“STUDY OF

COMMODITY MARKET”

SUBMITTED TO

UNIVERSITY OF MUMBAI

FOR PARTIAL COMPLETION OF THE DEGREE OF

BACHELOR OF MANAGEMENT STUDIES

BY

SURAJ SANTOSH SHARMA.

UNDER THE GUIDANCE OF

MR. MANOJ NAHAK
LAXMICHAND GOLWALA COLLEGE OF COM/ECO.

FEBRUARY-2020.
1
 Ramji Assar Vidyalaya’s

LAXMICHAND GOLWALA COLLEGE

OF COMMERCE & ECONOMICS
(Afiliated to University of Mumbai & NAAC Accredited with “B++” Grade)
Established in 2009.

Certificate
This is to certify the MR.SURAJ SANTOSH SHARMA student of TYBMS
Semester VI of the LAXMICHAND GOLWALA COLLEGE OF COMMERCE AND
ECONOMICS has successfully completed the project report on “Study of

Commodity Market” under the guidance of MR.Manoj Nahak for the

academic year 2019-2020.

INTERNAL EXAMINER EXTERNAL EXAMINER

(Manoj Nahak)

2
 `CO-ORDINATOR

Declaration

I the undersigned Mr.SURAJ SANTOSH SHARMA hereby,declare that the work

embodied in this project work titled “Study of Commodity Market” forms my own
contribution to the research work carried out under the guidance of MR.Manoj
Nahak and has not been previously submitted to any other University for any other
Degree/ Diploma to this or any other University.
I, hereby further declare that all the information provided in the project is true and
to the best of my knowledge.

Suraj Santosh Sharma.

Name of the Student

3
 ACKNOWLEDGEMENT

This project has been a great learning experience for me. I take this opportunity to thank
Mr. Manoj Nahak, my internal project guide whose valuable guidance & suggestions
made this project possible. I am extremely thankful for his support.

I express my heart-felt gratitude towards my family and all those friends who have
willingly and with utmost commitment helped me during the course of my project work.

I also express my profound gratitude to Mr. Vijay Mahidya principal of L.G College of
commerce and economics. For giving me the opportunity to work on the project and
broaden my knowledge and experience.

My sincere thanks to Prof. for their valuable guidance and advice in completing this
project.

I would like to thank all the professors and the staff of L.G College of commerce and
economics.

Last but not the least, I am thankful to all those who indirectly extended their co-
operation and invaluable support to me.

4
 EXECUTIVE SUMMARY

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

are heading northwards due to rapid increase in demand for
commodities. Developing countries like China are voraciously
consuming the commodities. That’s why globally commodity market
is bigger than the stock market.
India is one of the top producers of large number of commodities and also
has a long history of trading in commodities and related derivatives.
The Commodities Derivatives market has seen ups and downs, but
seems to have finally arrived now.
The market has made enormous progress in terms of Technology,
transparency and trading activity. Interestingly, this has happened
only after the Government protection was removed from a number
of Commodities, and market force was allowed to play their role.
This should act as a major lesson for policy makers in developing
countries, that pricing and price risk management should be left to
the market forces rather than trying to achieve these through
administered price mechanisms. The management of price risk is
going to assumee Even greater importance in future with the
promotion of free trade and removal of trade barriers in the world. As
majority of Indian investors are not aware of organized commodity
market; their perception about is of risky to very risky investment.
Many of them have wrong impression about commodity market in
their minds. It makes them specious towards commodity market.
Concerned authorities have to take initiative to make commodity
trading process easy and simple. Along with Government efforts
NGO’s should come forward to educate the people about commodity
markets and to encourage them to invest in to it.
There is no doubt that in near future commodity market will become Hot
spot for Indian farmers rather than spot market. And producers,
traders as well as consumers will be benefited from it. But for this to
happen one has to take initiative to standardize and popularize the
Commodity Market.

5
6
Chapter No Topic Page No.
1 Introduction to Commodity Market 08
2 History of Evolution of Commodity Markets 12
3 India and the Commodity Market 14
4 International Commodity Exchanges 19
5 How Commodity Market Works? 21
6 How to Invest in a Commodity Market 23
7 Current Scenario in Indian Commodity Market 27
8 Commodities 32
8.1 Quality Specification
9 Derivatives 41
9.1 History and evaluation of derivative market 41
9.2 Indian Derivative Market 42

9.3 Types of Derivatives 43

9.4 Significance Of Derivatives 44
9.5 Introduction To forward and future Contracts 45
10 Limitation Of Forward and Future Contracts 46
10.1 Various Terminologies 47
10.2 Analysis 48
11 Annexure 55
12 Literature Review 60
13 Bibliography 61

7
COMMODITY
MARKET

8
 Chapter 1

Introduction to Commodity Market

What is “Commodity”?
Any product that can be used for commerce or an article of commerce which
is traded on an authorized commodity exchange is known as commodity. The article
should be movable of value, something which is bought or sold and which is produced or
used as the subject or barter or sale. In short commodity includes all kinds of goods.
Indian Forward Contracts (Regulation) Act (FCRA), 1952 defines “goods” as “every kind
of movable property other than actionable claims, money and securities”.
In current situation, all goods and products of agricultural (including
plantation), mineral and fossil origin are allowed for commodity trading recognized
under the FCRA. The national commodity exchanges, recognized by the Central
Government, permits commodities which include precious (gold and silver) and
non-ferrous metals, cereals and pulses, ginned and un-ginned cotton, oilseeds, oils and
oilcakes, raw jute and jute goods, sugar and gur, potatoes and onions, coffee and tea,
rubber and spices. Etc.

What is a commodity exchange?

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

What is Commodity Futures?

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

Consumer Preferences: - In the short-term, their influence on price

volatility is small since it is a slow process permitting manufacturers, dealers and
wholesalers to adjust their inventory in advance.

Changes in supply: - They are abrupt and unpredictable bringing about wild
fluctuations in prices. This can especially noticed in agricultural commodities where the

9
weather plays a major role in affecting the fortunes of people involved in this industry.
The futures market has evolved to neutralize such risks through a mechanism; namely
hedging.

The objectives of Commodity futures: -

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

● Maintaining buffer stock and better allocation of resources as it augments

reduction in inventory requirement and thus the exposure to risks related with
price fluctuation declines. Resources can thus be diversified for investments.
● Price stabilization along with balancing demand and supply position. Futures
trading leads to predictability in assessing the domestic prices, which maintains
stability, thus safeguarding against any short term adverse price movements.
Liquidity in Contracts of the commodities traded also ensures in maintaining the
equilibrium between demand and supply.
● Flexibility, certainty and transparency in purchasing commodities facilitate bank
financing. Predictability in prices of commodity would lead to stability, which in
turn would eliminate the risks associated with running the business of trading
commodities. This would make funding easier and less stringent for banks to
commodity market players.

Benefits of Commodity Futures Markets:-

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

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

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

2. Price Risk Management: - Hedging is the most common method of price

risk management. It is strategy of offering price risk that is inherent in spot

10
 market by taking an equal but opposite position in the futures market. Futures
markets are used as a mode by hedgers to protect their business from adverse
price change. This could dent the profitability of their business. Hedging benefits
who are involved in trading of commodities like farmers, processors,
merchandisers, manufacturers, exporters, importers etc.

3. Import- Export competitiveness: - The exporters can hedge their price

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

4. Predictable Pricing: - The demand for certain commodities is highly price

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

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

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

6. Credit accessibility: - The absence of proper risk management tools would

attract the marketing and processing of commodities to high-risk exposure making
it risky business activity to fund. Even a small movement in prices can eat up a
huge proportion of capital owned by traders, at times making it virtually
impossible to payback the loan. There is a high degree of reluctance among banks
to fund commodity traders, especially those who do not manage price risks. If in

11
 case they do, the interest rate is likely to be high and terms and conditions very
stringent. This posses a huge obstacle in the smooth functioning and competition
of commodities market. Hedging, which is possible through futures markets,
would cut down the discount rate in commodity lending.

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

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

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 Chapter 2

History of Evolution of commodity markets

Commodities future trading was evolved from need of assured continuous supply of
seasonal agricultural crops. The concept of organized trading in commodities evolved in
Chicago, in 1848. But one can trace its roots in Japan. In Japan merchants used to store
Rice in warehouses for future use. To raise cash warehouse holders sold receipts against
the stored rice. These were known as “rice tickets”. Eventually, these rice tickets become
accepted as a kind of commercial currency. Latter on rules came in to being, to
standardize the trading in rice tickets. In 19th century Chicago in United States had
emerged as a major commercial hub. So that wheat producers from Mid-west attracted
here to sell their produce to dealers & distributors. Due to lack of organized storage
facilities, absence of uniform weighing & grading mechanisms producers often confined
to the mercy of dealers discretion. These situations lead to need of establishing a common
meeting place for farmers and dealers to transact in spot grain to deliver wheat and
receive cash in return.
Gradually sellers & buyers started making commitments to exchange the produce
for cash in future and thus contract for “futures trading” evolved. Whereby the producer
would agree to sell his produce to the buyer at a future delivery date at an agreed upon
price. In this way producer was aware of what price he would fetch for his produce and
dealer would know about his cost involved, in advance. This kind of agreement proved
beneficial to both of them. As if dealer is not interested in taking delivery of the produce,
he could sell his contract to someone who needs the same. Similarly producer who not
intended to deliver his produce to dealer could pass on the same responsibility to
someone else. The price of such contract would dependent on the price movements in
the wheat market. Latter on by making some modifications these contracts transformed in
to an instrument to protect involved parties against adverse factors such as unexpected
price movements and unfavorable climatic factors. This promoted traders entry in futures
market, which had no intentions to buy or sell wheat but would purely speculate on price
movements in market to earn profit.
Trading of wheat in futures became very profitable which encouraged the entry
of other commodities in futures market. This created a platform for establishment of a
body to regulate and supervise these contracts. That’s why Chicago Board of Trade
(CBOT) was established in 1848. In 1870 and 1880s the New York Coffee, Cotton and
Produce Exchanges were born. Agricultural commodities were mostly traded but as long
as there are buyers and sellers, any commodity can be traded.
In 1872, a group of Manhattan dairy merchants got together to bring chaotic condition in
New York market to a system in terms of storage, pricing, and transfer of agricultural
products.
In 1933, during the Great Depression, the Commodity Exchange, Inc. was established in
New York through the merger of four small exchanges - the National Metal Exchange,
the Rubber Exchange of New York, the National Raw Silk Exchange, and the New York
Hide Exchange.
13
 The largest commodity exchange in USA is Chicago Board of Trade, The
Chicago Mercantile Exchange, the New York Mercantile Exchange, the New York
Commodity Exchange and New York Coffee, sugar and cocoa Exchange. Worldwide
there are major futures trading exchanges in over twenty countries including Canada,
England, India, France, Singapore, Japan, Australia and New Zealand.

14
 Chapter 3

India and the commodity market

History of Commodity Market in India:-

The history of organized commodity derivatives in India goes back to the
nineteenth century when Cotton Trade Association started futures trading in 1875, about
a decade after they started in Chicago. Over the time datives market developed in several
commodities in India. Following Cotton, derivatives trading started in oilseed in Bombay
(1900), raw jute and jute goods in Calcutta (1912), Wheat in Hapur (1913) and Bullion in
Bombay (1920).
However many feared that derivatives fuelled unnecessary speculation and
were detrimental to the healthy functioning of the market for the underlying
commodities, resulting in to banning of commodity options trading and cash settlement
of commodities futures after independence in 1952. The parliament passed the Forward
Contracts (Regulation) Act, 1952, which regulated contracts in Commodities all over the
India. The act prohibited options trading in Goods along with cash settlement of forward
trades, rendering a crushing blow to the commodity derivatives market. Under the act
only those associations/exchanges, which are granted reorganization from the
Government, are allowed to organize forward trading in regulated commodities. The act
envisages three tire regulations: (i) Exchange which organizes forward trading in
commodities can regulate trading on day-to-day basis; (ii) Forward Markets Commission
provides regulatory oversight under the powers delegated to it by the central
Government. (iii) The Central Government- Department of Consumer Affairs, Ministry
of Consumer Affairs, Food and Public Distribution- is the ultimate regulatory authority.
The commodities future market remained dismantled and remained dormant
for about four decades until the new millennium when the Government, in a complete
change in a policy, started actively encouraging commodity market. After Liberalization
and Globalization in 1990, the Government set up a committee (1993) to examine the
role of futures trading. The Committee (headed by Prof. K.N. Kabra) recommended
allowing futures trading in 17 commodity groups. It also recommended strengthening
Forward Markets Commission, and certain amendments to Forward Contracts
(Regulation) Act 1952, particularly allowing option trading in goods and registration of
brokers with Forward Markets Commission. The Government accepted most of these
recommendations and futures’ trading was permitted in all recommended commodities. It
is timely decision since internationally the commodity cycle is on upswing and the next
decade being touched as the decade of Commodities.
Commodity exchange in India plays an important role where the prices of any
commodity are not fixed, in an organized way. Earlier only the buyer of produce and its
seller in the market judged upon the prices. Others never had a say.

15
 Today, commodity exchanges are purely speculative in nature. Before
discovering the price, they reach to the producers, end-users, and even the retail
investors, at a grassroots level. It brings a price transparency and risk management in the
vital market. A big difference between a typical auction, where a single auctioneer
announces the bids and the Exchange is that people are not only competing to buy but
also to sell. By Exchange rules and by law, no one can bid under a higher bid, and no one
can offer to sell higher than someone else’s lower offer. That keeps the market as
efficient as possible, and keeps the traders on their toes to make sure no one gets the
purchase or sale before they do. Since 2002, the commodities future market in India has
experienced an unexpected boom in terms of modern exchanges, number of commodities
allowed for derivatives trading as well as the value of futures trading in commodities,
which crossed $ 1 trillion mark in 2006. Since 1952 till 2002 commodity datives market
was virtually non- existent, except some negligible activities on OTC basis.
In India there are 25 recognized future exchanges, of which there are three
national level multi-commodity exchanges. After a gap of almost three decades,
Government of India has allowed forward transactions in commodities through Online
Commodity Exchanges, a modification of traditional business known as Adhat and
Vayda Vyapar to facilitate better risk coverage and delivery of commodities. The three
exchanges are: National Commodity & Derivatives Exchange Limited (NCDEX)
Mumbai, Multi Commodity Exchange of India Limited (MCX) Mumbai and National
Multi-Commodity Exchange of India Limited (NMCEIL) Ahmedabad.There are other
regional commodity exchanges situated in different parts of India.

Legal framework for regulating commodity futures in India:-

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

Forward Markets Commission (FMC):-

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

National Commodities & Derivatives Exchange Limited (NCDEX)

National Commodities & Derivatives Exchange Limited (NCDEX)
promoted by ICICI Bank Limited (ICICI Bank), Life Insurance Corporation of India
(LIC), National Bank of Agriculture and Rural Development (NABARD) and National
16
Stock Exchange of India Limited (NSC). Punjab National Bank (PNB), Credit Ratting
Information Service of India Limited (CRISIL), Indian Farmers Fertilizer Cooperative
Limited (IFFCO), Canara Bank and Goldman Sachs by subscribing to the equity shares
have joined the promoters as a share holder of exchange. NCDEX is the only Commodity
Exchange in the country promoted by national level institutions.
NCDEX is a public limited company incorporated on 23 April 2003.
NCDEX is a national level technology driven on line Commodity Exchange with an
independent Board of Directors and professionals not having any vested interest in
Commodity Markets.
It is committed to provide a world class commodity exchange platform for market
participants to trade in a wide spectrum of commodity derivatives driven by best global
practices, professionalism and transparency.
NCDEX is regulated by Forward Markets Commission (FMC). NCDEX is
also subjected to the various laws of land like the Companies Act, Stamp Act, Contracts
Act, Forward Contracts Regulation Act and various other legislations.
NCDEX is located in Mumbai and offers facilities to its members in more
than 550 centers through out India. NCDEX currently facilitates trading of 57
commodities.

Commodities Traded at NCDEX:-

● Bullion:-
Gold KG, Silver, Brent
● Minerals:-
Electrolytic Copper Cathode, Aluminum Ingot, Nickel
Cathode, Zinc Metal Ingot, Mild steel Ingots
● Oil and Oil seeds:-
Cotton seed, Oil cake, Crude Palm Oil, Groundnut (in shell),
Groundnut expeller Oil, Cotton, Mentha oil, RBD Palm Olein, RM
seed oil cake, Refined soya oil, Rape seeds, Mustard seeds,
Caster seed, Yellow soybean, Meal
● Pulses:-
Urad, Yellow peas, Chana, Tur, Masoor,
● Grain:-
Wheat, Indian Pusa Basmati Rice, Indian parboiled Rice (IR-
36/IR-64), Indian raw Rice (ParmalPR-106), Barley, Yellow
red maize
● Spices:-
Jeera, Turmeric, Pepper
● Plantation:-
Cashew, Coffee Arabica, Coffee Robusta
● Fibers and other:-
Guar Gum, Guar seeds, Guar, Jute sacking bags, Indian 28
mm cotton, Indian 31mm cotton, Lemon, Grain Bold, Medium

17
 Staple, Mulberry, Green Cottons, , , Potato, Raw Jute,
Mulberry raw Silk, V-797 Kapas, Sugar, Chilli LCA334
● Energy:-
Crude Oil, Furnace oil

Multi Commodity Exchange of India Limited (MCX)

Multi Commodity Exchange of India Limited (MCX) is an independent and
de-multilized exchange with permanent reorganization from Government of India, having
Head Quarter in Mumbai. Key share holders of MCX are Financial Technologies (India)
Limited, State Bank of India, Union Bank of India, Corporation Bank of India, Bank of
India and Canara Bank. MCX facilitates online trading, clearing and settlement
operations for commodity futures market across the country.
MCX started of trade in Nov 2003 and has built strategic alliance with Bombay
Bullion Association, Bombay Metal Exchange, Solvent Extractors Association of India,
pulses Importers Association and Shetkari Sanghatana.
MCX deals wit about 100 commodities.

Commodities Traded at MCX:-

● Bullion:-
Gold, Silver, Silver Coins,

● Minerals:-
Aluminum, Copper, Nickel, Iron/steel, Tin, Zinc, Lead

● Oil and Oil seeds:-

Castor oil/castor seeds, Crude Palm oil/ RBD Palm Olein, Groundnut oil, Mustard/
Rapeseed oil, Soy seeds/Soy meal/Refined Soy Oil, Coconut Oil Cake, Copra,
Sunflower oil, Sunflower Oil cake, Tamarind seed oil,
● Pulses:-
Chana, Masur, Tur, Urad, Yellow peas
● Grains:-
Rice/ Basmati Rice, Wheat, Maize, Bajara, Barley,
● Spices:-
Pepper, Red Chili, Jeera, Cardamom, Cinnamon, Clove,
Ginger,
● Plantation:-
Cashew Kernel, Rubber, Areca nut, Betel nuts, Coconut,
Coffee,
● Fiber and others:-
Kapas, Kapas Khalli, Cotton (long staple, medium staple,
short staple), Cotton Cloth, Cotton Yarn, Gaur seed and
Guargum, Gur and Sugar, Khandsari, Mentha Oil, Potato, Art
Silk Yarn, Chara or Berseem, Raw Jute, Jute Goods, Jute

18
 Sacking,
● Petrochemicals:-
High Density Polyethylene (HDPE), Polypropylene (PP), Poly
Vinyl Chloride (PVC)
● Energy:-
Brent Crude Oil, Crude Oil, Furnace Oil, Middle East Sour
Crude Oil, Natural Gas

National Multi Commodity Exchange of India Limited (NMCEIL)

National Multi Commodity Exchange of India Limited (NMCEIL) is the first
demutualised Electronic Multi Commodity Exchange in India. On 25 th July 2001 it
was granted approval by Government to organize trading in edible oil complex. It
is being supported by Central warehousing Corporation Limited, Gujarat State
Agricultural Marketing Board and Neptune Overseas Limited. It got
reorganization in Oct 2002. NMCEIL Head Quarter is at Ahmedabad.

19
 Chapter 4

INTERNATIONAL COMMODITY EXCHANGES

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

of a year round supply of commodities/ products that are seasonal as is the case of
agricultural produce. The United States, Japan, United Kingdom, Brazil, Australia,
Singapore are homes to leading commodity futures exchanges in the world.

The New York Mercantile Exchange (NYMEX):-

The New York Mercantile Exchange is the world’s biggest exchange for
trading in physical commodity futures. It is a primary trading forum for energy products
and precious metals. The exchange is in existence since last 132 years and performs
trades trough two divisions, the NYMEX division, which deals in energy and platinum
and the COMEX division, which trades in all the other metals.
Commodities traded: - Light sweet crude oil, Natural Gas, Heating Oil, Gasoline,
RBOB Gasoline, Electricity Propane, Gold, Silver, Copper, Aluminum, Platinum,
Palladium, etc.

London Metal Exchange:-

The London Metal Exchange (LME) is the world’s premier non-ferrous
market, with highly liquid contracts. The exchange was formed in 1877 as a direct
consequence of the industrial revolution witnessed in the 19 th century. The primary focus
of LME is in providing a market for participants from non-ferrous based metals related
industry to safeguard against risk due to movement in base metal prices and also arrive at
a price that sets the benchmark globally. The exchange trades 24 hours a day through an
inter office telephone market and also through a electronic trading platform. It is famous
for its open-outcry trading between ring dealing members that takes place on the market
floor.
Commodities traded:- Aluminum, Copper, Nickel, Lead, Tin, Zinc, Aluminum
Alloy, North American Special Aluminum Alloy (NASAAC), Polypropylene, Linear
Low Density Polyethylene, etc.

The Chicago Board of Trade:-

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

20
establish a central market place for trade. Presently, the Chicago Board of Trade is one
of the leading exchanges in the world for trading futures and options. More than 50
contracts on futures and options are being offered by CBOT currently through open
outcry and/or electronically. CBOT initially dealt only in Agricultural commodities like
corn, wheat, non storable agricultural commodities and non-agricultural products like
gold and silver.
Commodities Traded: - Corn, Soybean, Oil, Soybean meal, Wheat, Oats, Ethanol,
Rough Rice, Gold, Silver etc.

Tokyo Commodity Exchange (TOCOM):-

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

Chicago Mercantile Exchange:-

The Chicago Mercantile Exchange (CME) is the largest futures exchange
in the US and the largest futures clearing house in the world for futures and options
trading. Formed in 1898 primarily to trade in Agricultural commodities, the CME
introduced the world’s first financial futures more than 30 years ago. Today it trades
heavily in interest rates futures, stock indices and foreign exchange futures. Its products
often serves as a financial benchmark and witnesses the largest open interest in futures
profile of CME consists of livestock, dairy and forest products and enables small family
farms to large Agri-business to manage their price risks. Trading in CME can be done
either through pit trading or electronically.
Commodities Traded: - Butter milk, Diammonium phosphate, Feeder cattle, frozen pork
bellies, Lean Hogs, Live cattle, Non-fat Dry Milk, Urea, Urea Ammonium Nitrate, etc

21
 Chapter 5

How Commodity market works?

There are two kinds of trades in commodities. The first is the spot trade, in which
one pays cash and carries away the goods. The second is futures trade. The underpinning
for futures is the warehouse receipt. A person deposits certain amount of say, good X in a
ware house and gets a warehouse receipt. Which allows him to ask for physical delivery
of the good from the warehouse. But some one trading in commodity futures need not
necessarily posses such a receipt to strike a deal. A person can buy or sale a commodity
future on an exchange based on his expectation of where the price will go. Futures have
something called an expiry date, by when the buyer or seller either closes (square off) his
account or give/take delivery of the commodity. The broker maintains an account of all
dealing parties in which the daily profit or loss due to changes in the futures price is
recorded. Squiring off is done by taking an opposite contract so that the net outstanding is
nil.
For commodity futures to work, the seller should be able to deposit the
commodity at warehouse nearest to him and collect the warehouse receipt. The buyer
should be able to take physical delivery at a location of his choice on presenting the
warehouse receipt. But at present in India very few warehouses provide delivery for
specific commodities.
Following diagram gives a fair idea about working of the Commodity market.

22
 Today Commodity trading system is fully computerized. Traders need not
visit a commodity market to speculate. With online commodity trading they could sit in
the confines of their home or office and call the shots.

The commodity trading system consists of certain prescribed steps or stages

as follows:

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

- Order receiving
- Execution
- Matching
- Reporting
- Surveillance
- Price limits
- Position limits

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

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

23
III. Settlement: - This stage has following system followed as follows-
- Marking to market
- Receipts and payments
- Reporting
- Delivery upon expiration or maturity.

Chapter 6

How to invest in a Commodity Market?

With whom investor can transact a business?

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

What is Identity Proof?

When investor approaches Clearing Member, the member will ask for identity proof.
For which Xerox copy of any one of the following can be given
a) PAN card Number
b) Driving License
c) Vote ID
d) Passport

What statements should be given for Bank Proof?

The front page of Bank Pass Book and a canceled cheque of a concerned bank.
Otherwise the Bank Statement containing details can be given.

What are the particulars to be given for address proof?

In order to ascertain the address of investor, the clearing member will insist on Xerox
copy of Ration card or the Pass Book/ Bank Statement where the address of investor is
given.

24
What are the other forms to be signed by the investor?
The clearing member will ask the client to sign
a) Know your client form
b) Risk Discloser Document

The above things are only procedure in character and the risk involved and only after
understanding the business, he wants to transact business.

What aspects should be considered while selecting a commodity broker?

While selecting a commodity broker investor should ideally keep certain aspects in
mind to ensure that they are not being missed in any which way. These factors include
● Net worth of the broker of brokerage firm.
● The clientele.
● The number of franchises/branches.
● The market credibility.
● The references.
● The kind of service provided- back office functioning being most important.
● Credit facility.
● The research team.
These are amongst the most important factors to calculate the credibility of
commodity broker.

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

How to become a Commodity Trader/Broker of Commodity Exchange?

To become a commodity trader one needs to complete certain legal and binding
obligations. There is routine process followed, which is stated by a unit of Government
that lays down the laws and acts with regards to commodity trading. A broker of

25
Commodities is also required to meet certain obligations to gain such a membership in
exchange.
To become a member of Commodity Exchange the broker of brokerage firm
should have net worth amounting to Rs. 50 Lakh. This sum has been determined by Multi
Commodity Exchange.

How to become a Member of Commodity Exchange?

To become member of Commodity Exchange the person should comply with
the following Eligibility Criteria.
1. He should be Citizen of India.
2. He should have completed 21 years of his age.
3. He should be Graduate or having equivalent qualification.
4. He should not be bankrupt.
5. He has not been debarred from trading in Commodities by statutory/regulatory
authority,

There are following three types of Memberships of Commodity Exchanges.

Trading-cum-Clearing Member (TCM):-

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

Institutional Trading-cum-clearing Member (ITCM):-

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

26
Professional Clearing Member (PCM):-
A PCM entitled to clear and settle trades executed by other members of the
exchange. A corporate entity and an institution only can apply for PCM. The member
would be allowed to clear and settle trades of such members of the Exchange who choose
to clear and settle their trades through such PCM.

Membership Details for NCDEX:-1

Trading-cum-clearing Member: - TCM

Sr. NCDEX:
Particulars
No. TCM
Interest Free Cash Security
1 15.00 Lakhs
Deposit
2 Collateral Security Deposit 15.00 Lakhs
3 Admission Fee 5.00 Lakhs
4 Annual Membership Fees 0.50 Lakhs
Advance Minimum
5 0.50 Lakhs
Transaction Charges
6 Net worth Requirement 50.00 Lakhs

Professional Clearing Membership: - PCM

Sr. NCDEX:
Particulars
No. PCM

27
 Interest Free Cash Security
25.00 Lakhs
Deposit
Collateral Security Deposit
2 25.00 Lakhs
Annual Subscription
3 1.00 Lakhs
Charges
Advance Minimum
4 1.00 Lakhs
Transaction Charges
5 Net worth Requirement 5000.00 Lakhs

Membership Details for MCX:-2

Initial Net worth Criteria
Admission Annual
Category Security
Fees Subscription
Deposit Corporate Partnership Individual
TCM-1 Rs. 10 Lakhs Rs. 15 Lakhs Rs 50,000 Rs 50 Lakhs Rs. 50 Lakhs Rs. 50 Lakhs
TCM-2 Rs. 5 Lakhs Rs. 50 Lakhs Rs 50,000 Rs. 50 Lakhs Rs. 50 Lakhs Rs. 50 Lakhs
ITCM Rs. 10 Lakhs Rs. 50 Lakhs Rs 50,000 Rs. 50 Lakhs N.A. N.A.

Chapter 7

Current Scenario in Indian Commodity Market

Need of Commodity Derivatives for India:-

India is among top 5 producers of most of the Commodities, in addition to being a
major consumer of bullion and energy products. Agriculture contributes about 22% GDP
of Indian economy. It employees around 57% of the labor force on total of 163 million
hectors of land Agriculture sector is an important factor in achieving a GDP growth of
8-10%. All this indicates that India can be promoted as a major centre for trading of
commodity derivatives.

Trends in volume contribution on the three National Exchanges:-

Pattern on Multi Commodity Exchange (MCX):-

MCX is currently largest commodity exchange in the country in terms of trade
volumes, further it has even become the third largest in bullion and second largest in
silver future trading in the world.
Coming to trade pattern, though there are about 100 commodities traded on MCX,
only 3 or 4 commodities contribute for more than 80 percent of total trade volume. As per

28
recent data the largely traded commodities are Gold, Silver, Energy and base Metals.
Incidentally the futures’ trends of these commodities are mainly driven by international
futures prices rather than the changes in domestic demand-supply and hence, the price
signals largely reflect international scenario.
Among Agricultural commodities major volume contributors include Gur, Urad,
Mentha Oil etc. Whose market sizes are considerably small making then vulnerable to
manipulations.

Pattern on National Commodity & Derivatives Exchange (NCDEX):-

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

Pattern on National Multi Commodity Exchange (NMCE):-

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

Analysis of volume contributions on three major national commodity exchanges

reveled the following pattern,

Major volume contributors: - Majority of trade has been concentrated in few

commodities that are

● Non Agricultural Commodities (bullion, metals and energy)

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

Trade strategy:-
It appears that speculators or operators choose commodities or contracts where the
market could be influenced and extreme speculations possible.
In view of extreme volatilities, the FMC directs the exchanges to impose
restrictions on positions and raise margins on those commodities. Consequently, the
operators/speculators chose another commodity and start operating in a similar pattern.
When FMC brings restrictions on those commodities, the operators once again move to
the other commodities. Likewise, the speculators are moving from one commodity to

29
other (from methane to Urad to guar etc) where the market could be influenced either
individually or with a group.

Beneficiaries: - So far the beneficiaries from the current nature of trading are
Exchangers: - making profit from mounting volumes
Arbitragers
Operators

In order to understand the extent of progress the trading the trading in Commodity
Derivatives has made towards its specified objectives (price discovery and price risk

Specified and actual pattern of futures trade:-

Process Aught to be Actual

Commodities There should be large Largely Traded are
demand for and supply of
the commodity- no ● Bullion, Metals and
individual or a group of ● Commodities with small
persons acting in concert market size (or narrow
should be in a position to Commodities) like guar,
influence the demand or Burmese Urad, Mentha etc.
supply, and consequently
the price substantially
Towards this, the major
Produced or consumed
Commodities in the
Country such as wheat,
rice, jute etc. and India is the

30
 top first or second
producer of these
Commodities.

Trade Hedging together with Over speculation and

Strategy Moderate speculation to Manipulation leading to wide
Smoothen the price Fluctuations.
Fluctuations.
Beneficiaries Farmers/producers,, So far exchangers, arbitrageurs,
Consumers and traders Operators etc.,
Either through direct Further there were instances of
Participation or through Wrong price signals accruing losses to
Price signals. farmers in case of menthe, and to traders
in case
Of imported pulses.
Price Discovery ● Pure replication of
International trends not
Taking in account of
Domestic D-S in case of
Non-agril. Commodities
Objectives ● Wide fluctuations from
Over speculation and
Manipulation in case of
Largely traded agril.
Commodities

Thus it is evident that the realization of specified objectives is still a distinct destination.
It is further, evident from the nature of the commodities largely traded on national
exchanges that the factors driving the current pattern of futures trade are purely
speculative.

Reasons for prevailing trade pattern:-

No wide spread participation of all stake holders of commodity markets. The actual
benefits may be realized only when all the stake holders in commodity market including
producers, traders, consumers etc trade actively in all major commodities like rice, wheat,
cotton etc.

Some Suggestions to make futures market as a level playing field for all stake
holders:-
● Creation of awareness among farmers and other rural participants to use the
futures trading platform for risk mitigation.
● Contract specifications should have wider coverage, so that a large number
of varieties produced across the country could be included.

31
● Development of warehousing and facilities to use the warehouse receipt as a
financial instrument to encourage participation farmers.
●
● Development of physical market through uniform grading and
standardization and more transparent price mechanisms.
●
● Delivery system of exchanges is not good enough to attract investors. E.g.-
In many commodities NCDEX forces the delivery on people with long
position and when they tend to give back the delivery in next month contract
the exchange simply refuses to accept the delivery on pretext of quality
difference and also auctions the product. The traders have to take a delivery
or book losses at settlement as there are huge differences between two
contracts and also sometimes few contracts are not available for trading for
no reason at all.
●
● Contract sizes should have an adequate range so that smaller traders can
participate and can avoid control of trading by few big parties.
●
● Setting of state level or district level commodities trading helpdesk run by
independent organization such as reputed NGO for educating farmers.
●
● Warehousing and logistics management structure also needs to be created at
state or area level whenever commodity production is above a certain share
of national level.
●
● Though over 100 commodities are allowed for Derivatives trading, in
practice only a few commodities derivatives are popular for trading. Again
most of the trade takes place only on few exchanges. This problem can
possibly solved by consolidating some exchanges.
●
● Only about 1% to 5% of total commodity derivatives traded in country are
settled in physical delivery due to insufficiencies in present warehousing
system. As good delivery system is the back bone of any Commodity trade,
warehousing problem has to be handled on a war footing.
●
● At present there are restrictions in movement of certain goods from one
state to another. These needs to be removed so that a truly national market
could develop for commodities and derivatives.
●
● Regulatory changes are required to bring about uniformity in Octri and sales
tax etc. VAT has been introduced in country in 2005, but, has not yet been
uniformly implemented by all states.
●
● A difficult problem in Cash settlement of Commodities Derivatives contract
is that, under Forward Contracts Regulation Act 1952 cash settlement of

32
 outstanding contracts at maturity is not allowed. That means outstanding
contracts at maturity should be settled in physical delivery. To avoid this
participants square off their their positions before maturity. So in practice
contracts are settled in Cash but before maturity. There is need to modify the
law to bring it closer to the wide spread practice and save participants from
unnecessary hassle.

Chapter 8

Commodities

General Characteristics: -

Steel is an alloy of iron and carbon, containing less than 2% carbon, 1%

manganese and small amount of silicon, phosphorus, sulphur and oxygen. Steel is most
important engineering and construction material in the world. It is most important, multi
functional and the most adaptable of materials. Steel production is 20 times higher a
compared to production of all non-ferrous metals put together.

33
 Steel compared to other materials of its type has low production costs. The
energy required for extracting iron from ore is about 25% of what is needed for extracting
aluminum.
There are altogether about 2000 grades of steel developed of which 1500
grades are high-grade steels. The large number of grades gives steel the characteristics of
basic production material.

Categories of Steel: -
Steel market is primarily divided in to two main categories- flat and long. A flat
carbon steel product is a plate product or a (hot or cold) rolled strip product. Plate
products vary in dimensions from 10 mm to 200 mm and thin flat rolled products from 1
mm to 10 mm. Plate products are used for ship building, construction, large diameter
welded pipes and boiler applications. Thin flat products find end use applications in
automotive body panels, domestic ‘white goods’ products, ‘tin cans’ and the whole host
of other products from office furniture to heart pacemakers. Plates, HR coils and HR
Sheet, CR Sheet and CR coils, GP/GC (galvanized plates and coils) pipes etc. are
included in this category.
A long steel product is a road or a bar. Typical rod product are the reinforcing
rods made from sponge iron for concrete, ingots, billets, engineering products, gears,
tools, etc. Wiredrawn products and seamless pipes are also part of the long products
group. Bars, rods, structures, railway materials, etc are included in this category.

Global Scenario: -

In, 2017 the world crude steel production reached 1690 million tonnes in a growth
of 4% over2016.
China remained world’s largest crude steel producer in the year 2017 with around
(832) MT followed by Japan (105MT), India (101.4MT) and the USA (82MT).
The steel demand and the capacity has grown almost threefold over the last 2 decades.
The steel industry has come a long way in terms of technology, input material, quality of
end product, diversity in application of end product, and level of automation.
The rising demand for steel also led to rising demand for raw material and their prices.
Demand in Japan and South Korea is expected to remain stable in the near future with
limited upside by 2020(+5%from current levels).

34
Indian Scenario: -
India is the Third largest producer of the steel. In 2017-2018 the country finished
steel exports increased 17%year-on-year to 9.62millon tones (MT) as compared
to8.24MT in 2016-2017.
The Indian steel industry is very much modern with state-of-heart steel.
The Government of India focuses on infrastructure and restarting road projects is
aiding the boost in d for steel.
India is expected to overtake Japan to become the world’s second largest steel producer
soon. The National Steel Policy, 2017 has envisaged 300 million tones of production
capacity by 2030-31.

Factors Influencing Demand & Supply of Steel Long and Steel Flat: -
The demand for steel is dependent on the overall health of the economy and the in
fracture development activities being undertaken.
The price of steel is not just determined by current supply and demand, but by the
forecast supply and demand. The steel prices in the Indian market primarily depend on
the domestic demand and supply conditions, and international prices. Government and
different producer and consumer associations regularly monitor steel prices
Scrap metal & iron are two of the main materials used to create steel ,if there is limited
amount of these resources available ,demand exceed supply and the cost of raw materials
will jump up.

8.1Quality Specifications:

Monthly Variations in Steel Prices from Feb 2017- Dec 2018

Percentage Change > 5% 2-5% < 2%

No. of Times
Ingots- Mandi 2 10 10
HRC 2.5 Mumbai 8 3 11
HRC 2.0 Imported 12 4 6
HRC fob- Europe 5 9 8

35
Contract specifications of Steel Flat
Symbol STEEL FLAT
Description STEEL FLAT MMMYY
Trading Period Mondays through Saturdays
Trading session Monday to Friday:
1st session: 10.00 am to 5.00 pm
2nd session: 5.30 pm to 8.00 pm
Saturday: 10.00 am to 2.00 pm
No. of contracts a year 12
Contact Duration 4 months
Trading
Trading unit 25 MT
Price Quote Rs./ton, Ex-Taloj Kalambo
(excluding execise duty and sales tax).
Maximum order size 200 MT
Tick size (minimum Rs. 10
Price movement)
Daily price limits 4%
Initial margin 5%
Special margin In case of additional volatility, a special margin of 2% or
such other percentage, as deemed fit, will be imposed
immediately on, both buy and sale side in respect of all
outstanding position, which will remain in force of next
three days, after which the special margin will be relaxed.
Maximum Allowable Open For individual clients: 1,00,000 MT
Position For a member collectively for all clients:
Delivery
Delivery unit 25 MT with tolerance limit
Between 23.5 MT to 26.5 MT
Quality Specifications
HR coil conforming to the following specification:

Thickness 2 mm
Width either 1250mm or 910 mm at seller’s option.
It should confirm to IS 11513 Grade D/SAE 1008 (International equivalent)

Delivery is acceptable only in coil form.

36
Contract specifications of Steel Long
Symbol STEELLONG
Description STEELLONGMMMYY
Trading Period Mondays through Saturdays
Trading session Monday to Friday:
1st session: 10.00 am to 5.00 pm
2nd session: 5.30 pm to 8.00 pm
Saturday: 10.00 am to 2.00 pm
No. of contracts a year 12
Contact Duration 4 months
Trading
Trading unit 10 MT
Price Quote Rs./ton, Ex-Gahaziabad (including excise duty but
excluding sales tax).
Maximum order size 500 MT
Tick size (minimum Rs. 10
Price movement)
Daily price limits 4%
Initial margin 5%
Special margin In case of additional volatility, a special margin of 2% or
such other percentage, as deemed fit, will be imposed
immediately on, both buy and sale side in respect of all
outstanding position, which will remain in force of next
three days, after which the special margin will be relaxed.
Maximum Allowable Open For individual clients: 1,00,000 MT
Position For a member collectively for all clients:
25% of open market position.
Delivery
Delivery unit 10 MT with tolerance limit
Between 13.5 MT to 16.5 MT
Delivery Centre Ghaziabad

Quality Specifications: -

Sponge Iron Futures

Sponge Iron Lumps

37
Chemical Properties (only Magnetic Portion): -

● Degree of Metallization: 88 +/- 2%.

● Total Iron: 91%.
● Carbon: 0.2% to 0.3%.
● Sulphur: 0.05% Max.
● Phosphorus: 0.06 Max.
● Sio2 + Al2o3: 6% or Max.
● Char & other process Contaminants: 1% Max.
● Size: 3 to 20 mm
● Undersize arising during tailings (-3mm): 5% Max

Steel Flat: -
HR Coil confirming to the following specification: -
● Thickness 2mm Width either 1250 mm or 910 mm at seller’s option.
● It should confirm to IS 11513 Grade D/ SALE 1008 (international equivalent)
● Delivery is acceptable only in coil form.

Steel Long (Bhavnagar): -

● Mild steel ingots 3 ½ * 4 ½ inch.
● Carbon composition: Below 0.25.It should have no hollowness, no piping and no
rising. Its surface should be plain.

Steel Long (Govindgarh): -

● Mild steel ingots 3 ½ * 4 ½ inch. ●
Carbon composition: Below 0.25% ●
Manganese: Above 0.45%
● Material should be physically sound. It should have no hollowness, no piping and
no rising. Its surface should be plain.

WHEAT

38
 Wheat is cereal grain and consumed worldwide. Wheat is more popular than any
other cereal grain for use in baked goods. Its popularity stems from the gluten that forms
when lour is mixes with water. Wheat is the most widely grown cereal grain in the world.

Global and Indian Scenario: -

The world wheat production in the recent years has been observed to be hovering
between 555 million tons to 625 million tons a year. The biggest cultivators of wheat are
EU 25, China, India, USA, Russia, Australia, Canada, Pakistan, Turkey and Argentina.
EU 25, China, India and US are the four largest producers account for around 60% of
total global production.
World’s wheat consumption is continuously growing with growth in a population, as it is
one of the major staple foods across the world. The major consuming countries of wheat
are EU, China, India, Russia, USA and Pakistan. India has largest area in the world under
wheat. However, in terms of production, India is second largest behind China. In India,
Wheat is sown during October to December and harvested during March to May. The
wheat marketing season in India is assumed to begin from April every year.
The major wheat producing states in India are Utter Pradesh, Punjab, Haryana, Madhya
Pradesh, Rajastan and Bihar. Which together account for around 93% of total production.
In terms of productivity, Punjab stands first followed by Haryana, Rajasthan, UP,
Gujarat, Bihar and MP. Indian wheat is largely soft/medium hard, medium protein, bread
wheat. India is also produces around 1.5 million tons of durum wheat, mostly in central
and western India, which is not segregated and marketed separately. India consumes
around 72-74 million tons of Wheat every year.
There are around 1000 large flour mills in India, with a milling capacity of
around 15 million tons. The total procurement of wheat by Government agencies during
last 15 years from 8 to 20 million tons, accounting for only 15-20% of the total
production. India exported around 5 m illion tons subsidized by Government in 2004-05,
as a result of surplus stock. Recently Govt. took decision to import wheat in view of,
declining stocks and increasing demand.

39
Key market moving Factors: -
Price tends to be lower as harvesting progresses and produce starts coming in to the
market. At the time sowing and before harvesting price tend to rise in a view of tight
supply situation. Weather has profound influence on wheat production. Temperature
plays crucial role towards maturity of wheat and productivity.
Change in Minimum Support Price (MSP) by Govt. and the stock available with
Food corporation of India and the release from official stock influence of the price.
Though, international trade is limited, the ups and downs in the production and
consumption at all the major/minor producing and consuming nation dose influence the
long term price trend.

Contract specifications of Wheat

Contract Period Five Months
Trading Period Mondays through Saturdays
Trading session Monday to Friday:
10.00 am to 5.00 pm
Saturday:
10.00 am to 2.00 pm
Trading
Trading unit 10 MT
Quotation based value 1 Quintal
Maximum order size 500 MT
Tick size (minimum 10 Paise
Price movement)
Price Quotation Ex-warehouse Delhi (including all taxes, levies and
sales tax/ VAT, as the case may be)
Daily price limits 4%
Initial margin 5%
Special margin In case of additional volatility, a special margin at
such other percentage, as deemed fit will be imposed
immediately on, both buy and sale side in respect of
all outstanding position, which will remain in force of
next 2 days, after which the special margin will be
relaxed.
Maximum Allowable Open Clientwise- 20000 MT, Member wise-80000 MT or
Position 20% of open position, which ever is higher.
Delivery
40
Delivery unit 10 MT with tolerance limit of 5%

Delivery Margin and centre 25% (Warehouse at Delhi)

Defects
(a) Foreign Matter
(organic/inorganic)
(b) Damaged Kernels
(c) Shrunken Shriveled
& broken grains
Total defects (a+b+c)
Acceptable up to
Rejected total defect is
Teat weight up to 76 kg/hl
Rejected
2.0% (Max)
2.00 (Max) provided that infestation damaged not to
exceed 1 per 100 kernels.
3.00% (Max)
Below 6%
8% With rebate on 1:1 basis
Above 8%
76kg/hl. Min. acceptable with rebate of 150 grams per
kg/hl or pro-rata variance in hector liter weight deducted
per quintal Below 74 kg/hl
Below 74 kg/hl

Moisture 11%
Acceptable (Max)13% With rebate 1:1
Reject able Above 13%

Quality Specifications: -

Wheat of Standard Mill variety conforming to the following quality standards will be deliverable;
The material will be tested by using 3 mm sieve.
Defects: -
1. Foreign Matter (organic/inorganic) 2.0% (maximum)
2. Damaged Kernel 2.0% (maximum) provided that infestation
damaged not exceed 1
3. Sunken, Shriveled and Per 100 kernels.
Broken grains 3.00% (maximum)
Total Defects (a+b+c) Below 6%

41
Acceptable Up to 8% with rebate on 1:1 basis
Rejected if total defects Above 8%
Total Weight 76 kg/hl. (minimum)
Up to 74 kg/hl Acceptable with rebate of 150 grams per
kg/hl or pro-rata variance in hector liter
weight deducted per quintal weight delivered.
Rejected

Below 74 kg/hl
Moisture 11% (maximum)
Acceptable Up to 13% with rebate 1:1
Reject able Above 135
Packing Packing should be in B Twill once used
100kg jute bags, the tare weight deduction per
bag for net weight calculation shall be 1 kg
per quintal of gross weight.

42
 Chapter 9

DERIVATIVES

Basis of Derivatives

Derivative is a contract or a product whose value is derived from value of some other
asset known as underlying. Derivatives are based on wide range of underlying assets.
These include:
1. Metals such as Gold, Silver, Aluminium, Copper, Zinc, Nickel, Tin, Lead etc.
2. Energy resources such as Oil (crude oil, products, cracks), Coal, Electricity, Natural
Gas etc.
3. Agricultural commodities such as wheat, Sugar, Coffee, Cotton, Pulses etc, and
4. Financial assets such as Shares, Bonds and Foreign Exchange.

9.1 Derivatives Market - History & Evolution

History of Derivatives may be mapped back to the several centuries. Some of the specific
milestones in evolution of Derivatives Market Worldwide are given below:

12th Century- In European trade fairs, sellers signed contracts promising future delivery
of the items they sold.

13th Century- There are many examples of contracts entered into by English Cistercian
Monasteries, who frequently sold their wool up to 20 years in advance, to foreign
merchants.

Late 17th Century - In Japan at Dojima, near Osaka, a futures market in rice was
developed to protect rice producers from bad weather or warfare.
In 1848, The Chicago Board of Trade (CBOT) facilitated trading of forward contracts on
various commodities.
In 1865, the CBOT went a step further and listed the first ‘exchange traded” derivative
contract in the US. These contracts were called ‘futures contracts”.
In 1919, Chicago Butter and Egg Board, a spin-off of CBOT, was reorganised to allow
futures trading. Later its name was changed to Chicago Mercantile Exchange (CME).
9.2 Indian Derivatives Market :

As the initial step towards introduction of derivatives trading in India, SEBI set up a
24-member committee under the Chairmanship of Dr. L. C. Gupta on November 18,
1996 to develop appropriate regulatory framework for derivatives trading in India.

The committee submitted its report on March 17, 1998 recommending that derivatives
should be declared as ‘securities’ so that regulatory framework applicable to trading of
43
‘securities’ could also govern trading of derivatives. Subsequently, SEBI set up a group
in June 1998 under the Chairmanship of Prof. J. R. Verma, to recommend measures for
risk containment in derivatives market in India.

The committee submitted its report in October 1998. It worked out the operational details
of margining system, methodology for charging initial margins, membership details and
net-worth criterion, deposit requirements and real time monitoring of positions
requirements.
In 1999

In March 2000, government repealed a three-decade-old notification, which prohibited

forward trading in securities.

The exchange traded derivatives started in India in June 2000 with SEBI permitting BSE
and NSE to introduce equity derivative segment. To begin with, SEBI approved trading
in index futures contracts based on CNX Nifty and BSE Sensex, which commenced
trading 13

in June 2000. Later, trading in Index options commenced in June 2001 and trading in
options on individual stocks commenced in July 2001. Futures contracts on individual
stocks started in November 2001. MCX-SX (renamed as MSEI) started trading in all
these products.

44
9.3Types of Derivatives Market

In the modern world, there is a huge variety of derivative products available.

They are either traded on organized exchanges (called exchange traded derivatives) or
agreed directly between the contracting counterparties over the telephone or through
electronic media (called Over-the-counter (OTC) derivatives).

Few complex products are constructed on simple building blocks like forwards, futures,
options and swaps to cater to the specific requirements of customers.

Over-the-counter market is not a physical marketplace but a collection of broker-dealers

scattered across the country. Main idea of the market is more a way of doing business
than a place. Buying and selling of contracts is matched through negotiated bidding
process over a network of telephone or electronic media that link thousands of
intermediaries.
OTC derivative markets have witnessed a substantial growth over the past few years,
very much contributed by the recent developments in information technology.

OTC derivative market is less regulated market because these transactions occur in
private among qualified counterparties, who are supposed to be capable enough to take
care of themselves.
The OTC derivatives markets - transactions among the dealing counterparties, have
following features compared to exchange traded derivatives:
market.

45
9.4 Significance of Derivatives

1. Like other segments of Financial Market, Derivatives Market serves following specific
functions:
Derivatives market helps in improving price discovery based on actual valuations and
expectations.

2. Derivatives market helps in transfer of various risks from those who are exposed to
risk but have low risk appetite to participants with high risk appetite. For example
hedgers want to give away the risk where as traders are willing to take risk.

3. Derivatives market helps shift of speculative trades from unorganized market to

organized market. Risk management mechanism and surveillance of activities of various
participants in organized space provide stability to the financial system.

46
Chapter 10: Introduction to forward and futures Contracts What

is Forward Contract?

Forward contract is an agreement made directly between two parties to buy or sell an
asset on a specific date in the future, at the terms decided today. Forwards are widely
used in commodities, foreign exchange, equity and interest rate markets.

* Let us understand with the help of an example.

What is the basic difference between cash market and forwards? Assume on March 9,
2015 you wanted to purchase gold from a goldsmith. The market price for gold on March
9, 2015 was Rs. 15,425 for 10 gram and goldsmith agrees to sell you gold at market
price.
You paid him Rs.15,425 for 10 gram of gold and took gold. This is a cash market
transaction at a price (in this case Rs.15,425) referred to as spot price.

Now suppose you do not want to buy gold on March 9, 2015, but only after 1 month.
Goldsmith quotes you Rs.15,450 for 10 grams of gold. You agree to the forward price for
10 grams of gold and go away.

Here, in this example, you have bought forward or you are long forward, whereas the
goldsmith has sold forwards or short forwards. There is no exchange of money or gold at
this point of time. After 1 month, you come back to the goldsmith pay him Rs. 15,450
and collect your gold. This is a forward, where both the parties are obliged to go through
with the contract irrespective of the value of the underlying asset (in this case gold) at the
point.

What is Future Contract?

A Future is an agreement between two parties- a operator (Buyer Or Seller) and exchange
(BSE/NSE) to buy or sell something on future date.

A future contract are standardized (price, maturity, quantity)

EXAMPLE: Mr Raj buys 5 contracts of Reliance Ltd at RS 920/ with lot 500 shares for
each contracts.

47
10.1 Major limitations of forwards

Liquidity Risk

Liquidity is nothing but the ability of the market participants to buy or sell the desired
quantity of an underlying asset. As forwards are tailor made contracts i.e. the terms of the
contract are according to the specific requirements of the parties, other market
participants may not be interested in these contracts.
The tailor made contracts and their non-availability on exchanges creates illiquidity in
the contracts. Therefore, it is very difficult for parties to exit from the forward contract
before the contract’s maturity.

Counterparty risk

Counterparty risk is the risk of an economic loss from the failure of counterparty to fulfil
its contractual obligation

For example, A and B enter into a bilateral agreement, where A will purchase 100 kg of
rice at Rs.20 per kg from B after 6 months. Here, A is counterparty to B and vice versa.
After 6 months, if price of rice is Rs.30 in the market then B may forego his obligation to
deliver 100 kg of rice at Rs.20 to A.

Similarly, if price of rice falls to Rs.15 then A may purchase from the market at a lower
price, instead of honouring the contract. Thus, a party to the contract may default on his
obligation if there is incentive to default. This risk is also called default risk or credit risk.

Major Limitation of future Contracts.

The major disadvantage include no control over future events, price fluctuation and the
potential reduction in assets price as the expiry date approaches.

48
10.2 VARIOUS TERMINOLOGIES :

Spot Price: The price at which an asset trades in the cash market. It is the price at
which an asset is brought or sold for immediate payment or delivery

Futures Price: The price of the futures contract in the futures market. The price that is
mutually agreed between the parties at the time of entering in to the contract.

Contract Cycle: It is a period over which a contract trades . It

is minimum quantity of an asset .

Expiration Day: The day on which a derivative contract ceases to exist. All trades are
compulsorily required tp settle their position on expiy date .

Tick Size: It is minimum move allowed in the price quotations. Exchanges decide the
tick sizes on traded contracts as part of contract specification. Tick size for Nifty futures
/is 5 paisa. Bid price is the price buyer is willing to pay and ask price is the price seller is
willing to sell.

Contract Size and contract value: Futures contracts are traded in lots and to
arrive at the contract value we have to multiply the price with contract multiplier or lot
size or contract size.

Basis: The difference between the spot price and the futures price is called basis. If the
futures price is greater than spot price, basis for the asset is negative. Similarly, if the spot
price is greater than futures price, basis for the asset is positive. On August 9, 2010, spot
price > future price thus basis for nifty futures is positive i.e. (7899.15 - 7897.65 = Rs
1.50).
Importantly, basis for one-month contract would be different from the basis for two or
three month contracts.

ANALYSIS

49
 Survey was conducted across Mumbai City (in areas lik to judge the awareness
of peoples regarding investment in Commodity Market.

Sample size 50 peoples

COMMODITY MARKET
Questionnaire for Investors

1. Do you have any investment plan?

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

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

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

3. Why you prefer specific investment?

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

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

5. Do you aware about Commodity Market?

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

6. Are you willing to invest in Commodity Market?

(If in Q. 2 Commodity Market, skip this question)
a. If YES, why? ------------------------------------------------------------------------------
b. If NO, why? ------------------------------------------------------------------------------
(If no move to the Question no.10)

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

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

8. Why you prefer specific Commodity Exchange for investment?

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

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

50
a. Bullion b. Agricultural c. Metals d. Fossils/Energy
------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------

10. What is your perception about Commodity Market?

a. Less Risky b. Risky c. Very Risky

11. What you think Commodity Market Advertisements (hoardings, prints etc) are
explanatory enough to give needed useful information?
a. YES b. NO

12. Gender
a. Male b. Female

13. Age Group

a. Below 21 Years b. 21 years - 30 years c.31 years - 40 years
d. 41 years - 50 years e. Above 50 years

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

15. Income Group (Per month)

a. Nil b. Below 10,000/- c. 10,000 - 20,000/-
d. 20,000 - 30,000/- e. Above 30,000/-

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

51
 Quantitative Analysis

1. Investor’s preferences: -

Analysis of data revels that majority of people prefer investment in Real Estate
(28.81% of total sample) which specified in other category investment and it is greater
than share market investment preference.

2. People’s knowledge about Commodity Market: -

52
 Very few people heard of commodity market. Vast majority of people are unaware
about Commodity Market.

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

(Out of those, who know Commodity Market)

Though some people heard of commodity market due to lack of complete

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

53
 Above data revels that majority of commodity investors like to invest in Bullion
(Gold & Silver).

5. Perception about Commodity Market

Analysis of data shows that majority of people who are aware about commodity
market; feel that investment in commodity market is very risky. So efforts should be done
to minimize the risk in commodity investment and make peoples about minimum risk in
commodity investment.

54
6. Opinion about Commodity Market Advertisements
(Expressed by those who know commodity market)

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

advertisements do not give all the necessary information.

Qualitative Analysis

1. Investment preferences: -
Most of the investors prefer least risky investment which gives higher returns.
That is why majority (70% of sample) of people interested in investments other than
Share and commodity market.
Very less number of people (only 7%) showed their interest in investment in
commodity market. Main reason for this is lack of awareness and complete
information about commodity market.

2. Commodity Exchanges: -
People who are interested in commodity investment showed more concern
towards NCDEX; for its brand name and people think there might be surety of
transaction at NCDEX.

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

55
4.Advertisements: -
Commodity market Advertisements should be more informative. And it is the
failure of commodity market’s advertisement campaign to attract people’s attention;
as majority of people are not aware about commodity market.

56
 ANNEXURE

Terms and Definitions related to Commodity Market: -

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

● Arbitragers: - Arbitragers are interested in making purchase and sale in different

markets at the same time to profit from price discrepancy between the two markets.

● At the Market: - An order to buy or sell at the best price possible at the time an order
reaches the trading pit.

● Basis: - Basis is the difference between the cash price of an asset and futures price of
the underlying asset. Basis can be negative or positive depending on the prices
prevailing in the cash and futures.

● Basis grade: - Specific grade or grades named in the exchanges future contract. The
other grades deliverable are subject to price of underlying futures

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

● Bid: - A bid subject to immediate acceptance made on the floor of exchange to buy a
definite number of futures contracts at a specific price..

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

● Buy on Close: - To buy at the end of trading session at the price within the closing
range.

● Buy on opening: - To buy at the beginning of trading session at a price within the
opening range.

● Call: - An option that gives the buyer the right to a long position in the underlying
futures at a specific price, the call writer (seller) may be assigned a short position in
the underlying futures if the buyer exercises the call.

● Cash commodity: - The actual physical product on which a futures contract is based.
This product can include agricultural commodities, financial instruments and the cash
equivalent of index futures.

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

● Consumption Commodity: - Consumption commodities are held mainly for

consumption purpose. E.g. Oil, steel

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● Cover: - The cancellation of the short position in any futures contract buys the
purchase of an equal quantity of the same futures contract.

● Cross hedge: - When a cash commodity is hedged by using futures contract of other
commodity.

● Day orders: - Orders at a limited price which are understood to be good for the day
unless expressly designated as an open order or “good till canceled” order.

● Delivery month: - Specified month within which delivery may be made under the
terms of futures contract.

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

quantity of commodity in settlement of a short futures position.

● Exchange: - Central market place for buyers and sellers. Standardized contracts
ensure that the prices mean the same to everyone in the market. The prices in an
exchange are determined in the form of a continuous auction by members who are
acting on behalf of their clients, companies or themselves.

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

the physical market with the objective of reducing or limiting risk associated with
price.

● Investment Commodities: - An investment commodity is generally held for

investment purpose. e.g. Gold, Silver

● Limit: - The maximum daily price change above or below the price close in a
specific futures market. Trading limits may be changed during periods of unusually
high market activity.

● Limit order: - An order given to a broker by a customer who has some restrictions
upon its execution, such as price or time.

● Liquidation: - A transaction made in reducing or closing out a long or short position,

but more often used by the trade to mean a reduction or closing out of long position.

● Long: - (1) The buying side of an open futures contract or futures option; (2) a trader
whose net position in the futures or options market shows an excess of open
purchases over open sales.

58
● Margin: - Cash or equivalent posted as guarantee of fulfillment of a futures contract
(not a down payment).

● Margin call: - Demand for additional funds or equivalent because of adverse price
movement or some other contingency.

● Market to Market: - The practice of crediting or debating a trader’s account based

on daily closing prices of the futures contracts he is long or short.

● Market order: - An order for immediate execution at the best available price. ●

Nearby: - The futures contract closest to expiration.

● Net position: - The difference between the open contracts long and the open
contracts short held in any commodity by any individual or group.

● Offer: - An offer indicating willingness to sell at a given price (opposite of bid).

● On opening: - A term used to specify execution of an order during the opening.

● Open contracts: - Contracts which have been brought or sold without the transaction
having been completed by subsequent sale, repurchase or actual delivery or receipt of
commodity.

● Open interest: - The number of “open contracts”. It refers to un liquidated purchases

or sales and never to their combined total.

● Option: - It gives right but not the obligation to the option owner, to buy an
underlying asset at specific price at specific time in the future.

● Out-of-the money: - Option calls with the strike prices above the price of the
underlying futures, and puts with strike prices below the price of the underlying
futures.

● Over the counter: - It is alternative trading platform, linked to network of dealers

who do not physically meet but instead communicates through a network of phones &
computers.

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

upon which traders and brokers stand while trading (if circular called ring).

● Point: - The minimum unit in which changes in futures prices may be expressed
(minimum price fluctuation may be in multiples of points).

● Position: - An interest in the market in the form of open commodities.

59
● Premium: - The amount by which a given futures contract’s price or commodity’s
quality exceeds that of another contract or commodity (opposite of discount). In
options, the price of a call or put, which the buyer initially pays to the option writer
(seller).

● Price limit: - The maximum fluctuation in price of futures contract permitted during
one trading session, as fixed by the rules of a contract market.

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

● Put: - In options the buyer of a put has the right to continue a short position in an
underlying futures contract at the strike price until the option expires; the seller
(writer) of the put obligates himself to take a long position in the futures at the strike
price if the buyer exercises his put.

● Range: - The difference between high and low price of the futures contract during a
given period.

● Ratio hedging: - Hedging a cash position with futures on a less or more than
one-for-one basis.

● Reaction: - The downward tendency of a commodity after an advance.

● Round turn: - The execution of the same customer of a purchase transaction and a
sales transaction which offset each other.

● Round turn commission: - The cost to the customer for executing a futures contract
which is charged only when the position is liquidated.

● Scalping: - For floor traders, the practice of trading in and out of contracts through
out the trading day in a hopes for making a series of small profits.

● Settlement price: - The official daily closing price of futures contract, set by the
exchange for the purpose of setting margins accounts.

● Short: - (1) The selling of an option futures contract. (2) A trader whose net position
in the futures market shows an excess of open sales over open purchases.

● Speculator: - Speculator is an additional buyer of the commodities whenever it

seems that market prices are lower than they should be.

60
● Spread: - Spread is the difference in prices of two futures contracts.

● Striking price: - In options, the price at which a futures position will be established if
the buyer exercises (also called strike or exercise price).

● Swap: - It is an agreement between two parties to exchange different streams of cash

flows in future according to predetermined terms.

● Technical analysis (charting): - In price forecasting, the use of charts and other
devices to analyze price-change patters and changes in volume and open interest to
predict future market trends (opposite of fundamental analysis).

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

● Volume of trading (or sales): - A simple addition of successive futures transactions

(a transaction consists of a purchase and matching sale).

● Writer: - A sealer of an option who collects the premium payment from the buyer.

61
 LITREATURE REVIEW

India is one of the top most producers of a large numbers of commodities ranging from
agriculture to non-agriculture products, with a long history in its trading market .India is a
commodity based market where two-third of the population depends on agricultural
commodities, surprisingly has an underdeveloped commodity and commodity future
market. This is because the traders in commodity future market were banned for almost
four decades in India. There must be reasons for and against such ban but one thing it has
done is to paralyze the research and the knowledge creation in the domain and more so in
the Indian context.
The proposed research paper conceived with an idea to understand the importance of
commodity derivatives and learn about the market from India point of view. In fact was
one of the most vibrant markets till early 70s. Its development and growth was shunted
due to numerous restrictions earlier. Now, with most of these restrictions being removed,
there is tremendous potential for growth of this market in the country.
The survey of the existing literature reveals that no specific work has been carried out to
examine the relation between various economic parameters and future price of
commodities traded. The present study is an attempt in this direction The present studies
outline theoretical literature the commodity futures market in India. The review of the
earlier studies here is attempted chronologically in order to get a comprehensive picture.
Abundance literature on commodity market in general gives theoretical explanation for
the emergence of commodity future market.

62
 BIBLIOGRAPHY

● Trading Commodities and Financial Futures: A Step by Step guide to

Mastering the Market, 3rd Edition by George Kleinman

● Options, Futures and Other Derivatives by Johan C. Hull

● http://commodities.in

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

● http://www.commoditiescontrol.com

● http://www.mcxindia.com

● http://www.ncdex.com

● MCX Certified Commodity Professional Reference Material ●

Business World (15th September 2003)

● Business World (4th December 2006)

● http://investmentz.co.in

● http://trade.indiainfoline.com

● http://www.finance.indiamart.com

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