPTER-II
REVIEW OF LITERATURE
Today, company has 230 branch offices in 164 cities all over the India. The
company adds 5 new offices every month to the companys ever growing national
network in every nook and corner of the country. The company service over 16 million
individual investors, 180 corporate and handle corporate disbursements that exceed
Rs.2500 Crores.
Parthasarathy C
Yugandhar M
Ramakrishna M S
Prasad V Potluri
Robert Gibson
Sanjay Kumar Dhir
R Shyamsunder
[Table1: BODs of Karvy Consultants Limited]
Karvy Investor Services Limited
Parthasarathy C
Yugandhar M
Ramakrishna M S
[Table2: BODs of Karvy Investor Services Limited]
Karvy Securities Limited
Parthasarathy C
Yugandhar M
Ramakrishna M S
Ajay Kumar K
William Samuel
Nicholas Tully
[Table3: BODs of Karvy Securities Limited]
Karvy Stock Broking Limited
Parthasarathy C
Yugandhar M
Ramakrishna M S
Ajay Kumar K
Kutumba Rao V
10
William Samuel
Nicholas Tully
[Table4: BODs of Karvy Stock Broking Limited]
Mission Statement of Karvy
An organization exists to accomplish something or achieve something. The
mission statement indicates what an organization wants to achieve. The mission
statement may be changed periodically to take advantage of new opportunities or
respond to new market conditions.
Karvys mission statement is To Bring Industry, Finance and People
together.
Karvy is work as intermediary between industry and people. Karvy work as
investment advisor and helps people to invest their money same way Karvy helps
industry in achieving finance from people by issuing shares, debentures, bonds, mutual
funds, fixed deposits etc.
Companys mission statement is clear and thoughtful which guide
geographically dispersed employees to work independently yet collectively towards
achieving the organizations goals.
Vision of Karvy
Companys vision is crystal clear and mind frame very directed. To be
pioneering financial services company. And continue to grow at a healthy pace,
year after year, decade after decade. Companys foray into IT-enabled services and
internet business has provided an opportunity to explore new frontiers and business
solutions. To build a corporate that sets benchmarks for others to follow.
Behind the Picture: What Customers matter for KARVY?
11
The underlying picture forming answer for above question is given below.
This has been possible with deep insight of consumer behavior as well as
market demand drivers, understanding of the arena where to operate and quality
execution all thanks to a greater team that makes this happen.
Karvys customers consider themselves part of Karvy family and share their
experiences and dreams with other customers and thus Karvy becomes successful not
only in relating customers but also gains new customers from satisfied prevailing
customers.
Karvy want to create a strong emotional bond with new customers promoted by
prevailing customers.
Karvy Values:
Integrity
Responsibility
Reliability
Unity
Understanding
Excellence
Confidentiality
Stock broking
2.
Demat services
13
3.
4.
5.
6.
Insurance
7.
8.
IT enabled services
9.
10.
Loans
1.
Stock Broking:
2. Demat Services:
Karvy is a depository participant with the National Securities Depository Limited
(NSDL) for trading and settlement of dematerialized shares.
Depository Participants (DPs) are described as an agent of the depository. They are
intermediaries between the depository and the investors. The relationship between the
DPs and the depository is governed by an agreement made between the two under
Depositories Act.
A DP can offer depository-related services only after obtaining a certificate of
registration from SEBI.
14
Since Karvy is also in the broking business, investors who use Karvys depository
services get a dual benefit. They can use Karvys brokerage services to execute
transactions and Karvys depository services to settle them.
3. Investment Products Distribution:
Company is also concern with the distribution of investment products like
(a).
Fixed Deposit
(b).
Bonds
Company Name
HUDCO
NTPC
Company Name
IDBI Suvidha
15
Company Name
HDFC Ltd.
MANUFACTURING COMPANIES
Sl. No.
Company Name
Atul Ltd.
Escort Ltd.
Greaves Ltd.
Indian Express
10
Ind-Swift Ltd.
11
JK Industries Ltd.
12
13
14
15
(c). IPO:
Company is also provides services related to Initial Public Offer of company. Company
provides stationary at the time of IPO as well as provides information to investors
regarding IPO and solves their queries.
4.
This division provides portfolio management services to high net-worth individuals and
corporate. The expertise of Karvy in research and stock broking gives it the right
perspective to provide investment advisory services. Company provides advisory
services to its clients.
Financial goal of each individual investor varies according to his dream, ambition and
family size and future financial planning for the children & old age pension for self and
wife so does the pathway to achieve it. Karvy apply the principles of Financial Planning
as both science & art, it understands the time horizon, risk bearing capacity and
investment goals of investors keeping in mind their psyche and financial needs. Based
upon this Karvy helps individual investors to plan their entire life up to retirement,
Taxes, Insurance needs and other important personal financial goals. It designs portfolio
for investor to invest their saving in various financial products like shares, bonds,
17
debentures, mutual funds, fixed deposits, insurance etc., Company design portfolio by
considering following factors
5.
Corporate finance is the financial activity of corporation. It deals with the firm's
operations with regard to investing and financing. It concerned with how firms raise
capital and the consequences of alternative methods of raising capital. Firms capital can
be raised by raising loans, issuing shares, and acquiring or merging with other businesses
by public or private companies
Karvy enjoys SEBI category (I) authorization for Merchant Banking.
Karvy offers the full spectrum of Merchant Banking Services, beginning from
identifying the best time for an issue to final stage of marketing it, to harvest
unparalleled success.
6.
Insurance:
Karvy is also dealer of many private life insurance companies. At Jamnagar branch,
company is associated with dealing of following companies.
7.
Since its inception in 1982, Karvy has demonstrated a dedication coupled with
dynamism that has inspired trust from various segments corporate, government bodies
and individuals. Karvy has since been performing a pivotal role as the intermediary the
interface between these players.
With Mutual Funds emerging as a distinct asset class, Karvy has made a strategic choice
to leverage the power of latest technology to provide a cutting edge to its services.
Karvy, today, service nearly 80% of the asset management companies (AMCs) across an
extensive network of service centers with assets under service in excess of Rs.10,000
crores.
Karvy's ability to mass customize and offer a diverse range of products for a
diverse range of customers has helped mutual fund companies to uniquely position
18
themselves in the market place. Going forward, Karvy shall strive to create new products
and services, which would address the needs of the end customer.
List of Mutual Fund Clients of KARVY:
1
Alliance Mutual Fund
2
Birla Mutual Fund
3
Bank of Baroda Mutual Fund
4
Can Bank Mutual Fund
5
Chola Mutual Fund
6
Deutsche Mutual Fund
7
DSP Merrill Lynch Mutual Fund
8
Franklin Templeton Investments
9
GIC Mutual Fund
10
HDFC Mutual Fund
11
HSBC Mutual Fund
12
IL & FS Mutual Fund
13
JM Mutual Fund
14
Kotak Mutual Fund
15
LIC Mutual Fund
16
Punjab National Bank Mutual Fund
17
Prudential ICICI Mutual Fund
18
Principal Mutual Fund
19
Reliance Mutual Fund
20
State Bank of India Mutual Fund
21
Standard Chartered Mutual Fund
22
Sundaram Mutual Fund
23
SUN F&C Mutual Fund
24
Tata Mutual Fund
8. Income Tax enabled services:
Karvy has been started this service since March, 2004. Karvy is work as TIN
Facilitation Centre it provides following IT enabled services.
a. Distribution of PAN Card.
b. Distribution of TAN Card.
c. Services related to e-TDS.
19
Karvy work as an intermediary between NSDL and IT payers. Karvy provides various
form for different IT enabled services and guide people to fill that forms. It also solves
queries of the tax payers. It also distributes PAN and TAN card to the tax payers.
TIN Overview
National Securities Depository Ltd. (NSDL) has established a nationwide Tax
Information Network (TIN) on behalf of the Income Tax Department (ITD). This is
designed to make the tax administration more effective, furnishing of returns convenient,
reduce compliance cost and bring greater transparency.
While NSDL will be the primary agency responsible for the design, implementation and
maintenance of TIN as per the requirements of ITD, other agencies will also play key
roles in the TIN system.
Karvy has established infrastructure required to provide IT enabled services so, Karvy
provides TIN facilitation centers all over India on behalf of NSDL. Besides Karvy
following companies can also work as intermediary between NSDL and customer
9.
In 1985, Karvy entered the Registrar and Share Transfer Business to create a market
niche in the competitive field of financial services. In 1994-95, it reached a
milestone when it processed 104 Public Issues constituting 46 per cent market share.
Now in its second decade of existence, Karvy is the leader in the industry: In an opinion
poll conducted by an independent market research agency - MARG, Karvy has been
rated as Indias Most Admired Registrar on various parameters: Overall Excellence.
Handling of Volumes
Timely Dispatch
Quality Management and Technological Up gradation.
20
A SEBI Category 1 Registrar, So far, Karvy has handled over 675 ISSUES as Registrars
to public issues processed over 52 million applications and is servicing over 16 million
investors from various locations spread over 205 clients.
10. Loan:
Karvy has recently started this service at selected branches of metro cities. This service
has not been started in Saurashtra-Kucch region. Karvy provides loans for following.
Vehicle Loan
Home Loan
Personal Loan
MARKETING STRATEGY OF KARVY SILVER
Market Positioning
Market positioning statements of Karvy are At Karvy we give you single window
service and We also ensure your comfort.So, Karvy focus on the consumers who
prefer almost all investment activities at same place by providing number of various
financial services. At Karvy a person can purchase or sell shares, debentures etc. and
at the same place also demat it. Karvy also provides other investment option to the
same person at same place like Mutual Fund, Insurance, Fixed Deposit, and Bonds
etc. and help the person in designing his portfolio. By this way Karvy provides
comfort to its customers.
Karvy is also positioned according to Ries and Trout. Karvy is promoted as a no. 1
investment product distributor and R & T agent of India.
21
Target Market:
Karvy uses demographic segmentation strategy and segment people based on their
occupation. Karvy uses selective specialization strategy for market targeting. Target
person for the Karvy Stock Broking and Karvy Investment Service are persons who can
work as sub-broker for the companies. Companies focus on Advisors of Insurance and
post office, Tax consultants and CAs for making sub-broker.
HR POLICY OF KARVY
Karvys HR Department is located at Hyderabad.
Recruitment and Selection Policy:
The upper level members like zonal managers, regional managers, branch managers and
senior executives are recruited by publishing recruitment advertisement in leading
national level newspaper. The qualified applicant are then called for interview and
selected.
The regional manager has authority to select lower level employee like peon, marketing
executives, accountant etc. by approval of zonal manager.
PROJECT and Development:
Continuous PROJECT and upgrading technical, behavioral and managerial skills is a
way of life in Karvy. Karvy encourages employees to hone their skills regularly to
enable them to face the challenges of the changing requirements of customers that fit
market up and down.
PROJECT needs analysis is done on a regular basis and systematic methodologies are
ensured that skills and capabilities of all employees are constantly upgraded to enable
them to perform in the challenging work environment.
New employee has given PROJECT under experienced employee. The new employee
work under experience employee and observe his all activities. When company employs
new technology or there is any change in the working of company the PROJECT
program is arranged.
Employee Motivation:
Karvys employees are highly empowered. They dont have to report any person of the
same branch but they report upper level branch. E.e. Marketing executive of Jamnagar
branch directly reports Senior Marketing executive of Baroda zonal office.
If particular branch earn certain profit then Karvy gives them special incentives. E.g. last
year Karvy had arranged two days tour of Div for their employees of Rajkot, Jamnagar,
23
Junagadh and Bhavnagar branch which was totally free of cost. This also helps in
maintaining co-operation between employees.
Quality Policy Of Karvy:
To achieve and retain leadership, Karvy shall aim for complete customer satisfaction, by
combining its human and technological resources, to provide superior quality financial
services. In the process, Karvy will strive to exceed Customers expectations.
Quality Objectives of Karvy
Build in-house processes that will ensure transparent and harmonious
relationships with its clients and investors to provide high quality of services.
Establish a partner relationship with its investor service agents and
vendors that will help in keeping up its commitments to the customers.
Provide high quality of work life for all its employees and equip them
with adequate knowledge & skills so as to respond to customer's needs.
Continue to uphold the values of honesty & integrity and strive to
establish unparalleled standards in business ethics.
Use state-of-the art information technology in developing new and
innovative financial products and services to meet the changing needs of investors
and clients.
Strive to be a reliable source of value-added financial products and
services and constantly guide the individuals and institutions in making
a judicious choice of same.
Strive to keep all stake-holders (shareholders, clients, investors,
employees, suppliers and regulatory authorities) proud and satisfied.
Achievements of Karvy:
Largest mobilizer of funds as per PRIME DATABASE
First ISO - 9002 Certified Registrar in India
A Category- I Merchant banker
A Category- I Registrar to Public Issues
24
Weaknesses:
High Employee Turnover.
Opportunity:
Growth rate of mutual fund industry is 40 to 50% during last year
and it expected that this rate will be maintained in future also.
Marketing at rural and semi-urban areas.
Threats:
Increasing number of local players.
Past image of Mutual Fund.
25
CHAPTER-III
INDUSTRY PROFILE
26
INDIAN SCENARIO
The commodity derivatives markets in India are as old as those of the US. The
origin of commodity derivatives markets in India can be traced back to 1875, when
Bombay Cotton Trade Association Ltd., was set up to start trading in cotton Futures.
Subsequent to this, many other associations have started Future trading in
commodities at different places. For example, the Futures trading in oilseeds started
in 1900 at Bombay, raw jute and jute products in 1912 in Calcutta, wheat in Hapur in
1913, bullion in Bombay in 1920. However, in 1939, the Option trading in cotton was
27
banned by the government of Bombay to restrict the speculative activity in the cotton
market. in subsequent years, forward trading in various commodities like oilseeds,
food grains, vegetable oil, sugar cloth were also prohibited.
Indias commodity exchanges have come a long way since their opening up in
the early twenty first century. In India, three national level exchanges namely Multi
Commodity Exchange of India (MCEX), National Commodity and Derivatives
Exchange (NCDEX) and National Multi Commodity Exchanges are operating to
cater to the needs of Indian investors. Apart from these national level exchanges,
nearly 20 regional exchanges are in operation, to deal with specified commodities in
that region.
MEANING OF COMMODITY DERIVATIVE MARKET:
FCRA Forward Contracts (Regulation) Act, 1952 defines goods as every
kind of movable property other than actionable claims, money and securities.
Futures trading is organized in such goods or commodities as are permitted by the
Central Government. At present, all goods and products of agricultural (including
plantation), mineral and fossil origin are allowed for futures trading under the
auspices of the commodity exchanges recognized under the FCRA.
A commodity derivative is a contract which derives its value from an
underlying commodity. The main purpose of future market is to provide a mechanism
for successfully managing the price risks associated with commodities. Future market
provides a platform for buyer and seller to trade in a huge number of diverse
commodities such as agriculture products, metals and energy. These markets are not
only meant for hedgers, speculators and arbitrages, but also for retail investors who
want to trade in booming commodity market.
28
29
samecommodity
(called
an
inter
delivery spread).
2.
differentexchanges
(inter
market
spread).
Spread trading can be done at the market price or at desired difference level
between the commodities. For example, Buy one contract of February of December
Gold and at the same time sell one contract of February Gold when the February
Gold contract is 100 points higher than the December contract.
In this case first and foremost thing that need to be observed is the liquidity
present in both the contracts. The benefits that can be arrived from entering in spread
trading is the lower margin requirement, because these strategies normally carry less
risk.
30
31
Control your cost If you are an industrialist, the raw material cost dictates the final
price of your output. Any sudden rise in the price of raw materials can compel you to
pass on the hike to your customers and make your products unattractive in the market.
By buying commodity futures, you can fix the price of your raw material.
32
33
- April 2006), with a record peak turnover of USD3.98 bn (Rs.17,987 crore) on April
20, 2006. In the first calendar quarter of 2006, MCX holds more than 55% market
share of the total trading volume of all the domestic commodity exchanges. The
exchange has also affected large deliveries in domestic commodities, signifying the
efficiency of price discovery.
Being
nation-wide
commodity
exchange
having
state-of-the-art
infrastructure, offering multiple commodities for trading with wide reach and
penetration, MCX is well placed to tap the vast potential poised by the commodities
market.
35
form.
technology.
Promoting awareness about on-line features trading services of NMCE across the
36
STATUTORY
FUTURES:
FRAMEWORK
FOR
REGULATING
COMMODITY
"The Act Provides that the Commission shall consist of not less
than two but not exceeding four members appointed by the Central Government out
of them being nominated by the Central Government to be the Chairman thereof.
Currently Commission comprises three members among whom Dr. Kewal Ram, IES,
is acting as Chairman and Smt. Padma Swaminathan, CSS and Dr. (Smt.) Jayashree
Gupta, CSS, are the Members of the Commission."
Soya bean
Soya oil
Rapeseed/Mustard
Seed Rapeseed/
RBD Palmolein
38
Rubber
Jute
Pepper
Chana (Gram)
Guar
Wheat
39
Forward contracts
FCRA defines forward contract as "a contract for the delivery of goods and
which not a ready delivery contract is".
All contracts in commodities providing for delivery of goods and/or payment
of price after 11 days from the date of the contract are "forward" contracts. Forward
contracts are of three types
1) Specific Delivery & Ready Delivery Contracts
2) Futures Contracts
3) Option Contracts
Specific Delivery/Ready Delivery contracts:
Specific delivery contracts provide for the actual delivery of specific quantities
and types of goods during a specified future period, and in which the names of both
the buyer and the seller are mentioned.
Under the Act, a ready delivery contract is one, which provides for the delivery
of goods and the payment of price therefore, either immediately or within such period
not exceeding 11 days after the date of the contract, subject to such conditions as may
be prescribed by the Central Government. Already delivery contract is required by
law to be fulfilled by giving and taking the physical delivery of goods. In market
parlance, the ready delivery contracts are commonly known as "spot" or "cash"
contracts.
Futures Contract:
A commodity futures contract is essentially a financial instrument. Following
the absence of futures trading in commodities for nearly four decades, the new
generation of commodity producers, processors, market functionaries, financial
organizations, broking agencies and investors at large are, unfortunately, unaware at
present of the economic utility, the operational techniques and the financial
advantages of such trading.
40
41
Therefore,
prices and are
42
i) Initial MarginInitial Margin is set by the exchanges on basis of volatility in the particular
commodity & is a percentage of the contract.
ii) Mark to market MarginAt the end of the day, the contract is marked to market; meaning traders
account is credited or debited based on the profit/ loss made during the session. On
this profit or loss there broker can charge margin that is nothing but mark to market
margin.
INTRADAY TRADING:
Then as per individual investors wish he can buy or sell commodities online.
Just he has to specify which commodity & what price is he going to buy or sell.
Electronic terminals are used for this trading at various broking offices that provides
the same information countrywide. This trading process is called as, Intraday
Trading.
Benefit of this online trading is that it provides a secure, transparent, fast and
user-friendly system. It leads to better price discovery of commodities like Bullion,
Metals and Agro products by bringing large number of Buyers and Sellers on a
common National and International platform.
43
Without knowing the spot market for commodities it is very difficult to play with
long run plans, mergers, etc. there are definite regions to move up & down in the
market, but in the case of Commodity market there are so many regions for the
market movement, it is like a game of luck to the investor.
Customer has to deposit the margin amount that is based on volatility of
commodity plus brokerage that is deducted from total losses made. So if at all there is
a loss, the total loss amount will be very huge. In this aspect it is very risky market.
Commodity market not yet developed in India so it is less reliable.
Commodity market gives high return but with multiplier of high risk
encourages wide participation in futures markets lessening the opportunity for control
by a few buyers and sellers.
45
46
In case of such arbitrage the trader can short his futures contract, buy the asset
from the spot market and make the delivery. This will lead to a profit equal to the
difference between the futures price and spot price. As traders start exploiting this
arbitrage opportunity the demand for the contract will increase and futures prices will
fall leading to the convergence of the future price with the spot price. If the futures
price is below the spot price during the delivery period all parties interested in buying
the asset in the spot marked making a profit equal to the difference between the
future price and the spot price. As more traders take a long position the demand for
the particular asset would increase and the futures price would rise nullifying the
arbitrage opportunity.
PARTICIPANTS IN COMMODITY MARKET:
For a market to succeed/ it must have all three kinds of participants hedgers,
speculators and arbitragers. The confluence of these participants ensures liquidity and
efficient price discovery on the market. Commodity markets give opportunity for all
three kinds of participants.
Hedgers
Many participants in the commodity futures market are hedgers. They use the
futures market to reduce a particular risk that they face. This risk might relate to the
price of any commodity that the person deals in. The classic hedging example is that
of wheat farmer who wants to hedge the risk of fluctuations in the price of wheat
around the time that his crop is ready for harvesting. By selling his crop forward, he
obtains a hedge by locking in to a predetermined price. Hedging does not necessarily
improve the financial outcome; indeed, it could make the outcome worse. What it
does however is, that it makes the outcome more certain. Hedgers could be
government institutions, private corporations like financial institutions, trading
companies and even other participants in the value chain, for instance farmers,
extractors, ginners, processors etc., who are influenced by the commodity prices.
47
48
Arbitrage
A central idea in modern economics is the law of one price. This states that in a
competitive market, if two assets are equivalent from the point of view of risk and
return, they should sell at the same price. If the price of the same asset is different in
two markets, there will be operators who will buy in the market where the asset sells
cheap and sell in the market where it is costly. This activity termed as arbitrage. The
buying cheap and selling expensive continues till prices in the two markets reach
equilibrium. Hence, arbitrage helps to equalise prices and restore market efficiency.
The cost-of-carry ensures that futures prices stay in tune with the spot
prices of the underlying assets. Whenever the futures price deviates substantially
from its fair value, arbitrage opportunities arise. To capture mispricing that result in
overpriced futures, the arbitrager must sell futures and buy spot, whereas to capture
mispricing that result in underpriced futures, the arbitrager must sell spot and buy
futures. In the case of investment commodities, mispricing would result in both,
buying the spot and holding it or selling the spot and investing the proceeds.
However, in the case of consumption assets which are held primarily for reasons of
usage, even if there exists a mispricing, a person who holds the underlying may not
want to sell it to profit from the arbitrage
system
in
India,
namely,
government
49
of
India,
Forward
Markets
account of the fact that the benefits of futures markets accrue in competitive conditions.
Proper regulation is needed to create competitive conditions. In the absence of
regulation, unscrupulous participants could use these leveraged contracts for
manipulating prices.
thereby affecting interests of society at large. Regulation is also needed to ensure that
the market has appropriate risk management system. In the absence of such a system,
a major default could create a chain reaction.
The resultant financial crisis in a futures market could create systematic risk.
Regulation is also needed to ensure fairness and transparency in trading, clearing,
settlement and management of the exchange so as to protect and promote the interest
of various stakeholders, particularly non-member users of the market.
reporting system for the exchanges following open out cry system.
These steps facilitate audit trail and make it difficult for the members
to indulge in malpractice like trading ahead of clients, etc. The FMC has also
mandated all the exchanges following open outcry system to display at a prominent
place in exchange premises, the name, address, telephone number of the officer of the
commission who can be contacted for any grievance. The website of the commission
51
also has a provision for the customers to make complaint and send comments and
suggestions to the FMC. Officers of the FMC have been instructed to meet the
members and clients on a random basis, whenever they visit exchanges, to ascertain
the situation on the ground, instead of merely attending meetings of the board of
directors and holding discussions with the office bearers.
RULES GOVERNING INTERMEDIARIES:
In addition to the provisions of the Forward Contracts (Regulation)
Act 1952 and rules framed there under, exchanges are governed by its own rules and
bye laws(approved by the FMC). In this section we have brief look at the important
regulations that govern NCDEX. For the sake of convenience/these have been
divided into two main divisions pertaining to trading and clearing.
The NCDEX provides an automated trading facility in all the
commodities admitted for dealings on the spot market and derivative market.
Trading on the exchange is allowed only through approved workstation(s)
located at locations for the office(s) of a trading member as approved by the
exchange. If LAN or any other way to other workstations at any place connects an
approved workstation of a trading Member it shall require an approval of the
exchange.
Each trading member is required to have a unique identification number which is
provided by the exchange and which will be used to log on (sign on) to the trading
system. A trading member has a non-exclusive permission to use the trading system
as provided by the exchange in the ordinary course of business as trading member.
He does not have any title rights or interest whatsoever with respect to trading
system/its facilities/ software and the information provided by the trading system.
For the purpose of accessing the trading system/the member will
install and use equipment and software as specified by the exchange at his own cost.
The exchange has the right to inspect equipment and software used for the purposes
of accessing the trading system at any time. The cost of the equipment and software
supplied by the exchange/installation and maintenance of the equipment is borne by
52
the trading member and users Trading members are entitled to appoint, (subject to
such terms and conditions/as may be specified by the relevant authority) from time to
time Authorized persons and Approved users.
Trading members have to pass a petrifaction program/which has been
prescribed by the exchange. In case of trading members/other than individuals or
sole proprietorships/suchcertification program has to be passed by at least one of
theirdirectors/employees/partners/members of governing body.
Each trading member is permitted to appoint a certain number of
approved users as notified from time to time by the exchange. The appointment of
approved users is subject to the terms and conditions prescribed by the exchange.
Each approved user is given a unique identification number through which he will
have access to the trading system.An approved user can access the trading system
through a password and can change the password from time to time.
The trading member or its approved users are required to maintain
complete secrecy of its password. Any trade or transaction done by use of password
of any approved user of the trading member, will be binding on such trading member.
Approved user shall be required to change his password at the end of the password
expiry period.
TRADE OPERATIONS:
Trading members have to ensure that appropriate confirmed order
instructions are obtained from the constituents before placement of an order on the
system. They have to keep relevant records or documents concerning the order and
trading system order number and copies of the order confirmation slip/modification
slip must be made available to the constituents.
The trading member has to disclose to the exchange at the time of order entry
whether the order is on his own account or on behalf of constituents and also specify
orders for buy or sell as open or close orders. Trading members are solely responsible
for the accuracy of details of orders entered into the trading system including orders
entered on behalf of their constituents.
53
irrevocable and blocked in 1. The exchange specifies from time to time the market
types and the manner if any, in which trade cancellation can be effected.
Where a trade cancellation is permitted and trading member wishes to cancel a
trade, it can be done only with the approval of the exchange.
TRADING DAYS:
The exchange operates on all days except Saturday and Sunday and on
holidays that it declares from time to time. Other than the regular trading hours,
trading members are provided a facility to place orders offline i.e. outside trading
hours. These are stored by the system but get traded only once the market opens for
trading on the following working day.
The types of order books, trade books, price limits, matching rules and
other parameters pertaining to each or all of these sessions is specified by the exchange
to the members via its circulars or notices issued from time to time. Members can place
orders on the trading system during these sessions, within the regulations prescribed by
the exchange as per these bye laws, rules and regulations, from time to time.
TRADING HOURS AND TRADING CYCLE:
The exchange announces the normal trading hours/open period in advance
from time to time. In case necessary, the exchange can extend or reduce the trading
hours by notifying the members.
contract has a standard period, during which it will be available for trading.
CONTRACT EXPIRATION:
Derivatives contracts expire on a pre-determined date and time up to which the
contract is available for trading. This is notified by the exchange in advance. The
contract expiration period will not exceed twelve months or as the exchange may
specify from time to time.
TRADING PARAMETERS:
The exchange from time to time specifies various trading parameters
relating to the trading system. Every trading member is required to specify the buy or
54
sell orders as either an open order or a close order for derivatives contracts. The
exchange also prescribes different order books that shall be maintained on the trading
system and also specifies various conditions on the order that will make it eligible to
place it in those books.
The exchange specifies the minimum disclosed quantity for orders that will be
allowed for each commodity/derivatives contract. It also prescribed the number of
days after which Good Till Cancelled orders will be cancelled by the system. It
specifies parameters like lot size in which orders can be placed, price steps in which
shall be entered on the trading system, position limits in respect of each commodity
etc.
FAILURE OF TRADING MEMBER TERMINAL:
In the event of failure of trading members workstation and/ or the loss of
access to the trading system, the exchange can at its discretion undertake to carry out
on behalf of the trading member the necessary functions which the trading member is
eligible for. Only requests made in writing in a clear and precise manner by the
trading member would be considered. The trading member is accountable for the
functions executed by the exchange on its behalf and has to indemnity the exchange
against any losses or costs incurred by the exchange.
MARGIN REQUIREMENTS
Subject to the provisions as contained in the exchange bye-laws and such other
regulations as may be in force, every clearing member/in respect of the trades in
which he is party to, has to deposit a margin with exchange authorities.
The exchange levies initial margin on derivatives contracts using the concept
of Value at Risk (VaR) or any other concept as the exchange may decide from time to
time. The margin is charged so as to cover one-day loss that can be countered on the
position on 99% of the days. Additional margins may be levied for deliverable
55
positions, on the basis of VaR from the expiry of the contract till the actual settlement
date plus a mark-up for default.
The margin has to be deposited with the exchange within the time notified by
the exchange. The exchange also prescribes categories of securities that would be
eligible for a margin deposit, as well as the method of valuation and amount of
securities that would be required to be deposited against the margin amount.
The procedure for refund/adjustment of margins is also specified by the
exchange from time to time. The exchange can impose upon any particular trading
member or category of trading member any special or other margin requirement. On
failure to deposit margin/s as required under this clause, the exchange/clearing house
can withdraw the trading facility of the trading member. After the pay-out, the
clearing house releases all margins.
UNFAIR TRADE PRACTICES:
No trading member should buy, sell, deal in derivatives contracts in a
fraudulent manner, or indulge in any unfair trade practices including market
manipulation. This includes the following; fi Effect, take part either directly or
indirectly in transactions, which are likely to have effect of artificially, raising or
depressing the prices of spot/derivatives contracts.
Indulge in any act, which is calculated to create a false or misleading appearance
of trading, resulting in reflection of prices, which are not genuine.
57
If the value of claim, difference or dispute is more than Rs.25 Lakh on the date of
application/then such claim, difference or dispute are to be referred to a panel of three
arbitrators. If the value of the claim, difference or dispute is up to Rs.25 Lakh, then
they are to be referred to a sole arbitrator. Where any claim, difference or dispute
arises between agent of the member and client of the agent of the member, in such
claim, difference or dispute, the member, to whom such agent of the member is
affiliated, is impeded as a party.
AGRICULTURAL COMMODITIES
Commodities such as corn, soya beans, sugar, cotton, coffee, seeds, etc., which
indeed form a part of daily consumption, are traded on the futures exchange. Though
all of them form a part of agricultural commodities, they are further segregated into
grains, soft commodities and meat futures.
Red beans, corn, wheat, soya beans and soya bean meal, etc. form a part of
grains, whereas commodities like cocoa, coffee, dried cocoon, cotton yarn and raw
sugar, etc. form a part of soft commodities. Animal products like live hogs, live
cattle, pork bellies, eggs and poultry products form a part of meat futures.
METALLURGICAL COMMODITIES
The metallurgical category includes genuine metals and petro products. The metals
are further grouped into precious and industrial metals. In general, the precious
metals are in relative short supply and they retain their value irrespective of the
conditions of the economy.
ENERGY COMMODITES
Petroleum products consist of heating oil, crude oil, gasoline and propane. They are
traded on futures market and are referred to as Energy Futures.
New York Mercantile Exchange (NYMEX) is the worlds leading energy futures
exchange.
GOLD COMMODITY FUTURE MARKET:
Introduction
59
Golds circulates within the system and roughly 30% of gold jewelry
fabrication is from recycled pieces. India is typically also the largest purchaser of
coins and bars for investment (>80tpa), although last year it had to concede first place
to Japan in the wake of the heavy buying in the first quarter due to fears for the
stability of the Japanese banking system. In 1998-2001 inclusive, annual Indian
demand for gold in jewelry exceeded 600 tons; in 2002, however, due to rising and
volatile prices and a poor monsoon season, this dropped back to 490 tons, and coin
60
and bar demand dropped to 67 tons. Indian jewelry off take is sensitive to price
increases and even more so to volatility, although this decline in tonnage since 1998
is also due in part to increasing competition from white and brown goods and
alternative investment vehicles, but is also a reflection of the increase in price. The
Indian brides Streedhan, the wealth she takes with her when she marries and which
remains hers, is still gold, however (thus giving gold an important role in the
empowerment of women in India).
Indian jewelry off take is sensitive to price increase and even more so to volatility..
61
Gold responds when you need it most: Recent independent studies have revealed
that traditional diversifiers often fall during times of market stress or instability. On
these occasions, most asset classes (including traditional diversifiers such as bonds
and alternative assets) all move together in the same direction. There is no
cushioning effect of a diversified portfolio leaving investors disappointed.
However, a small allocation of gold has been proven to significantly improve the
consistency of portfolio performance, during both stable and unstable financial
periods. Greater consistency of performance leads to a desirable outcome an
investor whose expectations are met.
What makes Gold different from other commodities?
The flow demand of commodities is driven primarily by exogenous variables
that are subject to the business cycle, such as GDP or absorption. Consequently, one
would expect that a sudden unanticipated increase in the demand for a given
commodity that is not met by an immediate increase in supply should, all else being
equal, drive the price of the commodity upwards. However, it is our contention that,
in the case of gold, buffer stocks can be supplied with perfect elasticity. If this
argument holds true, no such upward price pressure will be observed in the gold
market in the presence of a positive demand shock.
63
depends on the gestation lag within which liquid inventories can be converted in
industrial inputs. In the gold industry such time lags are typically very short.
Gold has three crucial attributes that, combined, set it apart from other
commodities: firstly, assayed gold is homogeneous; secondly, gold is indestructible
and fungible; and thirdly, the inventory of aboveground stocks is astronomically large
relative to changes in flow demand. One consequence of these attributes is a dramatic
reduction in gestation lags, given low search costs and the well-developed leasing
market. One would expect that the time required convert bullion into producer
inventory is short, relative to other commodities which may be less liquid and less
homogenous than gold and may require longer time scales to extract and be
converted into usable producer inventory, making them more vulnerable to cyclical
price volatility. Of course, because of the variability of demand, the price
responsiveness of each commodity will depend in part on precautionary inventory
holding.
64
CHAPTER-IV
DATA ANALYSIS AND INTERPRETATION
65
Fig 3.1
Fig 3.2
Fall in Supply
Central Bank Sales Slowing and Massive De-Hedging
Gold Mine Production
Fig 3.3
67
Fig 3.4
CONTRACT SPECIFICATIONS:
Name of
Commodity
Gold
Ticker symbol
Gold
Trading System
Basis
Unit of trading
Delivery unit
Quotation/base
value
Tick size
Quality
Specification
Quantity variation
In a number of ways, the outlook for the silver market is even brighter than
that of gold. One reason for the cheery presage stems from the use of the white metal
as a raw material during the greatest build-out of infrastructure in the history of the
planet.
Another factor springs from the retail end of the chain of production. Along
with the bloom of the emerging regions, a horde of consumers is piling into the
global marketplace for the first time. With bulging wallets, the newcomers by the
billions demand their share of upscale products ranging from fancy goblets to
mobile phones that contain the white metal.
It goes without saying that the market for silver will not vault skyward in a
single straight line. Rather, the upward trek will be erratic and confounding. In
sketching out the likely path of the market, the savvy investor has to keep track of the
secular trends as well as the cyclic patterns in the forum.
History
Silver is one of the oldest found metals on earth and it had been used in
jewelry and utensils since 4th millennium B.C. Old books indicate that at that time it
was extracted from lead.
First attempt to mine silver is said to be have been made around 3000 BC in
the areas of Anatolia. A process, cupellation was found out in order to extract silver
from silver ores around 2500BC. This led to the discovery of more silver mines
around the world.
It was used as currency in many civilizations. Silver coin as a currency was
first introduced in the eastern Mediterranean in 550 B.C. It started gaining popularity
as a medium of exchange since then. The discovery of the American countries
marked an important twist in the history of silver as the major silver mines in
Mexico, Peru and Bolivia were found.
69
There have been important technological improvements till now, which have
resulted in the increased production of silver and have made it an unmatchable
commodity.
Silver that is found with some percentage of other elements in it is called
impure silver. That is why it is graded upon its fineness. According to the Indian
standards, silver is graded into six categories
Grade
Finenes
s
9999
9995
999
970
925
916
999.9
999.5
999
970
925
916
Over view
Silver is produced throughout the world but an interesting fact remains that the
primary source of silver is not the silver mines but the other sources of silver. Silver
mines produce a small amount of silver that is 25% of the worlds total production
and the rest of it is derived as a by-product from gold mines (15%), copper mines
(24%), lead and zinc mines (34%) and other sources. The total production of silver in
the world figures to be around 615 million ounces and Mexico is the leading silver
producing country. The total demand of silver in the world amounts to be around 29
thousand tons. About 95% of this demand is contributed largely by three industrial
sectors namely photography, jewelry and silverware sectors. The idea of silver as a
holding asset and as a source of coinage is losing popularity to the idea of silver as an
industrial commodity.
The demand of silver in 2002 from these sectors was: Photography sector 342 million ounces
Jewelry sector 205 million ounces
Silverware sector 259 million ounces
The countries that are the major consumers of silver are: 70
India
Silver as an investment
Silver, like other precious metals, may be used as an investment. For more than
four thousand years, silver has been regarded as a form of money and store of value.
However, since the end of the silver standard, silver has lost its role as legal tender in
the United States.
Silver is a metal that is associated with metals like gold, lead, zinc and copper,
though its unusual properties makes it very different from them.
It is used in making various kinds of jewelry, as it is considered as a precious
metal second to gold but its contribution in the various industrial sectors as a raw
material makes it unmatchable. No other metal can replace silver as it has an endless
number of uses.
The colored shiny element that is highly ductile and malleable and is used in
making jewelry, coins and tableware. It is also used in chemical experiments as it
provides a high electrical and thermal conductivity. It is found in the metallic state
and also in a large amount of minerals mainly in argentite. That is why it is called
argentums in Latin.
Silver standard
The silver standard is a monetary system in which the standard
economicunit of account is a fixed weight of silver. The silver specie standard was
widespread fom the fall of the Byzantine Empire until the nineteenth century.
Following the discovery in the sixteenth century of large deposits of silver at the
Cerro Rico in Potosi, Bolivia, an international silver specie standard came into
existence in conjunction with the Spanishpieces of eight. These silver dollar coins
played the role of an international trading currency for nearly four hundred years. In
71
1704, following Queen Anne's proclamation, the British West Indies became one of
the first regions to adopt a gold standard in conjunction with the Spanish gold
doubloon coin. In 1717, the master of the Royal Mint, Sir Isaac Newton, introduced a
new mint ratio as between silver and gold, and this had the effect of putting Britain
'de facto' unto a gold standard. Following the Napoleonic wars, the United Kingdom
introduced the gold sovereign coin and formally adopted a gold standard in 1821. At
the same time, revolutions in Latin America interrupted the supply of silver dollars
(pieces of eight) that were being produced at the mints in Potosi, Mexico, and Lima.
The British gold standard initially extended to some of the British colonies, notably
the Australasian colonies and the Southern African colonies, but it did not extend to
the North American colonies, to British India, or to South-East Asia. Canada adopted
a gold standard in 1853 as did Newfoundland in 1865. In 1873, Germany changed
over to the gold standard in conjunction with the new gold mark coin. The United
States changed over to gold 'de facto' in the same year, and over the next 35 years, all
other nations changed to gold, leaving only China and the British colony of Hong
Kong on the silver standard. The silver standard finally came to an end when it was
abandoned by China and Hong Kong in 1935.
Characteristics
Silver is a very ductile and malleable (slightly harder than gold) monovalent
coinage metal with a brilliant white metallic luster that can take a high degree of
polish.
It has the highest electrical conductivity of all metals, even higher than copper, but
its greater cost and tendency to tarnish have prevented it from being widely used in
place of copper for electrical purposes.
Despite this, 13,540 tons were used in the electromagnets used for enriching
uranium during World War II (mainly because of the wartime shortage of copper).
Another notable exception is in high-end audio cables.
Silver also has the lowest contact resistance of any metal.
Silver is stable in pure air and water.
Silver producing countries
72
73
World silver survey done in 1998 depicts that around 152.2 million ounces of
silver was separated from the waste for recycling purposes.
Indian silver market
However, this import level fell sharply as a result of the decline in demand due to
rise in silver prices and inconsistent monsoon on which the income of the rural sector
depends. But, even this sharp decline could not affect Indias reputation of being one
of the largest consumer countries of silver in the world. India stands third after
United States and Japan among the leading consumers of silver in the world. The
countries from which India imports silver and maintain the flow of silver in the
market are:
China
United Kingdom
European Union
Australia
Dubai
London
Zurich
New York (COMEX)
Chicago (CBOT)
Hong Kong
Tokyo Commodity Exchange (TOCOM)
74
Fig 3.6
Fig 3.7
Name of Commodity
Silver
Ticker symbol
SILVER
Trading System
Basis
Unit of trading
30 Kg
Delivery unit
30 kg
Quotation/base value
Tick size
Re. 1
75
Quality Specification
Quantity variation
Fig 3.8
BASIC PAYOFFS
A payoff is likely profit/loss that would accrue to a market participant with
change in the price of the underlying asset; this is generally depicted in the form of
payoff diagrams which show the prices of the underlying asset on the X-axis and the
profit/losses on the Y-axis. The Asset could be a commodity like gold or silver, or it
could be a financial asset like a stock or an index.
76
77
78
The short-side trader sells a contract. The trader in the short position earns profit
when the delivery price is more than the future price of the commodity on the expiry
date of the future contract and in contrary, he incurs the loss when the delivery price
is less than the future price of the commodity on the expiry date of the contract.
DATE
27Aug-13
28Aug-13
29Aug-13
30Aug-13
31Aug-13
2-Sep13
3-Sep13
4-Sep13
5-Sep13
6-Sep13
7-Sep13
9-Sep13
10-Sep-
PREV.
CLOSE
PRICE
OPEN
PRICE
HIGH
PRICE
LOW
PRICE
CLOSE
PRICE
TRADE
VALUE
291.48 32700
-940
207
34130
452
4.37
67.3
33250
-386
-2.5
99.5
32250
-760
-3.0
32860
-120
1.89
65.17
32000
33.89
33290
32750
114
-1.6
32.6
31900
-310
-2.5
31670 31860 7
222.68 31550
-310
-1.0
31880
20
1.04
31450
-71
-1.3
62.54
30700
-80
-2.3
79
VOL.
SPOT
PRICES
PAY
OFF
% OF
CHA
IN
PRIC
OPEN
INT.
1015
1140
-2.6
4.03
13
11-Sep13
12-Sep13
13-Sep13
14-Sep13
16-Sep13
17-Sep13
18-Sep13
19-Sep13
20-Sep13
21-Sep13
23-Sep13
24-Sep13
25-Sep13
26-Sep13
27-Sep13
28-Sep13
30-Sep13
1-Oct13
3-Oct13
61.2
30530
-168
-0.5
31
30710
624
0.59
89.48
29708
162
-3.2
29412 29783 1
29.41
29600
-183
-2.1
2876
29750 0
29978
228
1.27
29256 30028 0
29594
-434
-1.2
30740 30433 0
30225
-208
2.13
29870 29910 0
30160
250
-0.2
29985 29910 0
30975
1065
2.70
29756 29852 0
29613.5
-4.3
238.5
29953 29850 0
29693
-157
0.26
29925 30220 2
59.98
30000
-220
1.03
30091 29830 2
60.18
30090
260
0.30
29970 30737 1
29.97
29878
-859
-0.7
30501 30737 0
30970
233
3.65
30853 30450 0
30200
-250
-2.4
30231 29650 0
30000
350
-0.6
29908 29650 0
29450
-200
-1.8
80
-4190
In case of the above commodity future contract the contract period begins
from 27th August 2013 with the initial contract price of Rs.33,640/- and ends with the
actual market price of Rs. 29,450/- on 3rd October 2013. Therefore the payoff of the
contract will be beneficial to short position trader resulting in a loss to the buyer with
the amount of Rs. 4,190/- .
27th August
2013 (Buying)
Buyer
Seller
33,640/-
33,640/-
29,450/-
29,450/-
3rd October
2013 (Closing
Period)
LOSS
4,190/-
PROFIT
81
4,190/-
LOSS FOR THE BUYER OF FUTURES = Rs. 4,190/GAIN FOR THE SELLER OF FUTURES = Rs. 4,190/-
1-Jan13
2-Jan13
3-Jan13
4-Jan13
5-Jan13
7-Jan13
8-Jan13
9-Jan13
10-Jan13
11-Jan13
12-Jan13
14-Jan13
15-Jan13
16-Jan13
17-Jan13
18-Jan13
19-Jan-
PREV
CLOSE
PRICE
OPEN
PRICE
HIGH
PRICE
LOW
PRICE
CLOSE
PRICE
OPEN
INT.
TRADE
VALUE
SPOT
PRICES
PAY
OFF
57825
57965 0
480
57905
-60
58559
58753 90
420
53.25
58365
-388
0.794
57575
58570 0
420
58875
305
0.874
56950
57580 90
450
51.51
56700
-880
3.694
57256
57996 0
450
57520
-476
1.446
57256
58025 0
450
58150
125
1.095
57900
58469 390
480
227.08 58100
-369
0.086
58320
58011 30
510
17.5
58295
284
0.336
58201
58726 30
480
17.46
58075
-651
0.377
57906
58202 0
480
58392.5 190.5
0.547
58340
58173 0
480
57985
-188
0.698
58401
58917 30
480
17.52
58850
-67
1.492
58873
59473 120
480
70.82
59280
-193
0.731
59650
59758 30
480
17.9
59200
-558
59000
59531 30
480
17.7
59120
-411
59383
59414 60
480
35.65
59802
59346 0
480
59294
VOL.
82
-52
% of
Change
0.135
0.135
0.246
13
21-Jan13
22-Jan13
23Jan13
24-Jan13
25-Jan13
28-Jan13
29-Jan13
30-Jan13
31-Jan13
1-Feb13
2-Feb13
4-Feb13
5-Feb13
6-Feb13
7-Feb13
8-Feb13
9-Feb13
11-Feb13
12-Feb13
13-Feb13
14-Feb13
15-Feb13
59536
59387 60
480
35.72
59416
59600 210
480
125.07 59336
-264
59679
59921 150
480
59000
58950 240
480
58694
58270 90
480
58360
57755 30
480
57822
57938 30
480
17.35
57500
-438
58415
59135 0
480
57942.5
0.770
1192.5
57506
57853 60
480
34.53
58600
747
1.135
57800
58545 30
480
17.34
57704
-841
1.529
58430
58410 0
480
57910
-500
0.357
58583
58415 0
480
58016
-399
0.183
57733
58379 0
480
58401.5 22.5
0.664
58224
58360 30
480
17.47
58099
-261
0.518
58285
58046 30
480
17.49
58419
373
0.551
581897 58204 0
480
58115
-89
0.520
57980
58255 0
480
58120
-135
0.009
57567
57623 0
480
58070
447
57650
57595 0
480
57157
-438
57680
57430 0
480
57575
145
57256
56744 60
510
34.37
57235.5 491.5
0.590
56616
56135 30
510
16.98
57250
0.025
83
59406
19
0.189
0.118
89.61 59532.5 -388.5 0.331
142.04 59100
150
0.726
52.82 58200
-70
1.523
17.51 57500
-255
1.203
1115
0.000
0.086
1.572
0.731
16-Feb13
18-Feb13
19-Feb13
20-Feb13
21-Feb13
22-Feb13
23-Feb13
25-Feb13
26-Feb13
27-Feb13
28-Feb13
1-Mar13
2-Mar13
4-Mar13
1.485
0.532
55970
56083 0
510
56400
317
55920
56240 60
540
33.62
56100
-140
55920
55191 90
510
50.53
56120
929
53590
53733 0
510
54860
1127
53500
54062 300
360
161.29 53492
-570
54100
53350 60
300
32.46
54009
659
0.966
53278
53726 0
300
54060
334
0.094
53550
53967 0
300
54087.5 120.5
0.051
53700
54519 150
180
80.79
53890
-629
0.365
53991
53850 210
60
113.47 54050
200
0.297
53195
53230 0
60
52980
53650 0
60
53789
53888 0
60
53650
53700 60
60
32.21
84
2.245
2.494
0.403
52893.5 -756.5
1.743
52845
-1043
0.092
53832
602
53827
127
-4138
Fig 3.10
0.036
1.858
contract will be beneficial to short position trader resulting in a loss to the buyer with
the amount of Rs. 4,138/- .
Following is the table showing calculation of Payoffs
1st January
2013 (Buying)
Buyer
Seller
57,965/-
57,965/-
53,827/-
53,827/-
4,138/-
PROFIT
LOSS FOR THE BUYER OF FUTURES = Rs. 4,138/GAIN FOR THE SELLER OF FUTURES = Rs. 4,138/-
85
4,138/-
Fig 3.12
86
INTERPRETATION
The graphs above represents the relationship between closing prices and spot
prices of
commodity future markets, where X-axis represent contract period and Y-axis
represents
prices.
Considering the above graphs we get to know that spot prices revolve around
future prices representing high positive correlation between spot prices and future
prices.
As we observe the future price and spot price trends of the commodity Gold,
there has been a overall decline in the price trends, where we observe a steep
decrease in the trend from the month of August to mid September and thereby
maintaining price stability with minute fluctuations.
As we observe the price trends of Silver commodity, there has been a overall
decline in the price trends, where we observe a increasing trend up to the end of the
January month and thereby continuing with the gradual decline till the maturity date.
The difference between future price and spot price of Gold is high when
compare to the
Silver future prices and spot prices.
87
INTERPRETATION
88
The graphs above represents the price volatility of commodities Gold and
Silver, where X-axis represent contract period and Y-axis represents percentage
change in prices.
From the above graph we observe a high fluctuating percentage change in gold
prices resulting in more volatile market for gold where the investment in gold prove
to be more risky than the silver.
are less volatile than the gold, which proves that investment in silver are less risky
when compared to the Gold.
89
CHAPTER-V
FINDINGS
CONCLUSIONS
SUGGESTIONS
FINDINGS
90
The investment in this for short period of time and most of the trading is intra-day
in nature i.e., Buy and Sell on same day to make profits. Here daily volumes and
trends are considered.
commodities are more stable than that of other instruments of capital market.
Market and Commodity Future Market. If an amount of small change in the spot gold
market prices has the direct impact on the future prices of gold in commodity market.
Though future price and spot prices are positively co-related, but at major
instances spot prices are at lower level than the future prices.
As the delivery month of future contract is approached, the future prices converge
In case of rising price trends, long position trader (Buyer) earns profits where as
CONCLUSION
91
Commodities market, contrary to the beliefs of many people has been in existence
in India through the ages. However the recent attempt by the Government to permit
Multi-commodity National levels exchanges has indeed given it, a shot in the arm.
Commodity includes all kinds of goods.
The price movements are more predictable in commodity markets, unlike in other
markets where price manipulations are very much possible. Hence to that extent
market pricerisk is reduced.
Silver, crude oil , Cotton, Steel, Soya oil, Soya beans, Wheat, Sugar, Chana etc.,
provide excellent opportunitiesfor hedging the risks of the farmers,importers,
exporters, traders and large scale consumers.
SUGGESTIONS
92
93
BIBILIOGRAPHY
BIBILIOGRAPHY
94
JOURNALS
95
96