Professional Documents
Culture Documents
Final
Final
On
A STUDY ON COMMODITY MARKET
(by using Bullion Market)
At
India Bulls
Submitted in partial fulfilment of the
Requirements for the award of the Degree
of
MASTER OF BUSINESS ADMINISTRATION
Submitted By
Sanjith Singh
131215672023
Under the Guidance
of
Mr. K . Arjun Goud
Assistant Professor
MallaReddy Institute of Management
(Affiliated to Osmania University, Hyderabad)
2015 2017
CHAPTER I
Introduction of the study
Need & Scope of the Study
Objective of the study
Research Methodology
Limitations of the study
Introduction
Commodities have always been a part of our day to day existence as one of the
finest investment avenues available. But we have been unaware of them. The wheat in our bread,
the Cotton in our clothes, our gold jewels, the oil that runs our cars, etc,are all traded across the
world in major exchanges.
India has a long history of trade in commodity derivatives; this sector remained
underdeveloped due to the control over and intervention in commodities prices by the
government for many years. The production, supply and distribution of many agricultural
commodities are still governed by the state and forwards and futures trading are selectively
introduced with stringent controls. Free trade in many commodity items is restricted under the
Essential Commodities Act, 1955 and the Agriculture Productive Marketing Committees Acts of
the various state governments.
The Bombay Cotton Trade Association set up the first commodity exchange in
India and formally organized futures trading in cotton in 1875. Subsequently, many exchanges
came up in different parts of the country for futures trading in various commodities. The Gujarati
Vyapari Mandali came into existence in 1900, which undertook futures trading in oilseeds for the
first time in the country. The Calcutta Hessian exchange ltd and the East India Jute Association
Ltd were set up in 1919 and 1927 respectively for futures trade in raw jute. A future trading in
cotton was organized in Mumbai under the auspices of East India cotton Association in 1921.
Simultaneously, several exchanges were set up in major agricultural centers in North India before
the World War broke out and they were mostly engaged in wheat futures until it was prohibited
in 1921.
The existing exchanges Hapur, Muzaffarnagar, Meerut, Bhatinda etc were
established during this period. The Government of India banned trading in commodity futures in
the year 1966 in essential commodities. As a result of this, all the commodity futures in the year
1966, in order to have an effective control over the Khusro Committeee in 1980, the
Government, reintroduced futures trading in some selected commodities. As a result of this, all
the commodity exchanges went out of business and many trades started resorting to unofficial
and informal trading in futures On the recommendation of the Khusro committee in 1980, the
Government reintroduced futures trading in some selected commodities including cotton, jute
potatoes etc. As a part of economic reforms, the government of India appointed an expert
committee on forward markets under the chairmanship of K N Kabra in the year
1993. The committee submitted its report in 1944 and recommended for the reintroduction of
futures, with a wider coverage of and scope for more agricultural commodities. In order to give a
thrust to the agricultural sector, the National Agricultural Policy 2000 envisaged external and
domestic market reforms and the dismantling of all controls and regulations on the agricultural
commodity market. It also proposed enlargement of the coverage of futures market to reduce
wide fluctuations in commodity prices and for hedging the risk arising from price fluctuations.
In the budget speech delivered on 28 February 2002, the then Finance Minister
announced an expansion of futures and forward trading to cover all agricultural commodities.
This was followed by the removal of the ban on futures trading on 27 (out of 81 items) in
oilseeds, oils and their cakes in August 2002. Subsequently, in February 2003, the Government
removed the prohibition on the remaining 54 commodities also under the Forward trading in
general and the agricultural sector in particular, The Securities Contracts (Regulation) Act, 1956,
was also amended in August 2003 to provide for commodity derivatives Exchange (NCDEX )
and Multi Commodity Exchange (MCX), Mumbai,
National status was given to these exchanges so that they would be
automatically permitted to conduct futures trading in all commodities subject to the clearance of
by laws and contract specifications by the FMC, While the NMCE, Ahmedabad commenced
futures trading in November 2002, MCX and NCDEX, Mumbai commenced operations in
October and December 2003 respectively.
Futures trading play a key role in the marketing of many important
agricultural commodities and their products. And yet this institution is still perhaps the least
understood and often the most condemned part of the entire marketing system. In our own
country as well as in those like the U.S.A. and the U.K., where active Futures markets exist, a
theoretical debate has been going on for quite some time as to their role and functions. Much of
the discussion has naturally centered on the Effects of futures trading on prices. Some affirm that
it helps to stabilize prices while others argue that because of the existence of speculation which is
inherent in it; its price effects are often destructive. Little empirical evidence, however, has yet
been produced in support of either view. The present study is a modest attempt in that direction.
There have been a large number of studies made in the field of investment and creation of
portfolios. All the studies made are in reference with income levels in general. Income levels
even though same but the field of work and the life style of a particular segment differ from
others, which in turn affects the saving and investment priorities.
The main focus on potential investors and those who invest regularly commodity
futures there return, risk and expectation towards commodity futures of this study is to asses
To examine the various risk factors in using commodity futures by inflation and price
fluctuation, and to evaluate the future trading on price and price variation
Research Methodology
Methodology
It is a way to systematic solution of the research problem. The researcher needs to
understand the assumption underlying various techniques and procedures that will be applicable
to certain problem. This means that it is necessary for the researcher to design its methodology.
There are various factors such as the personal factors as well as the market factors that motivate
a person to save and invest. Thus, the questionnaire will be directed towards the respondents to
give the feed back about their savings interest and the various investment opportunities they are
aware about and it also give respondents to rethink about their investment criteria and upgrade it
to maximize their returns.
Sampling
All items under study in any field of survey are known as a universe or population. A
complete enumeration of all items in the population is census enquiry, which is not practically
possible. Thus sample design is done which basically refers to the definition plan defined by any
data collection for obtaining a sample from a given population.
Sampling Technique This study is purposive in nature as the research is concentrating on the
various issues that are related to general investment avenue .Research is not trying to reach a
conclusion by making any assumption and findings are based on the responses of the respondents
that enrich our database with a focus on the creation of certain portfolios in general investment
avenue
Convenient Sampling approach is adopted here. This is due to the fact that the
respondents were available only at the colleges and only at the duty time, to get the clear idea of
their approach the nearest colleges were selected and the study was made.
Sampling unit
The sample size consists of different units like businessman, professionals, government
employees, and private employees .others and head of departments of various streams. Thus the
population selected was of faculties consisting of both males and females of different age groups,
holding different qualifications.
In this study the Primary data is collected by means of personnel interview with
the help of some questions
The secondary data are those data which already exist. This data is also an important
input for the study, and in this case the secondary data is collected from various records,
magazines, text books, internet, discussion with various in house faculties etc.
Limitations of the study
Some of the potential investors were reluctant to disclose their financial data and the
personal details.
The findings and conclusions drawn out of the study will reflect only existing trends in
the sector.
Only a percentage of total investors in each financial institute could be interviewed but
the analysis is generalized
The accuracy and authenticity of the observations made and conclusions drawn largely
depend upon the corresponding accuracy and authenticity of the information supplied
by the respondents at large.
CHAPTER II
LITERATURE
REVIEW
Review of literature
Commodity trading in India:
The history of organized commodity derivatives in India goes back to the
nineteenth century when the Cotton Trade Association started futures trading in 1875, barely
about a decade after the commodity derivatives started in Chicago. Over time the derivatives
market developed in several other commodities in India. Following cotton, derivatives trading
started in oilseeds in Bombay (1900), raw jute and jute goods in Calcutta (1912), wheat in Hapur
(1913) and in Bullion in Bombay (1920). However, many feared that derivatives lead to
unnecessary speculation in essential commodities, and were harmful to the healthy functioning
of the markets for the underlying commodities, and also to the farmers.
With a view to restricting speculative activity in cotton market, the Government of Bombay
prohibited options business in cotton in 1939. Later in 1943, forward trading was prohibited in
oilseeds and some other commodities including food-grains, spices, vegetable oils, sugar And
cloth. After Independence, the Parliament passed Forward Contracts (Regulation) Act, 1952
which Regulated forward contracts in commodities all over India. The Act applies to goods,
which are defined as any movable property other than security, currency and actionable claims.
The Act prohibited Options trading in goods.
In 1970s and 1980s the Government relaxed forward trading rules for some commodities.
The Kabra committee report
After the introduction of economic reforms since June 1991 and the consequent
gradual trade and industry liberalisation in both the domestic and external sectors, the
Government of India appointed in June 1993 a committee on Forward Markets under
chairmanship of Prof. K.N. Kabra.
The committee was setup with the following objectives:
1. To assess
The working of the commodity exchanges and their trading practices in India
To make suitable recommendations with a view to making them compatible
with those of other countries
2. To review the role that forward trading has played in the Indian commodity markets
during the last 10 years.
3. To examine the extent to which forward trading has special role to play in promoting
exports.
4. To suggest measures to ensure that forward trading in the commodities in which it is
allowed to be operative remains constructive and helps in maintaining prices within
reasonable limits.
The committee submitted its report in September 1994. The recommendations of the Committee
were as follows:
The Forward Markets Commission (FMC) and the Forward Contracts (Regulation) Act,
1952, would need to be strengthened.
Due to the inadequate infrastructural facilities such as space and telecommunication
facilities the commodities exchanges were not able to function effectively. Enlisting more
members, ensuring capital adequacy norms and encouraging computerisation would
enable these exchanges to place themselves on a better footing.
In-built devices in commodity exchanges such as the vigilance committee and the panels
of surveyors and arbitrators are strengthened further.
The FMC which regulates forward/ futures trading in the country should continue to act
a watch.dog and continue to monitor the activities and operations of the commodity
exchanges. Amendments to the rules, regulations and bye-laws of the commodity
exchanges should require the approval of the FMC only.
All the exchanges have been set up under overall control of Forward Market
Commission (FMC) of Government of India.
FORWARD MARKET COMMISSION:-Forward Markets Commission (FMC) headquartered
at Mumbai, is a regulatory authority which is overseen by the Ministry of Consumer Affairs
and Public Distribution, Govt. of India. It is a statutory body set up in 1953 under the
Forward Contracts (Regulation) Act, 1952.
History of Gold:
In India Gold is having a history of more than 7000 years which can find in
religious book of Hindu, where it is considered as a metal of immense value. But looking at the
history of world, gold is found at the Egypt at 2000B.C, which is the first metal used by the
humans value for ornament and rituals. Gold has long been considered one of the most precious
metals, and its value has been used as the standard for many currencies in history. Gold has been
used as a symbol for purity, value, royalty, and particularly roles that combine these properties.
It has a special role in India and in certain countries, gold Jewelry is worn
for ornamental value on all social functions, festivals and celebrations. It is the popular
form of investment in rural areas between the farmers after having bumper crop or after
harvesting, this all factor makes India as largest consumer (18.7% of world total demand
in 2004) and importer of gold due to its low production, which is negligible, and
untapped gold reserves. This is due to lack of new technology in finding gold reserves
and low interest shown by government in financing, encouraging for exploration
programs in gold mines.
Gold future trading debuted first at Winnipeg Commodity Exchange (know is Comex) in Canada
in 1972. The gold contract gain popularity among traders, led to many countries had too started
gold future trading. Which include London gold future, Sydney future exchange, Singapore
International Monetary Exchange (Simex), Tokyo Commodity Exchange (Tocom), Chicago
Mercantile Exchange, Chicago Board of Trade (CBOT), Shanghai Gold Exchange, Dubai Gold
and Commodity Exchange are some of the world Top recognized exchange, and in India,
National Commodity and Derivative Exchange (NCDEX) and Multi-Commodity Exchange
(MCX), and National Board of Trade (NBOT) are some Indian exchanges where Gold are traded.
History of gold trading in India is dates back to 1948 with Bombay Bullion Association, which is
formed by the group of Merchants.
PRODUCTION OF GOLD
Till now the total gold is extracted from the mines is about $1 trillion dollar, which is
accumulated in physical form is enough to built Eiffel tower.
Annual gold production worldwide is about US$35 billion and by far the one of
the largest-trading world commodity. Worldwide, gold mines produce about 2,464 tonnes in the
year 2004 from total supply of 3328 tonnes but unable to meet identifiable demand of 3497
tonnes. Gold is mined in more than 118 countries around the world, with the large number of
development projects in these countries expected to keep production growing well into the next
century. Currently, South Africa is the largest gold producing country, followed by the United
States, Australia, Canada, Indonesia, Russia and others, some of these countries also account for
highest gold reserves from potential 50,000 tonnes of world-wide reserves.
Monetary authorities have long held gold in their reserves. Today their stocks amount to some
30,000 tonnes - similar to their holdings 60 years ago. It is sometimes suggested that maintaining
such holdings is inefficient in comparison to foreign exchange. However, there are good reasons
for countries continuing to hold gold as part of their reserves. These are recognized by central
banks themselves although different central banks would emphasize different factors.
Diversification: In any asset portfolio, it rarely makes sense to have all your eggs in one
basket. Obviously the price of gold can fluctuate - but so too do the exchange and interest rates
of currencies held in reserves. A strategy of reserve diversification will normally provide a less
volatile return than one based on a single asset.
Gold has good diversification properties in a currency portfolio. These stem from the fact that its
value is determined by supply and demand in the world gold markets, whereas currencies and
government securities depend on government promises and the variations in central banks
monetary policies. The price of gold therefore behaves in a completely different way from the
prices of currencies or the exchange rates between currencies.
Physical Security: Countries have in the past imposed exchange controls or, at the worst,
total asset freezes. Reserves held in the form of foreign securities are vulnerable to such
measures. Where appropriately located, gold is much less vulnerable. Reserves are for using
when you need to. Total and incontrovertible liquidity is therefore essential. Gold provides this.
Unexpected needs: If there is one thing of which we can be certain, it is that todays status quo
will not last forever. Economic developments both at home and in the rest of the world can upset
countries plans, while global shocks can affect the whole international monetary system.
Owning gold is thus an option against an unknown future. It provides a form of
insurance against some improbable but, if it occurs, highly damaging event. Such events might
include war, an unexpected surge in inflation, a generalised crisis leading to repudiation of
foreign debts by major sovereign borrowers, a regression to a world of currency or trading blocs
or the international isolation of a country.
Confidence: The public takes confidence from knowing that its Government holds gold - an
indestructible asset and one not prone to the inflationary worries overhanging paper money.
Some countries give explicit recognition to its support for the domestic currency. And rating
agencies will take comfort from the presence of gold in a country's reserves.
The IMF's Executive Board, representing the world's governments, has recognized that the
Fund's own holdings of gold give a "fundamental strength" to its balance sheet. The same applies
to gold held on the balance sheet of a central bank.
Income: Gold is sometimes described as a non income-earning asset. This is untrue. There is a
gold lending market and gold can also be traded to generate profits. There may be an
"opportunity cost" of holding gold but, in a world of low interest rates, this is less than is often
thought. The other advantages of gold may well offset any such costs.
Insurance: The opportunity cost of holding gold may be viewed as
comparable to an insurance premium. It is the price deliberately
paid to provide protection against a highly improbable but
highly damaging event. Such an event might be war, an
unexpected surge of inflation, a generalized debt crisis
involving the repudiation of foreign debts by major sovereign
borrowers, a regression to a world of currency and trading
blocs, or the international isolation of a country.
Production of Silver
Silver ore is most often found in combination with other elements, and silver has
been mined and treasured longer than any of the other precious metals. Mexico is the worlds
leading producer of silver, followed by Peru, Canada, the United States, and Australia. The main
consumer countries for silver are the United States, which is the worlds largest consumer of
silver, followed by Canada, Mexico, the United Kingdom, France, Germany, Italy, Japan and
India. The main factors affecting these countries demand for silver are macro economic factors
such as GDP growth, industrial production, income levels, and a whole host of other financial
macroeconomic indicators.
The process of arriving a figure at which a person buys and another sells a futures
contract for a specific expiration date is called price discovery. The process of price discovery
continues from the market's opening until its close and also free flow of information is also very
important in an active future market. Futures exchanges act as a focal point for the collection and
distribution of statistics on supplies, transportation, storage, purchases, exports, imports,
currency values, interest rates and other relevant formation. As a result of this free flow of
information, the market determines the best estimate of today and tomorrow's prices and it is
considered to be the accurate reflection of the supply and demand for the underlying commodity.
Price discovery facilitates this free flow of information, which is essential to the effective
functioning of futures market.
We try to understand the pricing of commodity futures contracts and look at how
the futures price is related to the spot price of the underlying asset. We study the cost - of - carry
model to understand the dynamics of pricing that constitute the estimation of fair value of
futures.
F=S+C Eq
(1)Where
F = Future price C = Holding cost or carrying cost S = Spot price
F = S erT .. Eq (3)
Where:
r = Cost of financing (Using continuously compounding interest rate)
T = Time till expiration
e = 2.71828
Let us take an example of a future contract on commodity and we work out the
price of the contract. Let the spot price of gold is RS. 1376310gms. If the cost of financing is
15% annually, then what should be the future price of 10gms of gold one month later? Let us
assume that we are on 1 Jan 2009. How would we compute the price of gold future contract
expiring on 30 January? Let us first try to work out the components of cost of carry model.
1. What is the spot price of gold?
The spot price of gold, S = 13763/ 10gms.
2. What is the cost of financing for month?
e0.15 30/365
3. What are the holding costs?
Let us assume that the storage cost = 0
The above table gives the indicative warehouse charges for qualified warehouses that will
function as delivery centers for contracts that trade on the NCDEX. Warehouse charges include a
fixed charge per deposit of commodity into the warehouse, and as per unit per week charge. Per
unit charges include storage costs and insurance charges. We saw that in the absence of storage
costs, the futures price of a commodity that is an investment asset is given by F = S erT Storage
Costs add to the cost of carry. If U is the present value of all the storage costs that will be
incurred during the life of a futures contract, it follows that the futures price will be equal to
We see that the three month futures price of a kg of gold would be Rs. 1401640.30. The three
month futures price for 10 grams of gold would be about Rs. 14016.40
To take advantage of this opportunity, an arbitrager can implement the following strategy:
I. Borrow an amount S + U. at the risk free interest rate and use it to
purchase one unit of the commodity.
II. Short a forward contract on one unit of the commodity.
If we regard the futures contract as a forward contract, this strategy leads to a profit of
F - (S+U) erT at the expiration of the futures contract. As arbitragers exploit this opportunity, the
spot price will increase and the futures price will decrease until Equation (5) does not hold good.
Suppose next that
I. Sell the commodity, save the storage costs, and invest the proceeds at the risk free
interest rate.
II. Take a long position in a forward contract.
This would result in a profit at maturity of (S+U) e rT F relative to the position that the investors
would have been in had they held the underlying commodity. As arbitragers exploit this
opportunity, the spot price will decrease and the futures price will increase until equation 6 does
not hold well. This means that for investment assets, equation 4 holds good. However, for
commodities like cotton or wheat that are held for consumption purpose, this argument cannot be
used. Individuals and companies who keep such a commodity in inventory, do so, because of its
consumption value not because of its value as an investment. They are reluctant to sell these
commodities and buy forward or futures contracts because these contracts cannot be consumed.
Therefore there is unlikely to be arbitrage when equation 6 holds good. In short, for a
consumption commodity therefore
F (S+U) erT .
Eq (7)
That is the futures price is less than or equal to the spot price plus the cost of carry.
Most futures contracts do not lead to the actual physical delivery of the underlying
asset. The settlement is done by closing out open positions, physical delivery or cash settlement.
All these settlement functions are taken care of by an entity called clearing house or clearing
corporation. National Securities Clearing Corporation Limited (NSCCL) undertakes clearing of
trades executed on the NCDEX. The settlement guarantee fund is maintained and managed by
NCDEX.
1. Clearing
Clearing of trades that take place on an exchange happens through the
exchange clearing house. A clearing house is a system by which exchanges guarantee the faithful
compliance of all trade commitments undertaken on the trading floor or electronically over the
electronic trading systems. The main task of the clearing house is to keep track of all the
transactions that take place during a day so that the net position of each of its members can be
calculated. It guarantees the performance of the parties to each transaction.
Typically it is responsible for the following:
Effecting timely settlement
Trade registration and follow up.
Control of the evolution of open interest.
Financial clearing of the payment flow.
Physical settlement (by delivery) or financial settlement (by price
difference) of contracts.
Administration of financial guarantees demanded by the participants.
The clearing house has a number of members, who are mostly financial institutions responsible
for the clearing and settlement of commodities traded on the exchange. The margin accounts for
the clearing house members are adjusted for gains and losses at the end of each day (in the same
way as the individual traders keep margin accounts with the broker). On the NCDEX, in the case
of clearing house members only the original margin is required (and not maintenance margin),
Every day the account balance for each contract must be maintained at an amount equal to the
original margin times the number of contracts outstanding. Thus depending on a day's
transactions and price movement, the members either need to add funds or can withdraw funds
from their margin accounts at the end of the day. The brokers who are not the clearing members
need to maintain a margin account with the clearing house member through whom they trade in
the clearing house.
1.1 Clearing banks: NCDEX has designated clearing banks
Through whom funds to be paid and / or to be received must be settled. Every clearing member
is required to maintain and operate a clearing account with any one of the designated clearing
bank branches. The clearing account is to be used exclusively for clearing operations i.e., for
settling funds and other obligations to NCDEX including payments of margins and penal
charges. A clearing member can deposit funds into this account, but can withdraw funds from
this account only in his self-name. A clearing member having funds obligation to pay is required
to have clear balance in his clearing account on or before the stipulated pay in day and the
stipulated time. Clearing members must authorize their clearing bank to access their clearing
account for debiting and crediting their accounts as per the instructions of NCDEX, reporting of
balances and other operations as may be required by NCDEX from time to time. The clearing
bank will debit/ credit the clearing account of clearing members as per instructions received from
NCDEX. The following banks have been designated as clearing banks. ICICI Bank Limited,
Canarabank, UTI Bank Limited and HDFC Bank ltd
1.2 Depository participants: Every clearing member is required
To maintain and operate a CM pool account with any one of the empanelled depository
participants. The CM pool account is to be used exclusively for clearing operations i.e., for
effecting and receiving deliveries from NCDEX.
2. Settlement
Futures contracts have two types of settlements,
The MTM settlement which happens on a continuous basis at the
end of each day
And the final settlement which happens on the last trading day of
the futures contract.
On the NCDEX, daily MTM settlement and final MTM settlement in respect of admitted deals in
futures contracts are cash settled by debiting/ crediting the clearing accounts of CMs with the
respective clearing bank. All positions of a CM, either brought forward created during the day or
closed out during the day, are marked to market at the daily settlement price or the final
settlement price at the close of trading hours on a day.
Daily settlement price: Daily settlement price is the consensus closing price as arrived
after closing session of the relevant futures contract for the trading day. However, in the
absence of trading for a contract during closing session, daily settlement price is
computed as per the methods prescribed by the exchange from time to time.
Final settlement price: Final settlement price is the closing price of the underlying
commodity on the last trading day of the futures contract. All open positions in a futures
contract cease to exist after its expiration day.
Cash settlement
Contracts held till the last day of trading can be cash settled. When a contract is
settled in cash, it is marked to the market at the end of the last trading day and all positions are
declared closed. The settlement price on the last trading day is set equal to the closing spot price
of the underlying asset ensuring the convergence of future prices and the spot prices. For
example an investor took a short position in five long staple cotton futures contracts on
December 15 at Rs.6950. On 20th February, the last trading day of the contract, the spot price of
long staple cotton is Rs.6725. This is the settlement price for his contract. As a holder of a short
position on cotton, he does not have to actually deliver the underlying cotton, but simply takes
away the profit of Rs.225 per trading unit of cotton in the form of cash.
Risk management
NCDEX has developed a comprehensive risk containment mechanism for its commodity
futures market. The salient features of risk containment mechanism are:
The financial reliability of the members is the key to risk management.
Therefore, the requirements for membership in terms of capital
adequacy (net worth, security deposits) are quite stringent.
NCDEX charges an open initial margin for all the open positions of a
member. It specifies the initial margin requirements for each futures
contract on a daily basis. It also follows value-at-risk (VAR) based
margining through SPAN. The PCMs and TCMs in turn collect the
initial margin from the TCMs and their clients respectively.
The open positions of the members are marked to market based on
contract settlement price for each contract. The difference is settled in
cash on a T+1 basis.
A member is alerted of his position to enable him to adjust his exposure
or bring in additional capital. Position violations result in withdrawal of
trading facility for all TCMs of a PCM in case of a violation by the
PCM.
A separate settlement guarantee fund for this segment has been created
out of the capital of members.
CHAPTER III
INDUSTRY PROFILE
COMPANY PROFILE
Industry profile
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. In this chapter we look at the use of commodity derivatives for hedging,
speculation and arbitrage.
HEDGING
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
wheat or oil or any other 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.
SHORT HEDGE
LONG HEDGE
Hedges that involve taking a long position in futures contract are known as long
hedges. A long hedge is appropriate when a company knows it will have to purchase a certain
asset in the future and wants to lock in a price now.
SPECULATION
An entity having an opinion on the price movements of a given commodity
can speculate using the commodity market. While the basics of speculation apply to any market,
speculation in commodities is not as simple as speculating on stocks in the financial market.
For a speculator who thinks the shares of a given company will rise, it is easy
to buy the shares and hold them for whatever duration he wants to. However, commodities are
bulky products and come with all the costs and procedures of handling these products. The
commodities futures markets provide speculators with an easy mechanism to speculate on the
price of underlying commodities.
To trade commodity futures on the NCDEX, a customer must open a futures
trading account with a commodity derivatives broker. Buying futures simply involves putting in
the margin money. This enables futures traders to take a position in the underlying commodity
without having to actually hold that commodity. With the purchase of futures contract on a
commodity, the holder essentially makes a legally binding promise or obligation to buy the
underlying security at some point in the future.
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, involves the simultaneous purchase and sale of the
same or essentially similar security in two different markets for advantageously different prices.
The buying cheap and selling expensive continues till prices in the two markets reach
equilibrium. Hence, arbitrage helps to equalize prices and restore market efficiency.
Indian commodity exchange and progress
The Bombay Cotton Trade Association set up the first commodity exchange in
India and formally organized futures trading in cotton in 1875. Subsequently, many exchanges
came up in different parts of the country for futures trading in various commodities. The Gujarati
Vyapari Mandali came into existence in 1900, which undertook futures trading in oilseeds for the
first time in the country.
The Calcutta Hessian exchange ltd and the East India Jute Association Ltd were
set up in 1919 and 1927 respectively for futures trade in raw jute. Futures trading in cotton were
organized in Mumbai under the auspices of East India cotton Association in 1921.
Simultaneously, several exchanges were set up in major agricultural centers in North India before
the World War broke out and they were mostly engaged in wheat futures until it was prohibited
in 1921.
The existing exchanges Hapur, Muzaffarnagar, Meerut, Bhatinda etc were
established during this period. The Government of India banned trading in commodity futures in
the year 1966 in essential commodities. As a result of this, all the commodity futures in the year
1966, in order to have an effective control over the Khusro Committeee in 1980, the
Government, reintroduced futures trading in some selected commodities. As a result of this, all
the commodity exchanges went out of business and many trades started resorting to unofficial
and informal trading in futures
COMPANY PROFILE
India Bulls Financial Services is one of Indias leading and fastest growing financial services
firms. It is a major player in the capital markets dealing with securities broking, margin lending,
depository services, equity research services, and commodities trading. It also provides credit
services like loan against shares, mortgage and consumer finance. It is constantly tapping new
business areas to drive growth.
India Bulls Financial Services Ltd. (IBFSL) established one of the first in-house developed
trading platforms in India. It expanded its service offerings to include Equity, F&O, wholesale
Debt, Mutual fund, IPO distribution and Equity Research. It ventured into Insurance distribution
and commodities trading. It has always focused on brand building and the franchise model for
expanding its business. It came out with its Initial Public Offer (IPO) in September 2004 and it
gradually emerged as a market leader in securities brokerage industry with 43% of online share
trading. In the financial year 2006-07 it was included in the prestigious Morgan Stanley Capital
International Index (MSCI).
India Bulls Financial Services Ltd has given us an opportunity to do an internship project for the
company. The goals of this project have been clearly defined. The various goals are as follows
nt acquisition
Revenue generation
Mapping the Risk Profile of Clients
Coordination with the back office
Client servicing and Retention
Understanding the Media Sector
Studying the patterns of the derivatives market
Change is occurring at an accelerating rate; today is not like yesterday, and tomorrow will be
different from today. For Businesses, change is the only constant. Firms that do not change and
adjust themselves to the market trends will go out of business in no time. Continuing todays
strategy is risky; so is turning to a new strategy. Therefore, tomorrows successful companies
will have to heed three certainties:
Global forces will continue to affect everyones business and personal life.
Technology will continue to advance and amaze us.
There will be a continuing push toward deregulation of the economic sector.
It lacks transparency.
The scope of manipulation, speculation and mal practice is more.
Signal were more important in the outcry system any member who could not interpret the
buy/sell signal correctly often landed himself in disaster situation.
In audibility was another disadvantage of the outcry system.
Due to the above disadvantages of the outcry system the INDIABULLS has shifted from
outcry system to online trading from February 29th 1997.
MANUAL TRADING
Trading procedure before introduction of online trading
Trading on stock exchanges is officially done in the trading ring. In the trading ring the
space is provided for specified and non-specified sections, the members and their authorized
assistants have to wear a badge or carry with them an identity card given by the exchange to
enter the trading ring. They carry a sauda book or confirmation memos, duly authorized by the
exchange and carry a pen with them. The stock exchanges operations are floor level are technical
in nature .Non-members are not permitted to enter in to stock market. Hence various stages have
to be completed in executing a transaction at a stock exchange .The steps involved in this method
of trading have given below:
Choice of broker:
The prospective investor who wants to buy shares or the investors, who wants to sell
shares and transact business, have to act through member brokers only. They can also appoint
their bankers for this purpose as per the present regulations.
Placement of order
The next step is the placing order for the purchase or sale of securities with a broker. The
order is usually placed by telegram, telephone, letter, fax etc or in person. To avoid delay, it is
placed generally over the phone. The orders may take any one of the forms such as At Best
Orders, Limit Order, Immediate or Cancel Order, Limited Discretionary Order, and Open Order,
Stop Loss Order.
Execution of order or contract
Orders are executed in the trading ring of the BSE. This works from 11:30 to 2.30 P.M on
all working days Monday to Friday, and a special one-hour session on Saturday. The members or
the authorized assistants have to wear a badge given by the exchange to enter into the trading
ring. They carry a sauda Block Book or conformation memos, which are duly authorized by the
exchange when the deal is struck; both broker and jobber make a note in their sauda block books.
From the sauda book, the contract notes are drawn up and posted to the client. A contract note is
written agreement between the broker and his clients for the transaction executed.
Drawing Up and Bills:
Both sale and purchase bills are prepared along with the contract note and it is posted on
the same day or the next day. This in a purchase transaction, once the shares are delivered to the
client effects payment for the purchases and pays the stamp fees for transfer, a bill is made out
giving the total cost of purchase, including other expenses incurred by the broker in the price
itself. With this, the process ends.
DEMATERLIZATION
Dematerialization is the process by which physical certificates of an investor are
converted to an equipment number of securities in electronic from and credited in the investor
account with his DP. In order to dematerialize the certificates, an investor has to first open an
account with a DP and then request for the Dematerialization Request Form, which is DP and
submit the same along with the share certificates. The investor has to ensure that he marks
Submitted for Dematerialization on the certificates before the shares are handed over to the DP
for demat. Dematerialization can only be done to those certificates, which are already registered
in your name and belong to the list of securities admitted for Dematerialization at NSDL.
Most of the active scrips in the market including all the scrips of S&P CNX NIFTY and
BSE SENSEX have already joined NSDL. This list is steadily increasing.
Briefly, the process is as follows: after completion of transfer, the investor gets the option
to dematerialize such shares. Investors willing to exercise this option sends a Demat request
along with the option letter sent by the company to his DP. The company or its R&T agent would
confirm the Demat request on its receipt from the DP to reduce risk of loss in transit.
Dematerialized shares do not have any distinctive or certificate numbers. These shares are
fungible-which means that 100 shares of a security are the same as any other 100 shares of the
security. Odd lot shares certificates can also be dematerialized.
Dematerialization normally takes about fifteen to thirty days. To get back dematerialized
securities in the physical form, request DP for Rematerialization of the same is made.
dematerialization is the process of converting electronic shares in to physical shares.
Benefits of Demate
It reduces the risk of bad deliveries, in turn saving the cost and wastage of time
associated with follow up for rectification. This has lead to reduction in brokerage to
the extent of 0.5% by quite a few brokerage firms.
In case of transfer of electronic shares, you save 0.5% in stamp duty. You avoid the
cost of courier / notarization.
You can receive your bonuses and rights issues into your DA as a direct credit, this
eliminating risk of loss in transit.
You can also expect a lower interest charge for loans taken against Demat shares as
compared to loans against physical shares.
There is no lost in transit, thus the overheads of getting a duplicate copy in such
circumstances is reduced.
RBI has also reduced the minimum margin to 25% for loans against dematerialized
securities as against 50% for loans against physical securities.
ONLINE TRADING
Before getting in to the online trading we should know some things about the internet, e-
commerce and etc.
Internet
A combination of time and space, called the Internet promises to bring unprecedented
changes in our lives and business. Internet or net is an inter-connection of computer
communication networks spanning the entire globe, crossing all geographical boundaries. It has
re-defined the methods of communication, work study, education, business, leisure, health, trade,
banking, commerce and what not it is virtually changing every thing and we are living in
dot.com age. Net being an interactive two way medium, through various websites, enables
participation by individuals in business to business and business to consumer commerce, visit to
shopping arcades, games, etc. in cyber space even the information can be copied, downloaded
and retransmitted.
The use of Internet has grown 2000 percent in last decade and is currently growing at 10
percent per month. In India, growth of Internet is of recent times. It is expected to bring changes
in every functional area of business activity including management and financial services. It
offers stock trading at a lower cost. Internet can change the nature and capacity of stock broking
business in India.
E-commerce
Electronic commerce is associated with buying and selling over computer communication
networks. It helps conduct traditional commerce through new way of transferring and processing
of information. Information is electronically transferred from computer to computer in an
automated way. E-commerce refers to the paperless exchange of business information using
electronic data inter change, electronic technologies. It not only reduces manual processes and
paper transactions but also helps organization move to a fully electronic environment and change
the way they operated.
PCs and networking attempts to introduce banks of the tools and technologies required
for electronic commerce. The computers are either workstations of individual office works or
serves where large databases and information reside. Network connects both categories of
computers; the various operating systems are the most basis program within a computer. It
manages the resources of the computer system in a fair and efficient manner. we can enter in to
the concept known as online trading.
BENFITS IN THE TRADING SYSTEM
1.Trading Members: they are member of NSE. They can trade either on their own account or
on behalf of their clients including participants. The exchange assigns a trading members ID to
each trading member who can have more than one use. But the maximum number of users
allowed for each trading member is notified by the exchange from time to time.
2.Clearing members: They are members of NSCCL and carry out risk management activities
and confirmation\ inquiry of trades through the trading system.
3.Participants: They are clients of trading members like the financial institutions. These clients
may trade through multiple trading members but settle through a single clearing member.
Corporate Hierarchy:
In F & I trading software, a trading member has the facility of defining a hierarchy amongst
users of the system.
1) Corporate Manager: The term is assigned to a user placed at the highest level in a trading
firm. Such a user can perform at the functions such as order and trade related activities,
receiving report for all branches of the trading member firm and also dealers of the firm. He
can only define exposure limits for the branches of the firm.
2) Branch Manager: The term is assigned to a user who is placed under the corporate manager.
He can perform and view order and trade related activities for all dealers under that branch.
In India:
Internet trading started in India on 1st April 2000 with 79 members seeking permission for
online trading. The SEBI committees on internet based securities trading services has allowed
the net to be used as an Order Routing System (ORS) through registered stock brokers on behalf
of their clients for execution of transaction. Under the ORS the client enters his requirements
(security, quantity, price buy/sell) on brokers site.
Objectives:
Internet trading is expected to
Increase transparency in the markets,
Enhance market quality through improved liquidity, by increasing quote continuity
and market depth,
Reduce settlement risks due to open trades, by elimination of mismatches,
Provide management information system,
Introduce flexibility in system, so as to handle growing volumes easily and to support
nationwide expansion of market activity.
Besides, through internet trading three fundamental objectives of securities regulation
can be easily achieved, these are:
Investor protection
Creation of a fair and efficient market, and
Reduction of the systematic risks.
Some of the brokers offering net trading include ICICI direct, kotakstreet, etc.
Requirements for net trading
For investors
1. Installation of a computer with required specification
2. Installation of a modem
3. Telephone connection
4. Registration for on-line trading with broker
5. A bank account
6. Depository account
7. Compliance with SEBI guidelines for net trading
The following should be produced to get a demat account and online trading account
As identity proof & address proof any one of the following:
Voter ID card
Driving license
PAN card( in case of to trade more than 50000)
Ration card
Bank pass book
Telephone bill
ther requirements, which are necessary
First page of the bank pass book and last 6 months statement.
Bank managers signature along with banks seal, manager registration code on
photograph.
For stock brokers
1. Permission from stock exchange for net trading
2. Net worth of Rs. 50 lac
3. Adequate back-up system
4. Secured and reliable software system
5. Adequate, experienced and trained staff
6. Communication of order (trade confirmation to investor by e-mail)
7. Use of authentication technologies
8. Issue of contract notes within 24 hours of the trade execution
9. Setting up a website.
The net is used as a medium of trading in internet trading. Orders are communicated to
the stock exchange through website. Internet trading started in India on 1st April 2000 with 79
members seeking permission for online trading. The SEBI committees on internet based
securities trading services has allowed the net to be used as an Order Routing System (ORS)
through registered stock brokers on behalf of their clients for execution of transaction.
Under the Order Routing System the client enters his requirements (security, quantity,
price, and buy/sell) in broker's site. They are checked electronically against the clients account
and routed electronically to the appropriate exchange for execution by the broker. The client
receives a confirmation on execution of the order. The customer's portfolio and ledger accounts
get updated to reflect the transaction. The user should have the user id and password to enter into
the electronic ring. He should also have demat account and bank account. The system permits
only a registered client to log in using user id and password. Order can be
Procedure for net trading
Step 1: Those investors, who are interested in doing the trading over internet system i.e.
NEAT-IXS, should approach the brokers and get them self registered with the Stock Broker.
Step 2: After registration, the broker will provide to them a Login name, Password and
personal identification number (PIN).
Step 3: Actual placement of an order. An order can then be placed by using the place order
window as under:
(a) First by entering the symbol and series of stock and other parameters like quantity and
price of the scrip on the place order window.
(b) Second, fill in the symbol, series and the default quantity.
Step 4: It is the process of review. Thus, the investor has to review the order placed by
clicking the review option. He may also re-set to clear the values.
Step 5: After the review has been satisfactory, the order has to be sent by clicking on the
send option.
Step 6: The investor will receive an "Order Confirmation" message along with the order
number and the value of the order.
Step 7: In case the order is rejected by the Broker or the Stock Exchange for certain reasons
such as invalid price limit, an appropriate message will appear at the bottom of the screen. At
present, a time lag of about 10 seconds is there in executing the trade.
Step 8: It is regarding charging payment, for which there are different mode. Some brokers
will take some advance payment from the investor and will fix their trading limits. When the
trade is executed, the broker will ask the investor for transfer of funds to his account.
Internet trading provides total transparency between a broker and an investor in the
secondary market. In the open outcry system, only the broker knew the actually transacted
price. Screen based trading provides more transparency. With online trading investors can see
themselves the price at which the deal takes place.
The time gap has narrowed in every stage of operation. Confirmation and execution of trade
reaches the investor within the least possible time, mostly within 30 seconds. Instant
feedback is available about the execution. Some of the websites also offer;
News and research report
BSE and NSE movements
Stock analysis
IPO and mutual fund centers
Limit / stop orders: orders that can be go unfilled, but there is an extra Charge for this
leeway facility since one need to hold a price.
Market orders: orders can be filled at unexpected prices, but this type is much more
risky, since you have to buy stock at the given price.
Cash account: where funds have to be available prior to placing the order.
Margin account: where orders can be placed against stocks, to increase Purchasing power.
Online trading has made it possible for anyone to have easy and efficient access to more
reports and charts than it was previously possible if one went to any brokers' office. Thus
we have access to a lot more information online.
Online trading has let room for smaller organizations to compete with multinational
organizations since it is no longer a leg it issue. Being online does not identify the size of
any particular organization, therefore, this additional power to the underdogs.
Online trading has allowed companies to locate themselves where they want as physical
location is not an issue anymore. Companies can establish themselves according to their
gains and losses, for instance where tax (sales and value added taxes) is best suited to
them.
Online trading gives control to individuals and they can exercise it over accounts thus
comprehend what is going on when they trade. It is like going back to school and re-
educating oneself on how to trade online.
Individuals benefit by saving comparatively a lot more when trading online as the cost
per trade is less.
Individuals can invest in a variety of products, unlike earlier when people bought bonds,
mutual funds, and stock for long-term basis and sat on them. Now they can invest in
stocks, stock and index options mutual funds,
government, and even insurance.
They have control over their accounts, can make their own decisions and dont have to
give reasons for their actions. They are independent.
They have a reason to participate in the market and learn about it.
It is interesting, cheap, easy, fast, and convenient.
A lot of information is online so they can keep up-to-date with what is happening in the
trading world.
It will give investors a greater choice and better realization.
The immediate impact will be competition and benefits will accrue to the investors.
It will lead to brokerage commissions going down and brokers striving to increase
business afloat.
Investors will now go to place, which have better trading conditions and also members to
offer them better facilities.
They have access to numerous tools to invest, and can create their own portfolio.
HERE ARE THE POSSIBLE DISADVANTAGES
When network crashes, there will be problems and delays due to a large influx of rapid
online trading criteria.
Individuals are restricted to first-hand financial guidance. This simply means that the
individual is himself / herself alone to.
A tax (sales tax and value added tax) evaluation becomes an issue, especially when you
are trading internationally.
One has no idea with whom he is dealing with on the other end.
According to a study conducted by Mary Rowland, careful investor: is online trading bad
for your portfolio, the more one trades the less returns one gets, meaning that an addicted
trader gets, carried away online and begins to trade for too much which causes losses for
him / her.
Individuals think that they are trading with the market directly and know what they are
doing, but the truth is that even though technology has taken over, the basic rules of
trading are the same. It seems that the middleman has been removed, but that is not so.
When the individuals click on the mouse, his tradertain to the intermediary.
SETTLEMENT AT INDIABULLS
The NSE first introduced online trading in India. The Online trading system imparted a
greater level of transparency and investors preferred exchanges that offered Online trading
because of the following factors:
The ease of operation from the view of the both members and the investors.
Increase in the confidence of the investors because of higher level of transparency.
Facilities better monitoring of the market by the exchange.
The best price achieved in buying and selling.
All these resulted in ever-increasing volumes on the exchanges offering the online trading.
TRADING PROCEDURE AT INDIABULLS STOCK BROCKING
IndiaBulls deals in buying and selling equity shares and debentures on the National Stock
Exchange (NSE), the Bombay Stock Exchange (BSE) and the Over-The-Counter Exchange of
India (OTCEI). India Bulls is provided with a computer and required software from their
registered stock exchanges. These centers are called Broker Work Stations. These computers
are connected to the server at the stock exchanges through cable.
The member or broker sitting in his office can send the quotations, orders, negotiations,
deals, in-house deals, auction orders etc., through the computer. The Central trading system
(CTS) will accept these orders and send it for match. If there is any mistake in the order, CTS
will reject the orders and send respective error message to the member concern. All these
operations are in built. The main objective of CTS is to monitor the Stock Exchanges operations.
Order placed by the broker will be sent for a match and if the match is found suitable, the
transaction will be executed. Otherwise, the order will be deleted automatically after completion
of trading time. The carry forward transactions (Good Till cancellation) are forwarded to the next
day. Even if the match is not found with in the prescribed period, the order will not cancel.
TRADING SESSION
Trading timings are from 9:00 A.Mto 3:30 P.M. on all 5 days of the trading period.
Monday to Friday is the trading period in all the stock exchanges. SEBI has stipulated that all the
stock exchanges in India must have same trading period.
BROKER WORK STATION
At the broker workstation the BBOs, the last traded price, the days opening price,
previous days closing price, highest and lowest prices, the weighted average price and total trade
value will be available continuously, as the BBO for each scrip.
Other information will be available on query from the BWS. These include top gainers
/losers of the day. Trader-wise, scrip wise net position, client wise net position, top scrip by the
volume/value, market summary etc.
Brokers are also provided with information relating to the companies in the matter of Book
closure, Dividend declarations, resolutions in board meeting, information about liquidated
companies, company report etc.
ORDERS
Orders can be done one at a time or in a batch mode.
The submitted order will be accepted at the CTS, after validation if it finds any invalid
reason the order is return back to the BWS, with the appropriate error message. If
Accepted at the CTS it will be added to the local pending order book.
The order will then be taken up for matching, if it is a buy order the system tries to find a
sell order, which fits the requirement of the buy order, when such match is found a trade gets
executed. Each trade involves two brokers and respective traders who sent the order. Both these
traders are informed of the trade being executed at their respective BWS.
At the BWS the trade is added to the local trade book.
Orders sent by the brokers are two types:
Good for the day (GFD)
Good till cancellation(GTC)
DETAILS OF PROCEDURES:
Delivery in : The members who are in pay-out position delivers share certificates in to clearing
house within the settlement period along with the delivery Chelan filled in with the details of
share certificates which has folio numbers or distinctive numbers etc.
Delivery out: The buyer of shares who made pay in position will take delivery of shares from
the clearing house.
Pay-in: The member who is in paying position shall pay for value of shares with in the trading
settlement period (T+2).
Payout: The cheques paid in the clearinghouse will be paid to members who are in paying
position.
All disputes arising between members regarding non-deliveries, non-payments, good and bad
deliveries pertaining to the settlement will be settled by the settlement committee of the
exchange.
The given flow chart clearly explains the process of online trading:
L o g in
B u y t r a n s c a t io n S e ll t r a n s c a t io n
T h e s y s te m w ill c h e c k y o u r
T h e s y s te m w ill c h e c k b u y in g d p ac c o u n t q u an tity
lim its
O rd e rs ac c e p te d R e je c t e d o r d e r s w o u ld b e o rd e rs ac c e p te d
c o m m u n ic a t e d a lo n g w it h r e a s o n s
y o u r o r d e r is t r a n s m it t e d t o e x c h a n g e f o r e x e c u t io n
p e n d in g b u y o r d e r s o n e x e c u t io n p e n d in g s e ll o r d e r s
w o u ld b e d is p la y e d o f y o u r o rd e rs w o u ld b e d is p la y e d
o n y o u r s c reen o n y o u r s c reen
y o u m a y e d it y o u r y o u m a y d e le t e y o u m a y e d it y o u r y o u m a y d e le t e y o u r
p e n d in g o r d e r y o u r p e n d in g o r d e r p e n d in g o r d e r p e n d in g o r d e r
f la s h e d o n y o u r c o n f o r m a t io n c o u l c o n t r a c t n o t e w o u ld
s c r e e n im m e d ia t e ly d b e s e n d to y o u r b e s e n t t o b y m a il
o n e x e c u t io n e - m a il a n d m o b ile o r h a n d d e liv e r y
CHAPTER IV
DATA ANALYSIS
&
INTERPRETATION
DATA ANALYSIS
Commodity - Gold
Traded
Quantity Total Value Price Price
Date Contract(In Unit
(In 000's) (In Lakhs) (10Grams) (1Gram)
Lots)
2-Jan-17 14106 3197.57 GRMS 88075.09 27544.42521 2754.442521
3-Jan-17 37486 12824.07 GRMS 354196.25 27619.63554 2761.963554
4-Jan-17 28354 8504.50 GRMS 235869.18 27734.62573 2773.462573
5-Jan-17 34678 11282.79 GRMS 314705.29 27892.50373 2789.250373
6-Jan-17 28475 9868.92 GRMS 275287.55 27894.39473 2789.439473
9-Jan-17 24271 7978.52 GRMS 223027.23 27953.44828 2795.344828
10-Jan-17 29586 9925.86 GRMS 279179.62 28126.49181 2812.649181
11-Jan-17 34757 12333.56 GRMS 348077.76 28221.99554 2822.199554
12-Jan-17 33103 11633.89 GRMS 330788.42 28433.16923 2843.316923
13-Jan-17 27168 9750.00 GRMS 276402.26 28348.95265 2834.895265
16-Jan-17 20589 6609.80 GRMS 188698.89 28548.35093 2854.835093
17-Jan-17 33575 11639.32 GRMS 334136.10 28707.53252 2870.753252
18-Jan-17 23591 8498.14 GRMS 244404.44 28759.75684 2875.975684
19-Jan-17 34102 11002.27 GRMS 314350.06 28571.38468 2857.138468
20-Jan-17 27410 9761.11 GRMS 279389.90 28622.75616 2862.275616
23-Jan-17 29501 11012.19 GRMS 317099.98 28795.36564 2879.536564
24-Jan-17 20038 7696.11 GRMS 221284.93 28752.83585 2875.283585
25-Jan-17 34818 11589.80 GRMS 330389.18 28506.89719 2850.689719
27-Jan-17 38926 12554.87 GRMS 354147.16 28207.95567 2820.795567
30-Jan-17 34953 15750.50 GRMS 447593.75 28417.74323 2841.774323
31-Jan-17 43544 19536.25 GRMS 560933.08 28712.42332 2871.242332
1-Feb-17 45136 18521.79 GRMS 533572.44 28807.82568 2880.782568
2-Feb-17 33243 13036.84 GRMS 377287.05 28940.07573 2894.007573
3-Feb-17 26280 10317.88 GRMS 297657.69 28848.7285 2884.87285
6-Feb-17 28716 11242.63 GRMS 326871.83 29074.31034 2907.431034
7-Feb-17 33042 11692.56 GRMS 342365.50 29280.62051 2928.062051
8-Feb-17 41625 11174.07 GRMS 327840.90 29339.43496 2933.943496
9-Feb-17 37146 14712.82 GRMS 430197.96 29239.67512 2923.967512
10-Feb-17 32851 11025.14 GRMS 320142.62 29037.50537 2903.750537
13-Feb-17 24578 8292.02 GRMS 241099.25 29076.07149 2907.607149
14-Feb-17 32011 11877.26 GRMS 345370.84 29078.3237 2907.83237
15-Feb-17 29771 12475.75 GRMS 362031.30 29018.8121 2901.88121
16-Feb-17 33753 12711.09 GRMS 372563.88 29310.14644 2931.014644
17-Feb-17 25911 10442.30 GRMS 306777.60 29378.36097 2937.836097
20-Feb-17 18000 6859.22 GRMS 200656.39 29253.51177 2925.351177
21-Feb-17 32335 13010.55 GRMS 379824.58 29193.58367 2919.358367
22-Feb-17 28820 10306.54 GRMS 301523.08 29255.5238 2925.55238
23-Feb-17 34673 12084.24 GRMS 354715.84 29353.58384 2935.358384
24-Feb-17 20624 6200.62 GRMS 183514.33 29596.14019 2959.614019
27-Feb-17 30780 9619.40 GRMS 285131.74 29641.31042 2964.131042
28-Feb-17 33219 10725.85 GRMS 317161.24 29569.78903 2956.978903
Interpretation:
From the above table we can state the from the two moths of trading in the bullion market
Gold value is higher at 27th February 2017 and the lower at 2nd January 2017
From the above table and graph we can state that as the index showing negative
From the above graph and table we can state that for the two months of trading of Gold
mini i.e. from 01/01/2017 to 28/02/2017 the highest value for the gold minim is on 27th Feb
From the above table and graph we can interprete that MCX market index showed good
performance than the gold mini but atlast it has avg returns as -0.28 where as the gold mini
Gold Guinea
Traded
Quantity Total Value Price Price
Date Contract(In Unit
(In 000's) (In Lakhs) (10Grams) (1Grams)
Lots)
2-Jan-17 456.00 3.65 GRMS 101.73 27886.51 2788.65
3-Jan-17 1170.00 9.36 GRMS 261.65 27954.06 2795.41
4-Jan-17 1232.00 9.86 GRMS 276.76 28080.36 2808.04
5-Jan-17 1155.00 9.24 GRMS 261.43 28293.29 2829.33
6-Jan-17 1162.00 9.30 GRMS 263.16 28308.95 2830.90
9-Jan-17 1000.00 8.00 GRMS 227.49 28436.25 2843.63
10-Jan-17 1134.00 9.07 GRMS 259.45 28598.99 2859.90
11-Jan-17 1638.00 13.10 GRMS 377.39 28799.60 2879.96
12-Jan-17 1577.00 12.62 GRMS 366.58 29056.75 2905.68
13-Jan-17 893.00 7.14 GRMS 207.93 29105.54 2910.55
16-Jan-17 812.00 6.50 GRMS 190.25 29287.25 2928.73
17-Jan-17 1044.00 8.35 GRMS 245.06 29341.48 2934.15
18-Jan-17 920.00 7.36 GRMS 216.30 29388.59 2938.86
19-Jan-17 1250.00 10.00 GRMS 292.27 29227.00 2922.70
20-Jan-17 912.00 7.30 GRMS 213.60 29276.32 2927.63
23-Jan-17 1082.00 8.66 GRMS 254.60 29413.12 2941.31
24-Jan-17 807.00 6.46 GRMS 190.21 29462.52 2946.25
25-Jan-17 1311.00 10.49 GRMS 310.76 29630.05 2963.01
27-Jan-17 1286.00 10.29 GRMS 304.90 29636.47 2963.65
30-Jan-17 2663.00 21.30 GRMS 622.37 29213.76 2921.38
31-Jan-17 962.00 7.70 GRMS 224.66 29191.79 2919.18
1-Feb-17 849.00 6.79 GRMS 198.16 29175.50 2917.55
2-Feb-17 937.00 7.50 GRMS 219.52 29284.95 2928.50
3-Feb-17 576.00 4.61 GRMS 134.64 29218.75 2921.88
6-Feb-17 662.00 5.30 GRMS 155.41 29344.79 2934.48
7-Feb-17 687.00 5.50 GRMS 161.88 29454.15 2945.41
8-Feb-17 1551.00 12.41 GRMS 368.09 29665.54 2966.55
9-Feb-17 1026.00 8.21 GRMS 243.89 29713.69 2971.37
10-Feb-17 942.00 7.54 GRMS 222.93 29582.01 2958.20
13-Feb-17 665.00 5.32 GRMS 157.82 29665.41 2966.54
14-Feb-17 806.00 6.45 GRMS 191.09 29635.55 2963.55
15-Feb-17 576.00 4.61 GRMS 136.40 29600.69 2960.07
16-Feb-17 725.00 5.80 GRMS 172.32 29710.34 2971.03
17-Feb-17 651.00 5.21 GRMS 154.92 29746.54 2974.65
20-Feb-17 477.00 3.82 GRMS 113.47 29735.32 2973.53
21-Feb-17 851.00 6.81 GRMS 202.32 29717.98 2971.80
22-Feb-17 912.00 7.30 GRMS 216.93 29732.73 2973.27
23-Feb-17 661.00 5.29 GRMS 157.51 29786.31 2978.63
24-Feb-17 464.00 3.71 GRMS 111.03 29911.10 2991.11
27-Feb-17 672.00 5.38 GRMS 160.89 29927.46 2992.75
28-Feb-17 641.00 5.13 GRMS 153.59 29951.25 2995.12
Interpretaion
From the above graph and table we can state that for the two months of trading of Gold
Guiena i.e. from 01/01/2017 to 28/02/2017 the highest value for the gold minim is on 28 th Feb
Date Price (1Grams) % change in Gold Guinea MCX Index % change in MCX
2-Jan-17 2788.65 0.00 2283.4 0.00
3-Jan-17 2795.41 0.24 2,285.43 0.09
4-Jan-17 2808.04 0.45 2,263.90 -0.94
5-Jan-17 2829.33 0.76 2,220.35 -1.92
6-Jan-17 2830.9 0.06 2,213.93 -0.29
9-Jan-17 2843.63 0.45 2,211.25 -0.12
10-Jan-17 2859.9 0.57 2,237.49 1.19
11-Jan-17 2879.96 0.70 2,218.61 -0.84
12-Jan-17 2905.68 0.89 2,212.00 -0.30
13-Jan-17 2910.55 0.17 2,195.19 -0.76
16-Jan-17 2928.73 0.62 2,189.07 -0.28
17-Jan-17 2934.15 0.19 2,178.73 -0.47
18-Jan-17 2938.86 0.16 2,170.09 -0.40
19-Jan-17 2922.7 -0.55 2,162.25 -0.36
20-Jan-17 2927.63 0.17 2,159.96 -0.11
23-Jan-17 2941.31 0.47 2,146.09 -0.64
24-Jan-17 2946.25 0.17 2,174.59 1.33
25-Jan-17 2963.01 0.57 2,176.00 0.06
27-Jan-17 2963.65 0.02 2,229.20 2.44
30-Jan-17 2921.38 -1.43 2,266.05 1.65
31-Jan-17 2919.18 -0.08 2,234.14 -1.41
1-Feb-17 2917.55 -0.06 2,217.39 -0.75
2-Feb-17 2928.5 0.38 2,231.68 0.64
3-Feb-17 2921.88 -0.23 2,217.56 -0.63
6-Feb-17 2934.48 0.43 2,226.61 0.41
7-Feb-17 2945.41 0.37 2,210.51 -0.72
8-Feb-17 2966.55 0.72 2,218.77 0.37
9-Feb-17 2971.37 0.16 2,189.61 -1.31
10-Feb-17 2958.2 -0.44 2,173.98 -0.71
13-Feb-17 2966.54 0.28 2,162.19 -0.54
14-Feb-17 2963.55 -0.10 2,161.49 -0.03
15-Feb-17 2960.07 -0.12 2,141.50 -0.92
16-Feb-17 2971.03 0.37 2,137.08 -0.21
17-Feb-17 2974.65 0.12 2,148.48 0.53
20-Feb-17 2973.53 -0.04 2,128.21 -0.94
21-Feb-17 2971.8 -0.06 2,119.09 -0.43
22-Feb-17 2973.27 0.05 2,127.72 0.41
23-Feb-17 2978.63 0.18 2,106.30 -1.01
24-Feb-17 2991.11 0.42 2,093.09 -0.63
27-Feb-17 2992.75 0.05 2,056.46 -1.75
28-Feb-17 2995.12 0.08 2,035.77 -1.01
Total 7.18 Total -11.31
Avg returns 0.18 Avg -0.28
Interpretation
From the above table and graph we can interprete that MCX market index showed good
performance than the gold mini but atlast it has avg returns as -0.28 where as the gold mini
Gold Petal
Traded
Quantity Total Value Price Price
Date Contract(In Unit
(In 000's) (In Lakhs) (10Grams) (1Grams)
Lots)
2-Jan-17 5617 5.62 GRMS 157.50 28039.88 2803.99
3-Jan-17 8814 8.81 GRMS 248.11 28149.53 2814.95
4-Jan-17 9546 9.55 GRMS 269.62 28244.29 2824.43
5-Jan-17 9951 9.95 GRMS 282.76 28415.23 2841.52
6-Jan-17 6124 6.12 GRMS 174.07 28424.23 2842.42
9-Jan-17 6423 6.42 GRMS 182.97 28486.69 2848.67
10-Jan-17 7488 7.49 GRMS 214.06 28587.07 2858.71
11-Jan-17 8359 8.36 GRMS 239.82 28690.03 2869.00
12-Jan-17 7676 7.68 GRMS 221.28 28827.51 2882.75
13-Jan-17 5955 5.96 GRMS 171.54 28806.05 2880.60
16-Jan-17 5404 5.40 GRMS 156.25 28913.77 2891.38
17-Jan-17 8066 8.07 GRMS 234.00 29010.66 2901.07
18-Jan-17 5280 5.28 GRMS 153.26 29026.52 2902.65
19-Jan-17 9369 9.37 GRMS 270.06 28824.85 2882.48
20-Jan-17 5715 5.72 GRMS 164.86 28846.89 2884.69
23-Jan-17 7032 7.03 GRMS 203.55 28946.25 2894.62
24-Jan-17 4652 4.65 GRMS 134.56 28925.19 2892.52
25-Jan-17 9510 9.51 GRMS 271.64 28563.62 2856.36
27-Jan-17 12380 12.38 GRMS 350.86 28340.87 2834.09
30-Jan-17 5499 5.50 GRMS 156.96 28543.37 2854.34
31-Jan-17 7954 7.95 GRMS 228.39 28713.85 2871.39
1-Feb-17 9296 9.30 GRMS 267.35 28759.68 2875.97
2-Feb-17 7241 7.24 GRMS 209.04 28868.94 2886.89
3-Feb-17 5471 5.47 GRMS 157.61 28808.26 2880.83
6-Feb-17 6638 6.64 GRMS 192.23 28959.02 2895.90
7-Feb-17 9067 9.07 GRMS 264.12 29129.81 2912.98
8-Feb-17 17962 17.96 GRMS 528.35 29414.88 2941.49
9-Feb-17 8308 8.31 GRMS 244.89 29476.41 2947.64
10-Feb-17 8806 8.81 GRMS 258.33 29335.68 2933.57
13-Feb-17 7196 7.20 GRMS 212.04 29466.37 2946.64
14-Feb-17 8113 8.11 GRMS 239.26 29490.94 2949.09
15-Feb-17 5337 5.34 GRMS 157.21 29456.62 2945.66
16-Feb-17 6689 6.69 GRMS 197.87 29581.40 2958.14
17-Feb-17 4690 4.69 GRMS 138.87 29609.81 2960.98
20-Feb-17 4208 4.21 GRMS 124.55 29598.38 2959.84
21-Feb-17 6942 6.94 GRMS 205.62 29619.71 2961.97
22-Feb-17 7939 7.94 GRMS 235.55 29669.98 2967.00
23-Feb-17 8455 8.46 GRMS 250.74 29655.82 2965.58
24-Feb-17 6405 6.41 GRMS 190.72 29776.74 2977.67
27-Feb-17 9228 9.23 GRMS 275.20 29822.28 2982.23
28-Feb-17 6626 6.63 GRMS 197.58 29818.90 2981.89
Interpretaion
From the above graph and table we can state that for the two months of trading of Gold
Guiena i.e. from 01/01/2017 to 28/02/2017 the highest value for the gold minim is on 27 th Feb
Price
Date (1Grams) % change in Gold Petals MCX Index % change in MCX
2-Jan-17 2803.99 0.00 2283.4 0.00
3-Jan-17 2814.95 0.39 2,285.43 0.09
4-Jan-17 2824.43 0.34 2,263.90 -0.94
5-Jan-17 2841.52 0.61 2,220.35 -1.92
6-Jan-17 2842.42 0.03 2,213.93 -0.29
9-Jan-17 2848.67 0.22 2,211.25 -0.12
10-Jan-17 2858.71 0.35 2,237.49 1.19
11-Jan-17 2869 0.36 2,218.61 -0.84
12-Jan-17 2882.75 0.48 2,212.00 -0.30
13-Jan-17 2880.6 -0.07 2,195.19 -0.76
16-Jan-17 2891.38 0.37 2,189.07 -0.28
17-Jan-17 2901.07 0.34 2,178.73 -0.47
18-Jan-17 2902.65 0.05 2,170.09 -0.40
19-Jan-17 2882.48 -0.69 2,162.25 -0.36
20-Jan-17 2884.69 0.08 2,159.96 -0.11
23-Jan-17 2894.62 0.34 2,146.09 -0.64
24-Jan-17 2892.52 -0.07 2,174.59 1.33
25-Jan-17 2856.36 -1.25 2,176.00 0.06
27-Jan-17 2834.09 -0.78 2,229.20 2.44
30-Jan-17 2854.34 0.71 2,266.05 1.65
31-Jan-17 2871.39 0.60 2,234.14 -1.41
1-Feb-17 2875.97 0.16 2,217.39 -0.75
2-Feb-17 2886.89 0.38 2,231.68 0.64
3-Feb-17 2880.83 -0.21 2,217.56 -0.63
6-Feb-17 2895.9 0.52 2,226.61 0.41
7-Feb-17 2912.98 0.59 2,210.51 -0.72
8-Feb-17 2941.49 0.98 2,218.77 0.37
9-Feb-17 2947.64 0.21 2,189.61 -1.31
10-Feb-17 2933.57 -0.48 2,173.98 -0.71
13-Feb-17 2946.64 0.45 2,162.19 -0.54
14-Feb-17 2949.09 0.08 2,161.49 -0.03
15-Feb-17 2945.66 -0.12 2,141.50 -0.92
16-Feb-17 2958.14 0.42 2,137.08 -0.21
17-Feb-17 2960.98 0.10 2,148.48 0.53
20-Feb-17 2959.84 -0.04 2,128.21 -0.94
21-Feb-17 2961.97 0.07 2,119.09 -0.43
22-Feb-17 2967 0.17 2,127.72 0.41
23-Feb-17 2965.58 -0.05 2,106.30 -1.01
24-Feb-17 2977.67 0.41 2,093.09 -0.63
27-Feb-17 2982.23 0.15 2,056.46 -1.75
28-Feb-17 2981.89 -0.01 2,035.77 -1.01
Total 6.19 Total -11.31
Avg returns 0.15 Avg -0.28
Interpretation
From the above table and graph we can interprete that MCX market index showed good
performance than the gold mini but atlast it has avg returns as -0.28 where as the gold mini
Findingds
1. from the two moths of trading in the bullion market Gold value is higher at 27 th February
2. the index showing negative avaerage where as the gold is showing the positive
3. for the two months of trading of Gold mini i.e. from 01/01/2017 to 28/02/2017 the
highest value for the gold minim is on 27th Feb 2017 i.e. 2964.34
4. MCX market index showed good performance than the gold mini but atlast it has avg
returns as -0.28 where as the gold mini showed positive returns i.e. 0.17
5. two months of trading of Gold Guiena i.e. from 01/01/2017 to 28/02/2017 the highest
value for the gold minim is on 28th Feb 2017 i.e. 2995.12
6. MCX market index showed good performance than the gold mini but atlast it has avg
returns as -0.28 where as the gold mini showed positive returns i.e. 0.17
7. for the two months of trading of Gold Guiena i.e. from 01/01/2017 to 28/02/2017 the
highest value for the gold minim is on 27th Feb 2017 i.e. 2982.23
8. MCX market index showed good performance than the gold mini but atlast it has avg
returns as -0.28 where as the gold mini showed positive returns i.e. 0.15
After almost two years that commodity trading is finding favour with Indian
investors and is been seen as a separate asset class with good growth opportunities. For
diversification of portfolio beyond shares, fixed deposits and mutual funds, commodity
trading offers a good option for long-term investors and arbitrageurs and speculators.
And, now, with daily global volumes in commodity trading touching three times that of
proposed to the government that in view of the growth of the commodities market,
futures in India. Their entry will deepen and broad base the commodity futures market.
As a matter of fact, derivative instruments, such as futures, can help India become a
global trading hub for select commodities. Commodity trading in India is poised for a big
take-off in India on the back of factors like global economic recovery and increasing
demand from China for commodities. Considering the huge volatility witnessed in the
equity markets recently with the Sensex touching 21000 level commodities could add the
required zing to investors' portfolio. Therefore, it won't be long before the market sees the
BIBLIOGRAPHY
Trading Commodities and Financial Futures: A Step by Step guide to Mastering the
Market, 3rd Edition by George Kleinman
Websites
1. http://commodities.in
2. http://finance.indiamart.com/markets/commodity/
3. http://www.commoditiescontrol.com
4. http://www.mcxindia.com
5. http://www.ncdex.com