commodity derivatives 1

8/3/2019 Commodity Derivatives 1

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LOGO

COMMODITY DERIVATIVES

PRESENTED BY:BIBHUDATTA MISHRAC.MILAN MOHAPATRAPOPSI PRANITA DASARADHANA MOHAPATRA


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AGENDA

COMMODITY DERIVATIVES1

GLOBAL MARKET2

INDIAN SCENARIO3

3

TRADING MECHANISM4

4


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COMMODITY

COMMODITY DEFINED :Every kind of movable good excluding money, securitiesand actionable claimsCommodities includes Metals (Bullion & Other Metals) Agro Products Perishable / Non Perishable Consumable / Non Consumable


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COMMODITY DERIVATIVES

Derivative contracts where the underlying assetsare commodities are called commodity derivatives. Commodity derivatives are investment tools thatallow investors to profit from certain items withoutpossessing them. This type of investing dates back to 1848 when

the Chicago Board of Trade was established.


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CONT

Initially the idea behind commodity derivatives was to provide a meansof risk protection for farmers. They could promise to sell crops in thefuture for a pre-arranged price.

The buyer of a derivative contract buys the right to exchangea commodity for a certain price at a future date. Although this person isa contract buyer, he may be buying or selling the commodity.

He does not have to pay the full value of amount of the commodity thathe is investing in. He only needs to pay a small percentage, known as themargin price. The contract seller is the person who accepts a margin. He agrees that

on a certain date he will buy or sell the commodity stated in the contractat a certain price. Both parties are generally required to honor theagreement despite losses.


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BENEFITS OF FUTURE TRADING

Process of price discovery of commoditiesHedge against uncertain movement in pricesFuture trading for speculative gainsLeverage in tradingAvoidance of counter partyTrading on quality specific commodities


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GLOBAL MARKETS

CBOT, CME, NYMEX, NBOT, COMEX, LME are some of themajor exchanges in the western countries. The volume of future market is 10 times than that of spot

market.


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THE INDIAN SCENARIO

The commodity derivative market has been functioning inIndia since the nineteenth century with organized trading incotton through the establishment of Cotton Trade Associationin 1875. There are 25 commodity derivative exchanges in India as ofnow and derivative contracts on nearly 100 commodities areavailable for trade. National Commodity and Derivatives Exchange (NCDEX) is

the largest commodity derivatives exchange with a turnoverof around Rs 3,000 crore (Rs 30 billion) every fortnight.


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COMMODITIES TRADED IN NCDEX

Metals Bullion

Gold Gold Kilo Silver Mega silver

Other metals


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CONTD

Oil/Oil seeds Soya Been Soya Oil Guar Seed Guar Gum Castor Seed Mustard Mustard Oil Crude Palm Oil RBD Palm Olien

Other Agro products Cotton Jute Pepper Rubber Sugar Urad Yellow peas Wheat Turmeric


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MULTI COMMODITY EXCHANGE (MCX)

Multi Commodity Exchange (MCX) is an independent commodityexchange based in India. It was established in 2003 and is basedin Mumbai. The turnover of the exchange for the fiscal year 2009was US$ 1.24 trillion, and in terms of contracts traded, it was in2009 the world's sixth largest commodity exchange.

MCX holds a market share of over 80%* of the Indian

commodity futures market, and has more than 2,149 registered

members operating through over 2,47,000 trading terminals

spread over 1,568 cities and towns across India.

MILESTONESMCX's world ranking - No.1 in Silver -

No.2 in Gold, Copper & Natural Gas and -

No.3 in Crude Oil


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SALIENT FUTURES OF MCX On-line monitoring at members and contract level -exposure, price, open interest, quantity, client, etc.

On-line margin adjustment - Business in relation todeposit

System driven control and actions

Electronic fund transfer

Daily clearing

Trading units and Max.order size

Circuit filter.

Exchange approved depositories.

Seller to submit proof of delivery with proper qualitycertification to MCX


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TRADING MECHANISM

Trading hours Weekdays

Morning Session 10 a.m. to 4 p.m.

Evening Session 5 p.m. to 11 p.m.

Saturday: 10 a.m. to 2 p.m.

Simultaneously three (3) months contracts are availablefor trading

Expiring Contracts can only be traded till the end of

Morning Session


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TICKER FORMAT

Ticker : AAABBBCCC: AAA : Commodity

BBB : Grade

CCC : Location

For Example : GLDPURMUM

GLD : GOLD

PUR : PURE

MUM : MUMBAI


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INSTRUMENT TYPE

Instrument Type

COMDTY : Commodity (Spot)

FUTCOM : Future Commodity

OPTCOM : Option on CommoditiesOnly trading in Futures is Allowed by FMC


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EXPIRY DATE

Contract expiry is on 20th of every month

If 20 is a holiday, the previous working day would be theexpiry date

Ticker: 20MMMYYYY

For example : gold contract for the month of august 2004would be : "20AUG2004

Expiring contracts can only be traded up to the morningsession on the closing


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LOT SIZE

Specific lot size for every commodity

For Example : For Gold Contract

Prices Displayed : Per 10 Grams

Minimum Contract : Per 100 Grams (& in multiple thereof)

Delivery Lot : Per 1 Kilo


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ORDER TYPES

Regular lot order1.Limit Order2. Market Order

Futures Spread (SB) specified difference between twodifferent calendar months in same commodity

Immediate or Cancel (IOC) 2L Order (2L) Both price and quantity is specified for

each of the two orders.

3L Order (3L) Price and quantity is specified for 3L Order

(3L) Price and quantity is specified for three orders.


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www.themegallery.com

Company Logo


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TRADIG ON NCDEX


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CLEARING & SETTLEMENT


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DAILY SETTLEMENT

After the closing hours at the end of each day

Determine the closing price for the day

Weekdays : 11:15 p.m. to 11:30 p.m.

Saturday : 2:15 p.m. to 2:30 p.m.

Mark to Market Settlement

1) For daily price fluctuations.

2) All Trades are Marked to Market at daily settlement price

3) Pay In/ Pay Out required as the case maybe

4) Daily Process at the end of each day


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FINAL SETTLEMENT

Cash Settlement

Delivery Settlement


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FINAL SETTLEMENT - DELIVERY

Delivery Intention on Delivery intention Window on the ContractExpiry Date

Matching done by the Exchange on the basis of location and thenRandomly

Matching done will be binding for the member/clients

Unmatched positions settled in cash Delivery Margin Requirements till physical delivery is made/received

Transportation & other expenses to be paid by clients

Warehousing fees

Goods below the Allowable Variation considered as bad deliveryand penalties considered as bad delivery and penalties are levied


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LOGO


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