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Commodities

New world of Golden opportunities

Key Takeaways
What are Derivatives & Futures contracts Benefits & Risk in trading with Futures contracts What is a Commodity Traded & Actively traded Commodities Commodity exchanges in India Contract specification & margin Things to remember Requirements to trade in Commodities

Derivatives
A security whose price is dependent upon or derived from an underlying asset. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.

Derivatives

Futures Contract
Futures:
A financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset. They are standardized to facilitate trading on a futures exchange. Some futures contracts (Mostly in Commodities) do get settled with physical delivery of the asset, while others are settled in cash. The futures markets are characterized by the ability to use very high leverage relative to stock markets.

Terms to remember:
Long Position :- When you have bought a futures contract, you are holding a long position. Short Position :- When you have sold a futures contract, you are holding a Short position. Spot Price:- The Current Market price at which the underlying asset is trading in the live market or rather Exchange. Lot Size:- Fixed standard size (quantity) of contract based on underlying asset value. M to M:- The profit or loss from the level of position created with comparison to the current market price 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
To Buy worth 100000 (1000 units of Rs. 100 each) each Margin required 100% Required Funds 100000 Profit on movement of Rs. 10 Rs. 10000 10 x 1000 Returns on Investment 10%

Equity Futures
To Buy worth 100000 (1000 units of Rs. 100 each) Margin required 20% Required Funds 20000 Profit on movement of Rs. 10 Rs. 10000 10 x 1001 Returns on Investment

Commodity Futures
To Buy worth 100000 (1000 units of Rs. 100 each) Margin required 5% Required Funds 5000 Profit on movement of Rs. 10 Rs. 10000 10 x 1001 Returns on Investment

50%

Risk in Trading with Futures contract


RISK OF HIGHER VOLATALITY
Volatility refers to the dynamic changes in price that commodity derivative contracts undergo when trading activity continues on the Commodity Exchange. Generally, higher the volatility, greater is the price swing. Liquidity refers to the ability of market participants to buy and/ or sell commodity derivative contract expeditiously at a competitive price and with minimal price difference. Generally, it is assumed that more the number of orders available in a market, greater is the liquidity.

RISK OF LOWER LIQUIDITY

Follow Stop Losses.


Stoplosses , usually are levels of Supports or Resistances, breaking which our position can go further in losses. To avoid such scenarios, the trader shall always trade with strict Stoplosses provided or recommended by the Broker. Rumors about the expected price movement of a commodity at times float in the market through word of mouth. The investors should take care & stay away from acting on rumors. It is always advisable to follow recognised research calls provided by the Broker with whom we have trading accounts. Since we are dealing with a leveraged instrument, in case of extreme market movements , our position may have to face Compliance action if sufficient funds are not in our account. In order to keep our position safe & avoid un desired loss bookings, Sufficient margin shall be maintained. Many Commodities in are settled with Physical delivery. If not intending to take the delivery, the client is shall squareoff the position before the Notification period starts, ie 5 days before the date of contract expiry. Details can be taken from the agents in Dial n Trade or your respective CREs who will inform about the type of Delivery & about the Notification period.

RISK OF RUMOURS

Maintain Sufficient Margin.

Tender Period & Delivery Notification.

What is a Commodity?
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services. The more specific meaning of the term COMMODITY is applied to goods only.

Tradable Commodities (MCX & NCDEX)


Bullions Gold (1 Kg) Gold (100 Grms) Gold Guinea (8 Grms) Gold Petal (1 Grm) Platinum Silver (30 Kg) Silver Mini (5 Kg) Silver Micro (1 Kg) Energy ATF Brent Crude Oil Crude Oil Electricity Monthly & Weekly Gasoline Heating Oil Imported Thermal Coal Natural Gas Thermal Coal Spices Cardamom Chilli Coriander JEERA Pepper Turmeric Exchange Both Both Both Both Both Both Only on MCX Only on MCX Exchange Only on MCX Both Both Only on MCX Both Both Only on MCX Only on MCX Only on NCDEX Exchange Only on MCX Only on NCDEX Both Only on NCDEX Only on NCDEX Both Oil & Oil Seeds Castor seeds Cotton seed oilcake Crude Palm Oil Kapasia Khalli Mustard Seed RBD Palmolein Refined Soya Oil Soya Bean Fiber Cotton (29mm) Kapas V-797 Kapas Plantations Almond Maize Rubber Cereals & Pulses Barley Chana Wheat Sugar Gur Sugar M and S Exchange Only on NCDEX Only on NCDEX Both Only on MCX Only on NCDEX Only on NCDEX Both Both Exchange Only on MCX Only on MCX Only on NCDEX Exchange Both Both Both Exchange Both Both Both Exchange Only on NCDEX Only on NCDEX Metals Aluminium Aluminium Mini Copper Copper Mini Iron Ore Lead Lead Mini Mild Steel Ingot,Billets Nickel Nickel Mini Steel Tin Zinc Zinc Mini Weather Carbon (CER) Carbon (CFI) Others Guar Gum Guar Seeds Melted Menthol Flakes Mentha Oil Polyvinyl Chloride Potato Potato (Tarkeshwar) Exchange Both Only on MCX Both Only on MCX Only on MCX Both Only on MCX Only on MCX Both Only on MCX Only on NCDEX Only on MCX Both Only on MCX Exchange Both Only on MCX Exchange Only on NCDEX Both Only on MCX Both Only on NCDEX Both Only on MCX

Indian Commodity Exchanges

National Commodity Exchanges


S.No Exchange Location Traded Commodity Gold, Silver, Copper, Crude Oil, Zinc, Lead, Nickel, Natural gas, gas, Aluminium, Mentha Oil, CrudeCrude-PalmPalm-Oil, Refined Soya Oil, Cardamom, Guar Seeds, Kapas, Potato, Chana\ Chana\Gram, Melted Menthol Flakes, Almond, Wheat, Barley, Long Steel, Maize, Soybean Seeds, Gasoline US, Tin, Kapaskhali, Platinum, Heating Oil Guar Seed, Soy Bean, Soy Oil, Chana,RM Seed, Jeera, Turmeric, Guar Gum, Pepper, Cotton Cake, Long Steel, Gur, Kapas, Wheat, Red Chilli, Crude Oil, Maize, Gold, Copper, Castor Seeds, Potato, Potato, Barley, Kachhi Ghani Mustard Oil, Silver, Indian 28 Mm Cotton, Platinum Rape/Mustard Seed, Guar Seeds, Nickel, Jute, Refined Soya Oil, Zinc, Rubber, Chana\ Chana\Gram, Isabgul, Lead, Gold, Aluminium, Copper, Turmeric, Copra, Silver, Raw Jute, Guar Gum, Pepper, Coffee Robusta, Castor Seeds, Mentha oil 1 Multi Commodity Exchange of India Ltd Mumbai

National Commodity & Derivatives Exchange Ltd

Mumbai

National Multi Commodity Exchange of India Limited

Ahmedabad

Regional Commodity Exchanges


S.No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 National Board of Trade Chamber Of Commerce Ahmedabad Commodity Exchange Ltd. Rajkot Commodity Exchange Ltd Surendranagar Cotton & Oilseeds Association Ltd The Rajdhani Oil and Oilseeds Exchange Ltd Haryana Commodities Ltd India Pepper & Spice Trade Association Vijay Beopar Chamber Ltd The Meerut Agro Commodities Exchange Co. Ltd Bikaner Commodity Exchange Ltd First Commodity Exchange of India Ltd The Bombay Commodity Exchange Ltd The Central India Commercial Exchange Ltd Bhatinda Om & Oil Exchange Ltd The Spices and Oilseeds Exchange Ltd The East India Jute & Hessian Exchange Ltd The East India Cotton Association Exchange Indian Commodity Exchange Limited Location Gurgaon Indore Hapur Ahmedabad Rajkot Surendra Nagar Delhi Sirsa Kochi Muzaffarnagar Meerut Bikaner Kochi Mumbai Gwaliar Bhatinda Sangli Kolkatta Mumbai Traded Commodities Gold, Crude Oil, Copper, Silver Soy bean, Soy Oil Gur, Mustard seed Castorseed Castorseed Kapas Gur, Mustard Seed Mustard seed, Cotton seed Oil Cake Pepper DomesticDomestic-MG1,Pepper 550 G/L, Gur Gur Guarseed, Coconut oil Castor Seed Mustard seed Gur Turmeric Raw Jute Cotton

Difference & Similarities between

MCX & NCDEX


Particulars Months Expiry day Equity (NSE) Monthly Last Thursday every month 9:15 am - 3:30 pm MCX Different for each Commodity Different for commodities NCDEX Normally monthly 20th of each contract month

Timing

All Commodities: 10 AM to 5 PM. International Commodities: Summer (Mar to October): 5 PM to 11.30 PM. Winter (Nov to Feb): 5 PM to 11.55 PM. Same as MCX

Settlement

Cash Settled

Cash & Physical

Same as MCX

Index Components
NCDEX - Dhaanya
NCDEX Dhaanya Weights Commodity Weight (%) 1 2 3 4 5 6 7 8 9 10 Chana Cotton Seed Oilcake Guar Seed Gur Soy bean Jeera Mustard Seed Pepper Wheat Turmeric 11.35% 2.03% 17.11% 3.37% 15.22% 4.06% 11.56% 5.20% 27.35% 2.75% MCX COMDEX 1 2 3 4 MCX METAL INDEX 5 6 7 8 MCX ENERGY INDEX 9 10 11 12 13 14 15

MCX - COMDEX
MCX COMDEX Weights Commodity Weight (New) Group Adjusted Wts. Gold Silver Copper Zinc Aluminium Nickel Lead Crude Oil Natural Gas Ref. Soy Oil Potato Chana Crude Palm Oil Kapaskhalli Mentha Oil 15.21% 9.66% 7.13% 2.00% 2.00% 2.00% 2.00% 35.41% 4.59% 3.91% 4.76% 4.14% 3.19% 2.00% 2.00%

40.00%

40.00%

MCX AGRI INDEX

20.00%

Factors affecting commodity price movement


Fundamental
(Supply & Demand)

Technical
o Trends & Patterns o Chart formations o Cycles & o Seasonal Odds

Sentiments
o Human Emotions

o Weather o Domestic production & use o Reserves Inventories o Imports & Exports o Interest rates o Dock & Trucker strikes o C.P.I & P.P.I data o Value of the Currency o Actions of other countries o Inflation & o Government programs

Opportunities
in Commodity markets

Hedging Hedging is essentially done by players with an underlying risk in a commodity. It


may be either done by producers or consumers who want to transfer the price-risk onto the market. E.g. Producer-hedgers are those who want to mitigate the risk of prices declining by the time they actually produce their commodity for sale in the market. Consumer-hedgers would want & to do the opposite.

Speculation - Investors and traders wanting to benefit or profit from price variations
are essentially speculators. They serve as counterparties to hedgers and accept the risk offered by the hedgers in a bid to gain from favourable price changes.

Participants in Commodity markets


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

Actively traded Commodities

Initial Investment

Contract Name

Price

Tradable Price Contract Quotation Size

Value

Margin %

Profit per Avg Daily Re. 1 gain Movement

Potential Profit

Potential R.O.I
(Per Day)

120 960 12000 120000

Gold Petal Gold Guinea Gold Mini GOLD

3000 24000

1 Gram

1 Gram

3000 24000 300000 3000000

4% 4% 4% 4%

1 1 10 100

20 150 200 200

20 150 2000 20000

17% 16% 17% 17%

8 Grams 8 Grams 100 Grams 1 Kg

30000 10 Grams 30000 10 Grams

Download Daily Margin File

MCX

NCDEX

Initial Investment

Contract Name

Price

Tradable Price Contract Quotation Size

Value

Margin %

Profit per Avg Daily Re. 1 gain Movement

Potential Profit

Potential R.O.I
(Per Day)

2750 13750 82500

Silver Micro Silver Mini Silver

55000 55000 55000

1 Kg 1 Kg 1 Kg

1 Kg 5 Kg 30 Kg

55000 275000 1650000

5% 5% 5%

1 5 30

500 500 500

500 2500 15000

18% 18% 18%

Download Daily Margin File

MCX

NCDEX

Initial Investment

Contract Name

Price

Tradable Price Contract Quotation Size

Value

Margin %

Profit per Avg Daily Re. 1 gain Movement

Potential Profit

Potential R.O.I
(Per Day)

25000

Crude Oil

5000

1 BBL

100 BBL

500000

5%

100

50

5000

20%

Download Daily Margin File

MCX

NCDEX

Initial Investment

Contract Name

Price

Tradable Price Contract Quotation Size

Value

Margin %

Profit per Avg Daily Re. 1 gain Movement

Potential Profit

Potential R.O.I
(Per Day)

5250 21000

Copper Mini Copper

420 420

1 Kg 1 Kg

250 Kgs 1 MT

105000 420000

5% 5%

250 1000

4 4

1000 4000

19% 19%

Download Daily Margin File

MCX

NCDEX

Initial Investment

Contract Name

Price

Tradable Price Contract Quotation Size

Value

Margin %

Profit per Avg Daily Re. 1 gain Movement

Potential Profit

Potential R.O.I
(Per Day)

18375

Natural Gas

140

1 mmbtu

1250 mmbtu

150000

11%

1250

3750

20%

Download Daily Margin File


** mmBTU = Million Metric British Thermal Unit

MCX

NCDEX

Requirements to trade in Commodities


Knowledge about Futures trading. KYC filled up for Commodities. Separate margin for Commodities account.

Modes of Trading
Self (Online Trading) Web-site TradeTiger Dealing Room Dial n Trade 1800 270 7050 (Toll Free) 1800 22 7050 (Toll Free) 1800 22 7004 (Toll Free) 3030 7600 (Local Charged)

ShareKhan reports & Updates


S.No 1). 2). 3). 4). 5). 6). 7). 8). Report Name Commodity Eagle Eye Riveting Metals Commodity Brave Heart Currency Eagle Eye Currency Watch Commodity Buzz Commodity Weekly Currency Weekly Basis Technical Technical Technical Technical Technical Fundamental Fundamental Fundamental Frequency Daily Daily Weekly Weekly Daily Daily Weekly Weekly Usage Daily Technical Views and Levels -Agro Daily Technical Views and Levels -Non-Agro Weekly Technical Views and Levels Weekly Technical Views and Levels Daily Technical Views and Levels Fundamental daily news on marke -Non-Agro Fundamental weekly Report Non-Agro Weekly Fundamental Views and Levels

Other good websites for data reference


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

How to Trade?

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&

Happy Trading