Basics of Stock Market Finance and General Operation of Commodity Market.
Prepared By:Asit Dholakia.
WHAT IS A COMMODITY? “A generic, largelyunprocessed, good that can beprocessed and resold.” Usually think of a“commodity” as somethinghomogeneous, standardized,easily defined. In reality, this isn’t the case—commodities are often veryheterogeneous, hard tostandardize, hard to define.
TWO MAJOR COMMODITIESEXCHANGE IN INDIA MCX (Multi Commodity Exchange) NCDEX (National Commodities & DerivativesExchange)
OTHER INFORMATIONExchange TimingsAgri Products: 10:00 AM To 5:00 PMOther Commodities: 10:00 AM To 11:30 PMInstrument Traded: Futures ContractExpiry of Contracts : Different fordifferent commodities
MULTI COMMODITY EXCHANGE(MCX) Multi Commodity Exchange (MCX) is an independentcommodity exchange based in India. Established in 2003 and Based in Mumbai Turnover in 2009 was USD 1.24 trillion Sixth largest commodity exchange It was established in 2003 and is based in Mumbai. MCX offers futures trading in bullion, ferrous and non-ferrous metals, energy, anda number of agricultural commodities (menthol oil,cardamom, potatoes, palm oil and others).
NCDEX (National Commodity & DerivatesExchange Ltd.) NCDEX is a public limited co. incorporated onApril 2003 under the Companies Act, 1956; itobtained its certificate for commencement ofBusiness on May 9, 2003. It commenced itsoperational on Dec 15, 2003. NCDEX is located in Mumbai and currentlyfacilitates trading in 57 commodity mainly inAgro product.
NMCE: (National Multi CommodityExchange of India Ltd.) NMCE is the first demutualised electroniccommodity exchange of India granted theNational exchange on Govt. of India andoperational since 26th Nov, 2002. Head Office of NMCE is located in Ahmadabad.There are various commodity trades on NMCEPlatform including Agro and non-agrocommodities.
Market share of commodityexchanges in India (APPROX)74%22%1% 2%1%% ShareMCX NCDEX NCEX NBOT Other
WHAT ARE COMMODITY FUTURES?A Financial ContractThe underlying commodity is bought or sold at afuture dateA tool used by Investors, Hedgers, Arbitrageurs,Day Traders
ENTERING AND EXITINGA FUTURES POSITIONHow to Enter How to ExitBuy (long) SellSell (short) Buy
Example For example, suppose a farmer buys a put option to sell 100 Quintalsof wheat at a price of $25 per quintal and pays a ‘premium’ of $0.5 perquintal (or a total of $50). If the price of wheat declines to say $20before expiry, the farmer will exercise his option and sell his wheatat the agreed price of $25 per quintal. However, if the market priceof wheat increases to say $30 per quintal, it would be advantageousfor the farmer to sell it directly in the open market at the spotprice, rather than exercise his option to sell at $25 per quintal.
MAJOR PLAYERS IN THE COMMODITY MARKET The players in the futuresmarket fall into two categories:1) Hedger2) Speculator3) Arbitrage
A Hedger can beFarmers, manufacturers, importers andexporter. A hedger buys or sells in thefutures market to secure the future price ofa commodity intended to be sold at a laterdate in the cash market. This helps protectagainst price risks.Gain in one marketLoss in other marketCONCEPT OFHEDGING
Other commodity marketparticipants, however, do not aim tominimize risk but rather to benefit fromthe inherently risky nature of thecommodity market. These are thespeculators, and they aim to profit from thevery price change that hedgers areprotecting themselves against.SPECULATOR:
ARBITRAGE: The person who conducts and takes advantage ofarbitrage in stocks, commodities, interest ratebonds, derivative products, forex is know as anarbitrageur. In India there are a good amount of Arbitrageopportunities between NCDEX, MCX incommodities.
Leading Global commodity exchanges 1 New York Mercantile Exchange (NYMEX) 2 London Metal Exchange (LME) 3 Chicago Board of Trade (CBOT) 4 New York Board of Trade (NYBOT) 5 Kansas Board of Trade 6 Winnipeg Commodity Exchange, Manitoba 7 Dalian Commodity Exchange, China 8 Bursa Malaysia Derivatives exchange
9 Singapore Commodity Exchange (SICOM) 10 Chicago Mercantile Exchange (CME), US 11 London Metal Exchange 12 Tokyo Commodity Exchange (TOCOM) 13 Shanghai Futures Exchange 14 Sydney Futures Exchange 15 London International Financial Futures andOptions Exchange (LIFFE)
16 National Multi-Commodity Exchange inIndia (NMCE), India 17 National Commodity and DerivativesExchange (NCDEX), India 18 Multi Commodity Exchange of IndiaLimited (MCX), India 19 Dubai Gold & Commodity Exchange(DGCX) 20 Dubai Mercantile Exchange (DME), (jointventure between Dubai holding and the NewYork Mercantile Exchange (NYMEX)
Country Regulatory agency Australia Australian Securities and Investments Commission Chinese mainland China Securities Regulatory Commission Hong Kong Securities and Futures Commission India Securities and Exchange Board of India and ForwardMarkets Commission (FMC) Singapore Monetary Authority of Singapore UK Financial Services Authority USA Commodity Futures Trading Commission Malaysia Securities CommissionRegulators
ABOUT THE SHAREKHANSharekhan is one of the leading retail brokerage firms in the country.It is the retail broking arm of the Mumbai-based SSKI [SHRIPALSHEWANTILAL KANTILAL ISWARNATH LIMITED].Sharekhan Ltd. is a brokerage firm which is established on 8th February2000.It has one of the largest networks in the country with 1200+ share shops in400 cities.
Name Of TheTraderAn InvestmentForm throughWhich Trading CanBe Done
SHARE OFFLINE:Sharekhan provides complete trading facility like they are giving Toll freenumbers the phone trading facility as an alternative of net trading where acustomer can call “n” number of times.Toll Free numbers: 1800-22-75001800-22-7050Local number : 079-30307600 (chargeable)
BIBLIOGRAPHYOur sherkhan personal visitWebsites:http://www.sharekhan.com/http://www.bseindia.com/http://www.nseindia.com/http://www.ncdex.com/http://www.mcxindia.com/http://www.mutualfunds.com/