MANGAL KESHAV

MK COMMODITY
BROKERS LTD.
MANGAL KESHAV
Snapshot of Indian Commodity
Market
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Two Major Commodities Exchange in
India
MCX (Multi Commodity Exchange)
NCDEX (National Commodities &
Derivatives Exchange)
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Commodities traded on the exchanges
Agri Products:
Jeera
Pepper
Chilli
Turmeric
Guar Seed
Guar Gum
Soya bean
Sugar
Maize
Precious Metals:
Gold
Silver
Platinum
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Commodities traded on the exchanges
Base Metals:
Copper
Nickel
Lead
Zinc
Aluminum
Tin
Energy:
Crude oil
Natural Gas
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Other Information
Exchange Timings
Agri Products: 10:00 AM To 5:00 PM
Other Commodities: 10:00 AM To 11:30 PM
Instrument Traded: Futures Contract
Expiry of Contracts : Different for different
commodities
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What are Commodity futures?
A Financial Contract
The underlying commodity is bought or sold at a
future date
A tool used by Investors, Hedgers, Arbitrageurs,
Day Traders
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Why futures trading in Commodities?
Portfolio diversification and risk management
Additional investment opportunity
Low cost business
No Transportation, storage, insurance, security
charges
Low Margins High leverage
Intrinsic value of the commodity
Domain knowledge of industry
Hedging/ Arbitrage
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Purpose of Futures Markets
Meet the needs of three groups of future market
users
Those who wish to discover information about
future prices of commodities (suppliers)
Those who wish to speculate (speculators)
Those who wish to transfer risk to some other
party (hedgers)
Those who want to take advantage of price
difference in different markets (Arbitrageurs)
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Commodity Futures Market Participants
Hedgers
Producers Farmers
Consumers Refineries, Food processing companies
Speculators
Institutional proprietary traders
Brokerage houses
Spot Commodity traders
Arbitrageurs
Brokerage houses
Investors
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Exchange vs. Bilateral Trading
Exchange Bilateral trading
Common platform for all traders Restricted access
Price transparency

Traded prices unknown to other
players

Low transaction costs

High cost and time consuming
negotiations
Absence of counter party credit
risk

Counter party credit risk

Market prices available to wider
world
Difficulty in price dissemination
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Risks encountered by industry
Price volatility depends on International market
movement
Results in higher procurement cost reducing
operational margins
No options or tools were available earlier
Directionless market
No control measures
Counter party Risk
Credit risk especially during periods of volatile prices
Quantity risk during shortages
Quality Risk
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Benefits
Investor:
Portfolio diversification and risk management
Additional investment opportunity
Physical trader:
Low cost business
No Transportation, storage, insurance, security Charges
Domain knowledge of industry
Traders:
Low Margins High leverage
No balance-Sheet, P&L, EBITDA
Hedging/ Arbitrage
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Hedging
Purpose
Avoid risk of adverse market movements
Rationale
Cash and Futures prices tend to move in tandem
Converge at close to expiry
Types of Hedges
Long Hedge, Short Hedge
Advantages
Lock in a price and margin in advance
Disadvantages
Limits opportunities if prices move favorably
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Types of Hedging
Long Hedge
Hedges that involve taking a long position in futures
contract
Appropriate when a company plans to owns certain
asset in the future
Short Hedge
Hedges that involve taking a short position in futures
contract
Appropriate when the hedger already owns the asset
or likely to own the asset and expects to sell it in
future
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Short Hedge - Example
Suppose:-
COPPER producer wants to sell COPPER in future.
There is an equal chances of price going up or down.
There is a risk if price goes down.
Copper Producer
Stock
Expecting/having stock 50000 Kg (50MT) of Copper
Case
If price goes up by Re. 1 Gain Rs. 50000/-
If price goes down by Re. 1 Loss Rs. 50000/-
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Short Hedge- Example contd
Date Spot Future
30
th
Nov Rs. 280/Kgs Rs. 295/Kgs
30
th
Nov Buy/Hold Sell
With Hedge (You rule out a loss)
30
th
Dec Spot Future Net Result
Case 1 -
Rs. 270/Kgs
Loss
Rs. 10/Kgs
Profit
Rs. 25/Kgs
Profit
Rs. 15/Kgs
Case 2 -
Rs. 305/Kgs
Profit
Rs. 25/Kgs
Loss
Rs. 10/Kgs
Profit
Rs. 15/Kgs
Without Hedge
Case 1 -
Rs. 270/Kgs
Loss
Rs. 10/Kgs
-- Loss
Rs. 10/Kgs
Case 2 -
Rs. 305/Kgs
Profit
Rs. 25/Kgs
-- Profit
Rs. 25/Kgs
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Long Hedge- Example
Scenario of consumer who wishes to lock input prices
There is an equal chances of price going up or down.
There is a risk if price goes up.
Copper Consumer Stock
Wants to buy Copper in future 50,000 Kg (50 MT) of copper
Case
If price goes up by Re. 1 Loss Rs. 50000/-
If price goes down by Re. 1 Gain Rs. 50000/-
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Long Hedge - Example contd
Date Spot Future
30
th
Nov Rs. 280/Kgs Rs. 295/Kgs
30
th
Nov Wait till Nov Buy
With Hedge (You rule out a loss)
30
th
Dec Spot Future Net Result
Case 1 -
Rs. 270/Kgs
Profit
Rs. 10/Kgs
Loss
Rs. 25/Kgs
Loss
Rs.15/Kgs
Case 2 -
Rs. 305/Kgs
Loss
Rs. 25/Kgs
Profit
Rs. 10/Kgs
Loss
Rs. 15/Kgs
Without Hedge
Case 1 -
Rs. 270/Kgs
Profit
Rs. 10/Kgs
-- Profit
Rs. 10/Kgs
Case 2 -
Rs. 305/Kgs
Loss
Rs. 25/Kgs
-- Loss
Rs. 25/Kgs
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Advantage MK Commodity Brokers
Top Quality Research
Professionally qualified analysts with rich
industry experience
Research on Precious Metals, Base Metals and Energy
Daily outlook report and trading calls on SMS
Online Trading
Single Screen customized market watch for MCX /
NCDEX with BSE / NSE
Streaming quotes & intra-day trading calls
Pro-active Relationship Management
Relationship management desk
Educating clients on commodities futures market.
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Advantage for Clients
Round the clock operations in commodities
trading
Indian commodities market, unlike stock market is
open till 11.30 in the night and MK Commodity Brokers
Ltd.is all poised to offer round the clock services
through its dedicated team of professionals.
Better Trading Facility at one place.
State of Infrastructure
The strong IT backbone of Mangal Keshav helps us to
provide customized direct services through our back
office system, nation-wide connectivity and website.
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THANK YOU