Commodity participants 14012011

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Commodity participants 14012011

  1. 1. Participants in <br />Commodities<br />
  2. 2. Participants in Commodity Derivatives<br />Speculators<br />Hedgers<br />Arbitragers<br />
  3. 3. Speculators<br />Speculators are interested in making money by taking a view on future price movements. <br />The main objective of speculation is to take risks and profit from anticipated price changes in futures price of an asset.<br />A speculator will buy futures contracts (long position) if he anticipates an increase in the price of the commodity in future and vice versa <br />
  4. 4. Lets Take An Example<br />04th November 2008<br /><ul><li>You feel the gold price will rise
  5. 5. Buy 1 lot of gold futures of November expiry
  6. 6. Gold futures contract is trading at 12,000
  7. 7. Your position is worth Rs. 12,00,000
  8. 8. You pay a Span margin of Rs.48,000 </li></ul>20th November 2008<br /><ul><li>Gold futures has risen to 12,200
  9. 9. Square off your position
  10. 10. Make a profit of Rs.20,000 (200*100)</li></li></ul><li>Hedgers<br />Hedging means taking a position in the futures market that is opposite to a position in the physical market. <br />The objective is reducing or limiting risks associated with price changes.<br />Hedgers are interested in transferring risk associated with transacting or carrying underlying physical asset.<br />Hedging is an insurance used to avoid or reduce price risks associated with any kind of future transaction<br />
  11. 11. Lets Take An Example<br />04th November 2008<br /><ul><li>A gold jeweler buys 1kg of gold (spot market)
  12. 12. At the price of Rs. 12,000
  13. 13. He wants to protect the reduction in the price of gold till the jewellery is ready for sale
  14. 14. He sells 1kg of gold Nov futures at the price of Rs. 12,200 per 10gm</li></ul>20th November 2008<br /><ul><li>Gold spot price has fallen to 11,800
  15. 15. He sells his gold in spot market
  16. 16. Square off his position in futures at Rs. 12,000
  17. 17. He make loss of Rs. 20,000 in spot market and profit of Rs. 20,000 in future contract</li></li></ul><li>Arbitragers<br />Arbitragers are interested in locking in a minimum risk profit by simultaneously entering into transactions in two or more markets.<br /> Arbitragers lock in profit when they spot cash and carry arbitrage opportunity; or reverse cash and carry arbitrage opportunity. <br />
  18. 18. Thank You<br />

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