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Commodities

NewworldofGoldenopportunities

Key Takeaways
Wh What tis i aCommodity? C dit ? WhicharetheTraded&ActivelytradedCommodities CommodityexchangesinIndia OpportunitiesinCommoditymarkets Contractspecification&margin Thingstoremember RequirementstotradeinCommodities Commodities

Derivatives
A securitywhosepriceisdependentuponorderivedfrom an underlyingasset asset.Its valueisdetermined byfluctuations inthe underlyingasset. Themostcommonunderlyingassets include stocks,bonds, commodities, currencies,interestratesand marketindexes. Mostderivativesarecharacterizedbyhigh leverage.

Derivatives
Forwards Most popular Derivatives

Options

Futures

Futures Contract
Futures:
A financialcontractobligatingthebuyerto purchaseanasset(orthesellertosellanasset), asset) suchasaphysical commodityorafinancialinstrument, atapredetermined futuredateandprice.Futurescontractsdetailthe qualityandquantityoftheunderlyingasset.Theyarestandardizedtofacilitatetradingonafuturesexchange. Somefuturescontracts(MostlyinCommodities)dogetsettledwithphysicaldeliveryoftheasset,whileothers aresettledincash. Thefuturesmarketsarecharacterizedbytheabilitytouseveryhighleveragerelativetostockmarkets.

T Terms to t remember: b
LongPosition: When you have bought a futures contract, you are holding a long position. ShortPosition: When you have sold a futures contract, you are holding a Short position. SpotPrice: The Current Market price at which the underlying asset is trading in the live market or rather Exchange. LotSize: Fixed standard size (quantity) of contract based on underlying asset value. MtoM: M The Th profit fit or loss l from f the th level l l of f position iti created t d with ith comparison i t to th the current t market k t price i is known as Mark to Market. Mark to Market profit or Loss is always adjusted against the margin & the current cash balance.

Benefit of Futures contract


Equity
ToBuy yworth 100000 (1000unitsofRs.100each) each Marginrequired 100% RequiredFunds 100000 ProfitonmovementofRs.10 Rs. Rs .10000 10x1000 ReturnsonInvestment 10% 10 %

EquityFutures
ToBuy yworth 100000 (1000unitsofRs.100each) Marginrequired 20% RequiredFunds 20000 ProfitonmovementofRs.10 Rs. Rs .10000 10x1001 ReturnsonInvestment

CommodityFutures
ToBuy yworth 100000 (1000unitsofRs.100each) Marginrequired 5% RequiredFunds 5000 ProfitonmovementofRs.10 Rs. Rs .10000 10x1001 ReturnsonInvestment

50%

Risk in Trading with Futures contract


RISKOFHIGHERVOLATALITY
Volatilityreferstothedynamicchangesinpricethatcommodityderivativecontractsundergowhentradingactivity continuesontheCommodityExchange.Generally,higherthevolatility,greateristhepriceswing. Liquidity Li idi refers f tothe h ability bili of fmarket k participants i i tobuy b and/ d/orsell llcommodity di derivative d i i contractexpeditiously di i l at acompetitivepriceandwithminimalpricedifference.Generally,itisassumedthatmorethenumberoforders availableinamarket,greateristheliquidity. Spreadreferstothedifferenceinbestbuypriceandbestsellprice.Itrepresentsthedifferentialbetweenthepriceof b i acommodity buying dit d derivative i ti and dimmediately i di t l selling lli itorvice i versa.Itis i always l better b tt to t have h the th minimum i i possibledifference

RISKOFLOWERLIQUIDITY

RISKOFWIDERSPREADS

FollowStopLosses.
Stoplosses ,usuallyarelevelsofSupportsorResistances,breakingwhichourpositioncangofurtherin losses.Toavoidsuchscenarios,thetradershallalwaystradewithstrictStoplosses providedor recommended d d b bythe h Broker. B k Rumorsabouttheexpectedpricemovementofacommodityattimesfloatinthemarketthroughwordof mouth.Theinvestorsshouldtakecare&stayawayfromactingonrumors.Itisalwaysadvisabletofollow recognised researchcallsprovidedbytheBrokerwithwhomwehavetradingaccounts. Sincewearedealingwithaleveragedinstrument,incaseofextrememarketmovements,ourpositionmay havetofaceComplianceactionifsufficientfundsarenotinouraccount.Inordertokeepourpositionsafe& avoidundesiredlossbookings,Sufficientmarginshallbemaintained. ManyCommoditiesinaresettledwithPhysicaldelivery.Ifnotintendingtotakethedelivery,theclientis shallsquareoff thepositionbeforetheNotificationperiodstarts,ie 5daysbeforethedateofcontractexpiry. DetailscanbetakenfromtheagentsinDialnTradeoryourrespectiveCREswhowillinformaboutthetype ofDelivery&abouttheNotificationperiod.

RISKOFRUMOURS

MaintainSufficientMargin.

TenderPeriod&DeliveryNotification Notification.

What is a Commodity?
Ineconomics,acommodityisthegenerictermforanymarketableitemproducedto satisfywantsorneeds.Economiccommoditiescomprisegoodsandservices. p meaning gofthetermCOMMODITYisapplied pp tog goodsonly. y Themorespecific

Tradable Commodities (MCX & NCDEX)


Bullions Gold(1Kg) Gold(100Grms) GoldGuinea(8Grms) GoldPetal(1Grm) Platinum Silver(30Kg) Sil Mini Silver Mi i (5Kg) K ) SilverMicro (1Kg) Energy ATF BrentCrudeOil CrudeOil ElectricityMonthly&Weekly Gasoline HeatingOil ImportedThermalCoal NaturalGas ThermalCoal Spices Cardamom Chilli Coriander JEERA Pepper Turmeric Exchange Both Both Both Both Both Both O l onMCX Only OnlyonMCX Exchange OnlyonMCX Both Both OnlyonMCX Both Both OnlyonMCX OnlyonMCX OnlyonNCDEX Exchange OnlyonMCX OnlyonNCDEX Both OnlyonNCDEX OnlyonNCDEX Both Oil&OilSeeds Castorseeds Cottonseedoilcake CrudePalmOil KapasiaKhalli MustardSeed RBDPalmolein R fi dSoya Refined S Oil SoyaBean Fiber Cotton(29mm) p Kapas V797Kapas Plantations Almond Maize Rubber Cereals&Pulses Barley Chana Wheat Sugar Gur SugarMandS Exchange OnlyonNCDEX OnlyonNCDEX Both OnlyonMCX OnlyonNCDEX OnlyonNCDEX B h Both Both Exchange OnlyonMCX Only yonMCX OnlyonNCDEX Exchange Both Both Both Exchange Both Both Both Exchange OnlyonNCDEX OnlyonNCDEX Metals Aluminium AluminiumMini Copper CopperMini IronOre Lead L dMini Lead Mi i MildSteelIngot,Billets Nickel NickelMini Steel Tin Zinc ZincMini Weather Carbon(CER) Carbon(CFI) Others GuarGum GuarSeeds MeltedMentholFlakes MenthaOil PolyvinylChloride Potato Potato(Tarkeshwar) Exchange Both OnlyonMCX Both OnlyonMCX OnlyonMCX Both O l onMCX Only OnlyonMCX Both OnlyonMCX OnlyonNCDEX Only yonMCX Both OnlyonMCX Exchange Both OnlyonMCX Exchange OnlyonNCDEX Both OnlyonMCX Both OnlyonNCDEX Both OnlyonMCX

Indian Commodity Exchanges


FMC CommodityExchanges NationalExchanges NCDEX MCX NMCE RegionalExchanges ICEX NBOT Others

Difference & Similarities between

MCX & NCDEX


Equity E it (NSE) Monthly MCX

P ti l Particulars Months Expiryday Timing

NCDEX Normallymonthly 20thofeachcontractmonth AllCommodities: 10AMto5 PM. InternationalCommodities: Summer(MartoOctober): 5PMto11.30PM. Winter(NovtoFeb): 5PMto11.55PM.

DifferentforeachCommodity Differentforcommodities AllCommodities: 10AMto5 PM. InternationalCommodities: Summer(MartoOctober): 5PMto11.30PM. Winter(NovtoFeb): 5PMto11.55PM.

LastThursday everymonth 9:15am 3:30pm

ActivelyTraded Settlement

RIL,Infosys,ONGC Gold,Silver,CrudeOil,Copper, NaturalGas,Nickel,MenthaOil CashSettled Cash&Physical

Pulses,Sugar,Wheat,Spices, Gold,Silver,Steel,SoyComplex Cash&Physical

Index Components
NCDEX - Dhaanya
NCDEXDhaanya Weights Commodity Weight(%) 1 2 3 4 5 6 7 8 9 10 Chana CottonSeed Oilcake GuarSeed Gur Soybean Jeera MustardSeed Pepper Wheat Turmeric 11 35% 11.35% 2.03% 17.11% 3.37% 15.22% 4.06% 11.56% 5 20% 5.20% 27.35% 2.75% 1 2 3 4 5 6 7 MCXCOMDEX

MCX - COMDEX
MCXCOMDEXWeights Commodity Weight(New) GroupAdjustedWts. Gold Silver Copper Zinc Aluminium Nickel Lead CrudeOil NaturalGas Ref.SoyOil Potato Chana Crude d Palm l Oil l Kapaskhalli MenthaOil 15.21% 9.66% 7.13% 2.00% 2.00% 2 00% 2.00% 2.00% 35.41% 4.59% 3.91% 4.76% 4.14% 3.19% 2.00% 2.00%

MCXMETALINDEX

40.00%

8 MCXENERGYINDEX 9 10 11 12 13 14 15

40.00%

MCXAGRIINDEX

20.00%

Opportunities
in Commodity y markets

Hedging g g Hedging g gisessentially ydoneby yplayers p y withanunderlying y griskinacommodity. y It


maybeeitherdonebyproducersorconsumerswhowanttotransferthepriceriskontothemarket. E.g.Producerhedgersarethosewhowanttomitigatetheriskofpricesdecliningbythetimethey actuallyproducetheircommodityforsaleinthemarket. market Consumerhedgerswouldwant&todothe opposite.

Speculation Investorsandtraderswantingtobenefitorprofitfrompricevariations
areessentiallyspeculators.Theyserveascounterpartiestohedgersandaccepttheriskofferedbythe hedgersinabidtogainfromfavourable pricechanges.

Participants in Commodity markets


Commission Agents Producers Traders - Retail & HNI Brokerage Firms Importers - Exporters Consumers

Actively traded Commodities

Initial Investment

Contract Name

Price

Price Quotation

Tradable Contract Size

Value

Margin %

Profitper AvgDaily Re.1gain Movement

Potential Profit

Potential R.O.I
(PerDay)

120 960 12000 120000

GoldPetal Gold Guinea GoldMini GOLD

3000 24000 30000 30000

1Gram

1Gram

3000 24000 300000 3000000

4% 4% 4% 4%

1 1 10 100

20 150 200 200

20 150 2000 20000

17% 16% 17% 17%

8Grams 8Grams 10Grams 10Grams 100 Grams 1Kg

Initial Investment

Contract Name

Price

Price Quotation

Tradable Contract Size

Value

Margin %

Profitper AvgDaily Re.1gain Movement

Potential Profit

Potential R.O.I
(PerDay)

2750 13750 82500

SilverMicro SilverMini Silver

55000 55000 55000

1Kg 1Kg 1Kg

1Kg 5Kg 30Kg

55000 275000 1650000

5% 5% 5%

1 5 30

500 500 500

500 2500 15000

18% 18% 18%

Initial Investment

Contract Name

Price

Price Quotation

Tradable Contract Size

Value

Margin %

Profitper AvgDaily Re.1gain Movement

Potential Profit

Potential R.O.I
(PerDay)

25000

CrudeOil

5000

1BBL

100BBL

500000

5%

100

50

5000

20%

Initial Investment

Contract Name

Price

Price Quotation

Tradable Contract Size

Value

Margin %

Profitper AvgDaily Re.1gain Movement

Potential Profit

Potential R.O.I
(PerDay)

5250 21000

CopperMini Copper

420 420

1Kg 1Kg

250Kgs 105000 1MT 420000

5% 5%

250 1000

4 4

1000 4000

19% 19%

Initial Investment

Contract Name

Price

Price Quotation

Tradable Contract Size

Value

Margin %

Profitper AvgDaily Re.1gain Movement

Potential Profit

Potential R.O.I
(PerDay)

18375

NaturalGas

140

1mmbtu

1250 mmbtu

150000

11%

1250

3750

20%

**mmBTU=MillionMetricBritishThermalUnit

Whys y Commodity y better?


EasytoUnderstand SimilartotradinginEquityfutures.
Toolavailableforgoingshortaswellasholdingstockforlongertimeinfuturemarket

MAXTradingfacilityavailableforIntradaytradingwithjust3%marginrequired. DiversifiedPortfolio. Betterearningopportunitycomparedtoanyotherassetclass.


LowerM L Margin i LowerBrokerage LowerBreakevenlevels Betterliquidity&movement

QualityAssurance. PriceTransparency BetterPotential TradinginEveningsession.


13hoursmarketaday. Givesusourowntimetotrade. TollfreeDialnTradefacilityavailableforResearchideas&orderplacementtilllatenight. night

Requirements q to trade in Commodities


Knowledge g aboutFuturestrading. g KYCfilledupforCommodities. SeparatemarginforCommoditiesaccount.

Modes of Trading
Self(OnlineTrading) Website TradeTiger DealingRoom DialnTrade 18002707050(TollFree) 1800227050(Toll (T llFree) F ) 1800227004(TollFree) 30307600(LocalCharged)

ShareKhan reports p & Updates


S.No 1). 2). 3). 4). 5). 6). 7). 8). ReportName CommodityEagleEye RivetingMetals CommodityBraveHeart CurrencyEagleEye CurrencyWatch CommodityBuzz CommodityWeekly CurrencyWeekly Basis Technical Technical Technical Technical Technical Fundamental Fundamental Fundamental Frequency Daily Daily Weekly Weekly Daily Daily Weekly Weekly Usage DailyTechnicalViewsandLevelsAgro DailyTechnicalViewsandLevelsNonAgro WeeklyTechnicalViewsandLevels WeeklyTechnicalViewsandLevels DailyTechnicalViewsandLevels FundamentaldailynewsonmarkeNonAgro FundamentalweeklyReport NonAgro WeeklyFundamentalViewsandLevels

Other good websites for data reference


www.basemetals.com www basemetals com www.mcxindia.com www.24hgold.com www.kitco.com www.commodityonline.com www commodityonline com www.bloomberg.com www.fxstreet.com www.ncdex.com www.forexfactory.com www forexfactory com www.forexpros.com www.netdania.org www.nymex.com

Thank You
&

Happy Trading