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Summer intern Project "Study on Commodity Trading and Investments"

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The study and analysis that involves: •concepts of commodities trading in india. •various trends in commodity trading investments. •role of commodities in indian financial markets. •present situation of the commodities in indian market and suggest for any improvements thereafter.

Summer intern Project "Study on Commodity Trading and Investments"

1 of 59
STUDY ON COMMODITY TRADING AND INVESTMENTS
SUMMER PROJECT REPORT
Submitted By
G. CHEZHIAN
Registration No. : 14381012
MBA: BANKING TECHNOLOGY
DEPARTMENT OF BANKING TECHNOLOGY
SCHOOL OF MANAGEMENT
PONDICHERRY UNIVERSITY
PONDICHERRY – 605 014
CAPITAL FOCUS
PONDICHERRY
BONAFIDE CERTIFICATE
This is to certify that this project work entitled “STUDY ON COMMODITY TRADING
AND INVESTMENTS” is a bonafide record of work done by G. CHEZHIAN (Reg.
No.14381012) of II Year / III Semester during the academic year 2015-2016 in partial fulfillment for the
summer project of Master of Business Administration: Banking Technology, Pondicherry University.
INTERNAL GUIDE HEAD OF THE DEPARTMENT
DR. S. SUDALAI MUTHU, DR. V. PRASANNA VENKATESAN,
Reader, Department of Banking Technology, Professor, Department of Banking Technology,
School of Management, School of Management,
Pondicherry University. Pondicherry University.
Submitted for the University Viva-Voce Examination held on _____________________
INTERNAL EXAMINER EXTERNAL EXAMINER
ACKNOWLEDGEMENT
I express sincere thanks to my project guide, Dr. S. SUDALAI MUTHU, Reader, Dept. of
Banking Technology, Pondicherry University, for his support and suggestions during this project work.
I would like to express my sincere thanks to Mr. MANOJ, Partner of Firm, CAPITAL FOCUS,
PONDICHERRY, for his valuable suggestions and guidance during the progress of my project. I would like to
thank each and every employee who helped me in carrying out this project.
I am thankful to the CAPITAL FOCUS, for giving me an opportunity to undertake my project work.
I would like to express my heart full gratitude to Dr. V. PRASANNA VENKATESAN,
Professor and Head, Department of Banking Technology for his constant moral support and encouragement
and guidance to undertake my project.
With regards,
CHEZHIAN.G
TABLE OF CONTENTS
CHAPTER
NO.
PARTICULARS PAGE NO.
1. INTRODUCTION-COMMODITY TRADING AND INVESTMENTS 1
2. INDUSTRY PROFILE-COMMODITY MARKET 6
3. COMPANY PROFILE 17
4. NEED FOR THE STUDY OBJECTIVES, METHODOLOGY &
LIMITATIONS
27
5. DATA ANALYSIS AND INTERPRETATION 30
6. FINDINGS, SUGGESTIONS AND CONCLUSION 51
7. BIBLIOGRAPHY 55
1
CHAPTER-1
INTRODUCTION-COMMODITY TRADING AND INVESTMENTS
1.1 INVESTMENT:
Investment is time, energy, or matter spent in the hope of future benefits actualized within a specified
date or time frame. In finance, investment is buying or creating an asset with the expectation of
capital appreciation, dividends, interest earnings, rents, or some combination of these returns. This may or may
not be backed by research and analysis. Most or all forms of investment involve some form of risk such as
investment in equities, property, and even fixed interest securities which are subject, among other things,
to inflation risk. It is indispensable for project investors to identify and manage the risks related to the
investment.
In finance, investment is the purchase of an asset with the hope that it will generate income or appreciate
in the future and be sold at the higher price. A good investment strategy will diversify the portfolio according to
the specified needs.
In an economic sense, an investment is the purchase of goods that are not consumed today but are used
in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the
asset will provide income in the future or appreciate and be sold at a higher price.
The most famous and successful investor of all time is Warren Buffett. In March 2013 Forbes magazine
had Warren Buffett ranked as number 2 in their Forbes 400 list. Buffett has advised in numerous articles and
interviews that a good investment strategy is long term and choosing the right assets to invest in requires due
diligence. Edward O. Thorp was a very successful hedge fund manager in the 1970s and 1980s that spoke of a
similar approach. Another thing they both have in common is a similar approach to managing investment
money. No matter how successful the fundamental pick is, without a proper money management strategy, full
potential of the asset cannot be reached. Both investors have been shown to use principles from the Kelly
criterion for money management. Numerous interactive calculators which use the Kelly criterion can be found
online.
Investments are often made indirectly through intermediaries, such as pension funds, banks, brokers,
and insurance companies. These institutions may pool money received from a large number of individuals into
funds such as investment trusts, unit trusts, SICAVs etc. to make large scale investments. Each individual
investor then has an indirect or direct claim on the assets purchased, subject to charges levied by the
intermediary, which may be large and varied. It generally, does not include deposits with a bank or similar
institution. Investment usually involves diversification of assets in order to avoid unnecessary and unproductive
risk.
2
1.2 TYPES OF FINANCIAL INVESTMENTS:
Types of financial investments include:
 Alternative investments
 Traditional investments
TRADITIONAL INVESTMENTS:
In finance, the traditional investments refers to putting money into well-known assets (such as bonds, cash, real
estate, and equity shares) with the expectation of capital appreciation, dividends, and interest earnings.
ALTERNATIVE INVESTMENTS:
An alternative investment is an investment in asset classes other than stocks, bonds, and cash. The term is a
relatively loose one and includes tangible assets such as precious metals, art, wine, antiques, coins, or
stamps and some financial assets such as a Real Estate Fund, commodities, private equity, distressed
securities, hedge funds, carbon credits, venture capital, film production and financial derivatives.
Alternative investments are sometimes used as a way of reducing overall investment risk
through diversification.
Some of the characteristics of alternative investments may include:
 Low correlation with traditional financial investments such as stocks and bonds
 It may be difficult to determine the current market value of the asset
 Alternative investments may be relatively illiquid (see "Liquid alts")
 Costs of purchase and sale may be relatively high
 There may be limited historical risk and return data
 A high degree of investment analysis may be required before buying
INVESTORS INVESTMENTS:
The Merrill Lynch/Cap Gemini Ernst & Young World Wealth Report 2003, based on 2002 data,
showed high-net-worth individuals, as defined in the report, to have 10% of their financial assets in alternative
investments. For the purposes of the report, alternative investments included "structured products, luxury
valuables and collectibles, hedge funds, managed futures, and precious metals". By 2007, this had reduced to
9%. No recommendations were made in either report about the amount of money investors should place in
alternative investments.

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Summer intern Project "Study on Commodity Trading and Investments"

  • 1. STUDY ON COMMODITY TRADING AND INVESTMENTS SUMMER PROJECT REPORT Submitted By G. CHEZHIAN Registration No. : 14381012 MBA: BANKING TECHNOLOGY DEPARTMENT OF BANKING TECHNOLOGY SCHOOL OF MANAGEMENT PONDICHERRY UNIVERSITY PONDICHERRY – 605 014 CAPITAL FOCUS PONDICHERRY
  • 2. BONAFIDE CERTIFICATE This is to certify that this project work entitled “STUDY ON COMMODITY TRADING AND INVESTMENTS” is a bonafide record of work done by G. CHEZHIAN (Reg. No.14381012) of II Year / III Semester during the academic year 2015-2016 in partial fulfillment for the summer project of Master of Business Administration: Banking Technology, Pondicherry University. INTERNAL GUIDE HEAD OF THE DEPARTMENT DR. S. SUDALAI MUTHU, DR. V. PRASANNA VENKATESAN, Reader, Department of Banking Technology, Professor, Department of Banking Technology, School of Management, School of Management, Pondicherry University. Pondicherry University. Submitted for the University Viva-Voce Examination held on _____________________ INTERNAL EXAMINER EXTERNAL EXAMINER
  • 3. ACKNOWLEDGEMENT I express sincere thanks to my project guide, Dr. S. SUDALAI MUTHU, Reader, Dept. of Banking Technology, Pondicherry University, for his support and suggestions during this project work. I would like to express my sincere thanks to Mr. MANOJ, Partner of Firm, CAPITAL FOCUS, PONDICHERRY, for his valuable suggestions and guidance during the progress of my project. I would like to thank each and every employee who helped me in carrying out this project. I am thankful to the CAPITAL FOCUS, for giving me an opportunity to undertake my project work. I would like to express my heart full gratitude to Dr. V. PRASANNA VENKATESAN, Professor and Head, Department of Banking Technology for his constant moral support and encouragement and guidance to undertake my project. With regards, CHEZHIAN.G
  • 4. TABLE OF CONTENTS CHAPTER NO. PARTICULARS PAGE NO. 1. INTRODUCTION-COMMODITY TRADING AND INVESTMENTS 1 2. INDUSTRY PROFILE-COMMODITY MARKET 6 3. COMPANY PROFILE 17 4. NEED FOR THE STUDY OBJECTIVES, METHODOLOGY & LIMITATIONS 27 5. DATA ANALYSIS AND INTERPRETATION 30 6. FINDINGS, SUGGESTIONS AND CONCLUSION 51 7. BIBLIOGRAPHY 55
  • 5. 1 CHAPTER-1 INTRODUCTION-COMMODITY TRADING AND INVESTMENTS 1.1 INVESTMENT: Investment is time, energy, or matter spent in the hope of future benefits actualized within a specified date or time frame. In finance, investment is buying or creating an asset with the expectation of capital appreciation, dividends, interest earnings, rents, or some combination of these returns. This may or may not be backed by research and analysis. Most or all forms of investment involve some form of risk such as investment in equities, property, and even fixed interest securities which are subject, among other things, to inflation risk. It is indispensable for project investors to identify and manage the risks related to the investment. In finance, investment is the purchase of an asset with the hope that it will generate income or appreciate in the future and be sold at the higher price. A good investment strategy will diversify the portfolio according to the specified needs. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price. The most famous and successful investor of all time is Warren Buffett. In March 2013 Forbes magazine had Warren Buffett ranked as number 2 in their Forbes 400 list. Buffett has advised in numerous articles and interviews that a good investment strategy is long term and choosing the right assets to invest in requires due diligence. Edward O. Thorp was a very successful hedge fund manager in the 1970s and 1980s that spoke of a similar approach. Another thing they both have in common is a similar approach to managing investment money. No matter how successful the fundamental pick is, without a proper money management strategy, full potential of the asset cannot be reached. Both investors have been shown to use principles from the Kelly criterion for money management. Numerous interactive calculators which use the Kelly criterion can be found online. Investments are often made indirectly through intermediaries, such as pension funds, banks, brokers, and insurance companies. These institutions may pool money received from a large number of individuals into funds such as investment trusts, unit trusts, SICAVs etc. to make large scale investments. Each individual investor then has an indirect or direct claim on the assets purchased, subject to charges levied by the intermediary, which may be large and varied. It generally, does not include deposits with a bank or similar institution. Investment usually involves diversification of assets in order to avoid unnecessary and unproductive risk.
  • 6. 2 1.2 TYPES OF FINANCIAL INVESTMENTS: Types of financial investments include:  Alternative investments  Traditional investments TRADITIONAL INVESTMENTS: In finance, the traditional investments refers to putting money into well-known assets (such as bonds, cash, real estate, and equity shares) with the expectation of capital appreciation, dividends, and interest earnings. ALTERNATIVE INVESTMENTS: An alternative investment is an investment in asset classes other than stocks, bonds, and cash. The term is a relatively loose one and includes tangible assets such as precious metals, art, wine, antiques, coins, or stamps and some financial assets such as a Real Estate Fund, commodities, private equity, distressed securities, hedge funds, carbon credits, venture capital, film production and financial derivatives. Alternative investments are sometimes used as a way of reducing overall investment risk through diversification. Some of the characteristics of alternative investments may include:  Low correlation with traditional financial investments such as stocks and bonds  It may be difficult to determine the current market value of the asset  Alternative investments may be relatively illiquid (see "Liquid alts")  Costs of purchase and sale may be relatively high  There may be limited historical risk and return data  A high degree of investment analysis may be required before buying INVESTORS INVESTMENTS: The Merrill Lynch/Cap Gemini Ernst & Young World Wealth Report 2003, based on 2002 data, showed high-net-worth individuals, as defined in the report, to have 10% of their financial assets in alternative investments. For the purposes of the report, alternative investments included "structured products, luxury valuables and collectibles, hedge funds, managed futures, and precious metals". By 2007, this had reduced to 9%. No recommendations were made in either report about the amount of money investors should place in alternative investments.
  • 7. 3 1.3 DIFFERENCE BETWEEN INVESTING AND TRADING: Investing and trading are two very different methods of attempting to profit in the financial markets. The goal of investing is to gradually build wealth over an extended period of time through the buying and holding of a portfolio of stocks, baskets of stocks, mutual funds, bonds and other investment instruments. Investments are often held for a period of years, or even decades, taking advantage of perks like interest, dividends and stock splits along the way. While markets inevitably fluctuate, investors will "ride out" the downtrends with the expectation that prices will rebound and any losses will eventually be recovered. Investors are typically more concerned with market fundamentals, such as price/earnings ratios and management forecasts. Trading involves the more frequent buying and selling of stock, commodities, currency pairs or other instruments, with the goal of generating returns that outperform buy-and-hold investing. While investors may be content with a 10 to 15% annual return, traders might seek a 10% return each month. Trading profits are generated through buying at a lower price and selling at a higher price within a relatively short period of time. The reverse is also true: trading profits are made by selling at a higher price and buying to cover at a lower price (known as "selling short") to profit in falling markets. Where buy-and-hold investors wait out less profitable positions, traders must make profits (or take losses) within a specified period of time, and often use a protective stop loss order to automatically close out losing positions at a predetermined price level. Traders often employ technical analysis tools, such as moving averages and stochastic oscillators, to find high-probability trading setups. A trader's "style" refers to the timeframe or holding period in which stocks, commodities or other trading instruments are bought and sold. Traders generally fall into one of four categories:  Position Trader – positions are held from months to years  Swing Trader – positions are held from days to weeks  Day Trader – positions are held throughout the day only with no overnight positions  Scalp Trader – positions are held for seconds to minutes with no overnight positions Traders often choose their trading style based on factors including: account size, amount of time that can be dedicated to trading, level of trading experience, personality and risk tolerance. Both investors and traders seek profits through market participation. In general, investors seek larger returns over an extended period through buying and holding. Traders, by contrast, take advantage of both rising and falling markets to enter and exit positions over a shorter timeframe, taking smaller, more frequent profits.
  • 8. 4 1.4 COMMODITY TRADING AND INVESTMENT: Commodities, whether they are related to food, energy or metals, are an important part of everyday life. Similarly, commodities can be an important way for investors to diversify beyond traditional stocks and bonds, or to profit from a conviction about price movements. It used to be that most people did not invest in commodities because doing so required significant amounts of time, money and expertise. Today, there are a number of different routes to the commodity markets, and some of these routes make it easy for even the average investor to participate. FUTURES MARKET A popular way to invest in commodities is through a futures contract, which is an agreement to buy or sell, in the future, a specific quantity of a commodity at a specific price. Futures are available on commodities such as crude oil, gold and natural gas, as well as agricultural products such as cattle or corn. Most of the participants in the futures markets are commercial or institutional users of the commodities they trade. These hedgers may use the commodity markets to take a position that will reduce the risk of financial loss due to a change in price. Other participants, mainly individuals, are speculators who hope to profit from changes in the price of the futures contract. Speculators typically close out their positions before the contract is due and never take actual delivery of the commodity (e.g. grain, oil, etc.) itself. Investing in a futures contract will require you to open up a new brokerage account, if you do not have a broker that also trades futures, and to fill out a form acknowledging that you understand the risks associated with futures trading. Each commodity contract requires a different minimum deposit, depending on the broker, and the value of your account will increase or decrease with the value of the contract. If the value of the contract goes down, you will be subject to a margin call and will be required to place more money into your account to keep the position open. Due to the huge amounts of leverage, small price movements can mean huge returns or losses, and a futures account can be wiped out or doubled in a matter of minutes. Most futures contracts will also have options associated with them. Options on futures contracts still allow you to invest in the futures contract, but limit your loss to the cost of the option. Options are derivatives and usually do not move point-for-point with the futures contract. Advantages:  It's a pure play on the underlying commodity.  Leverage allows for big profits if you are on the right side of the trade.  Minimum-deposit accounts control full-size contracts that you would normally not be able to afford.  You can go long or short easily.
  • 9. 5 Disadvantages:  The futures markets can be very volatile and direct investment in these markets can be very risky, especially for inexperienced investors.  Leverage magnifies both gains and losses.  A trade can go against you quickly and you could lose your initial deposit (and more) before you are able to close your position. Commodities investing is volatile, promising big gains and capable of big losses. But this volatility can work in your favor in a broad investment portfolio, where a small amount of commodities can offset risks associated with stocks, bonds and cash. Investors are generally advised to allocate about 5% of their portfolio to gold and commodities and don't go higher than 10%. Prudent investors will own both the physical commodity as well as shares of the resource producers. Many mutual funds and exchange-traded funds provide such direct exposure, which for most investors is a better option than trading commodities on their own. Beware these dangers when investing in commodities:  Scam artists: All legitimate brokerages must be registered with the National Futures Association with a list of all complaints, sanctions and arbitrations.  Poor money management: Don't risk too much of your money on a single trade. And set clear entry and exit points.  Lack of knowledge: The volatility of commodities means you must stay up to date on new affecting the markets you are trading.  Costs: Brokerage charges vary and can be high, so know what you'll pay ahead of time. 1.5 SPECULATION: Definition: Speculation involves trading a financial instrument involving high risk, in expectation of significant returns. The motive is to take maximum advantage from fluctuations in the market. Description: Speculators are prevalent in the markets where price movements of securities are highly frequent and volatile. They play very important roles in the markets by absorbing excess risk and providing much needed liquidity in the market by buying and selling when other investors don't participate.
  • 10. 6 CHAPTER 2 INDUSTRY PROFILE COMMODITY MARKET 2.1 HISTORY OF COMMODITY MARKET: Commodity-based money and commodity markets in a crude early form are believed to have originated in Sumer between 4500 BC and 4000 BC. Sumerians first used clay tokens sealed in a clay vessel, then clay writing tablets to represent the amount—for example, the number of goats, to be delivered. These promises of time and date of delivery resemble futures contract. Early civilizations variously used pigs, rare seashells, or other items as commodity money. Since that time traders have sought ways to simplify and standardize trade contracts. Gold and silver markets evolved in classical civilizations. At first the precious metals were valued for their beauty and intrinsic worth and were associated with royalty. In time, they were used for trading and were exchanged for other goods and commodities, or for payments of labor. Gold, measured out, then became money. Gold's scarcity, unique density and the way it could be easily melted, shaped, and measured made it a natural trading asset. Beginning in the late 10th century, commodity markets grew as a mechanism for allocating goods, labor, land and capital across Europe. Between the late 11th and the late 13th century, English urbanization, regional specialization, expanded and improved infrastructure, the increased use of coinage and the proliferation of markets and fairs were evidence of commercialization. The spread of markets is illustrated by the 1466 installation of reliable scales in the villages of Sloten and Osdorp so villagers no longer had to travel to Haarlem or Amsterdam to weigh their locally produced cheese and butter. Indeed, the Amsterdam Stock Exchange, often cited as the first stock exchange, originated as a market for the exchange of commodities. Early trading on the Amsterdam Stock Exchange often involved the use of very sophisticated contracts, including short sales, forward contracts, and options. "Trading took place at the Amsterdam Bourse, an open aired venue, which was created as a commodity exchange in 1530 and rebuilt in 1608. Commodity exchanges themselves were a relatively recent invention, existing in only a handful of cities." In 1864, in the United States, wheat, corn, cattle, and pigs were widely traded using standard instruments on the Chicago Board of Trade (CBOT), the world's oldest futures and options exchange. Other food commodities were added to the Commodity Exchange Act and traded through CBOT in the 1930s and 1940s, expanding the list from grains to include rice, mill feeds, butter, eggs, Irish potatoes and soybeans. Successful commodity markets require broad consensus on product variations to make each commodity acceptable for trading, such as the purity of gold in bullion. Classical civilizations built complex global markets trading gold or silver for spices, cloth, wood and weapons, most of which had standards of quality and timeliness.
  • 11. 7 Through the 19th century "the exchanges became effective spokesmen for, and innovators of, improvements in transportation, warehousing, and financing, which paved the way to expanded interstate and international trade." Reputation and clearing became central concerns, and states that could handle them most effectively developed powerful financial centers. 2.1.1 HISTORY OF COMMODITY FUTURES MARKET IN INDIA: The Commodity Futures market in India dates back to more than a century. The first organized futures market was established in 1875, under the name of ’Bombay Cotton Trade Association’ to trade in cotton derivative contracts. This was followed by institutions for futures trading in oilseeds, food grains, etc. The futures market in India underwent rapid growth between the period of First and Second World War. As a result, before the outbreak of the Second World War, a large number of commodity exchanges trading futures contracts in several commodities like cotton, groundnut, groundnut oil, raw jute, jute goods, castorseed, wheat, rice, sugar, precious metals like gold and silver were flourishing throughout the country. In view of the delicate supply situation of major commodities in the backdrop of war efforts mobilization, futures trading came to be prohibited during the Second World War under the Defence of India Act. After Independence, especially in the second half of the 1950s and first half of 1960s, the commodity futures trading again picked up and there were thriving commodity markets. However, in mid-1960s, commodity futures trading in most of the commodities was banned and futures trading continued in two minor commodities, viz, pepper and turmeric. 2.2 COMMODITY MARKET: A 'commodity market' is a market that trades in primary rather than manufactured products. Soft commodities are agricultural products such as wheat, coffee, cocoa and sugar. Hard commodities are mined, such as gold, rubber and oil. Investors access about 50 major commodity markets worldwide with purely financial transactions increasingly outnumbering physical trades in which goods are delivered. Futures contracts are the oldest way of investing in commodities. Futures are secured by physical assets. Commodity markets can include physical trading and derivatives trading using spot prices, forwards, futures, and options on futures. Farmers have used a simple form of derivative trading in the commodity market for centuries for price risk management. Commodity market is divided into four persons. They are: 1. Regulator 2. Exchange 3. Member-commodity broker 4. Traders/Investors
  • 12. 8 2.2.1 CONTRACTS IN THE COMMODITY MARKET Commodity Futures contract A future contract is an agreement between two parties to exchange at some fixed future date a given quantity of a commodity for a price defined when the contract is finalized. An agreement to buy or sell a set amount of a commodity at a predetermined price and date. Buyers use these to avoid the risks associated with the price fluctuations of the product or raw material, while sellers try to lock in a price for their products. Like in all financial markets, others use such contracts to gamble on price movements. Futures contracts are standardized forward contracts that are transacted through an exchange. In futures contracts the buyer and the seller stipulate product, grade, quantity and location and leaving price as the only variable. Spot Contract A Spot contract is an agreement where delivery and payment either takes place immediately, or with a short lag. Physical trading normally involves a visual inspection and is carried out in physical markets such as a farmers market. Derivatives markets, on the other hand, require the existence of agreed standards so that trades can be made without visual inspection. 2.3 REGULATOR OF INDIAN COMMODITY MARKET: Forward Markets Commission (FMC) headquartered at Mumbai, is a regulatory authority for commodity futures market in India. It is a statutory body set up under Forward Contracts (Regulation) Act 1952. In the Union Budget 2015-16, an announcement has been made to merge Forward Markets Commission with SEBI. The Commission functions under the administrative control of the Ministry of Finance, Department of Economic Affairs, Government of India. The chairman of FMC is Ramesh Abhishek. The functions of the Forward Markets Commission are as follows:  To advise the Central Government in respect of the recognition or the withdrawal of recognition from any association or in respect of any other matter arising out of the administration of the Forward Contracts (Regulation) Act 1952.  To keep forward markets under observation and to take such action in relation to them, as it may consider necessary, in exercise of the powers assigned to it by or under the Act.  To collect and whenever the Commission thinks it necessary, to publish information regarding the trading conditions in respect of goods to which any of the provisions of the Act is made applicable, including information regarding supply, demand and prices, and to submit to the Central Government, periodical reports on the working of forward markets relating to such goods;  To make recommendations generally with a view to improving the organization and working of forward markets;  To undertake the inspection of the accounts and other documents of any recognized association or registered association or any member of such association whenever it considers it necessary.
  • 13. 9 2.4 CURRENT SCENARIO IN COMMODITY FUTURES MARKET: Forward Markets Commission regulates forward trading in 113 commodities at the 12 Recognized Commodity Exchanges, of which 6 are National Commodity Exchanges and 6 are Commodity Specific Regional Exchanges for regulating trading in various commodities approved by the Commission under the Forward Contracts (Regulation) Act, 1952. India has six national commodity exchanges namely, 1. Multi Commodity Exchange (MCX), Mumbai 2. National Commodity and Derivatives Exchange (NCDEX), Mumbai 3. National Multi-Commodity Exchange (NMCE), Ahmedabad 4. Indian Commodity Exchange (ICEX), Mumbai 5. ACE Derivatives exchange ( ACE ), Mumbai 6. Universal commodity exchange (UCX), Navi Mumbai The commodities traded at these Exchanges comprise the following: 1. Edible oilseeds complexes like Mustardseed, Cottonseed, Soybean oil etc. 2. Food grains – Wheat, Gram, Bajra, Maize etc. 3. Metals – Gold, Silver, Copper, Zinc etc. 4. Spices – Turmeric, Pepper, Jeera etc. 5. Fibres – Cotton, Jute etc. 6. Others – Sugar, Gur, Rubber, Natural Gas, Crude Oil etc. Out of 17 recognized Exchanges, MCX, NCDEX, NMCE, ACE, UCX and ICEX, contributed 99% of the total value of the commodities traded during the year 2013-14. Out of the 113 commodities, regulated by the FMC, in terms of value of trade, Gold, Crude oil, Silver, Copper, Natural Gas, Lead, Soy Oil, Zinc, Soybean and Castorseed are the prominently traded commodities. The total volume of trade across all Exchanges in 2013-14 was 8,832.76 lakh MT at a value of Rs. 101 lakh Crores. The total of deliveries of all commodities on Commodity Exchange platform is 9, 23,893 MT during the year 2013-14. The different intermediaries and clients registered at these recognized national Exchanges are,  Members - 5098  Other intermediary - 251  Warehouse service provider / warehouse - 42  Clients - 40, 15,781
  • 14. 10 2.5 EXCHANGES IN THE COMMODITY MARKET: 1. Multi Commodity Exchange of India Ltd., Mumbai (MCX) Multi Commodity Exchange of India Ltd is an independent commodity exchange based in India. It was established in 2003 and is based in Mumbai. The turnover of the exchange for the fiscal year 2009 was US$ 1.24 trillion, and in terms of contracts traded, it was in 2009 the world's sixth largest commodity exchange. MCX offers futures trading in bullion, ferrous and non-ferrous metals, energy, and a number of agricultural commodities (mentha oil, cardamom, potatoes, palm oil and others). In 2012, MCX has taken the third spot among the global commodity bourses in terms of the number of futures contracts traded. Based on the latest data from Futures Industry Association (FIA), during the period between January and June this year, about 127.8 million futures contracts were traded on MCX. MCX also organize many types of awareness programmes. MCX has also set up in joint venture the MCX Stock Exchange. Earlier spin-offs from the company include the National Spot Exchange, an electronic spot exchange for bullion and agricultural commodities, and National Bulk Handling Corporation (NBHC) India's largest collateral management company which provides bulk storage and handling of agricultural products. In February 2012, MCX has come out with a public issue of 6,427,378 Equity Shares of Rs. 10 face value in price band of 860 - 1032 Rs. per equity share to raise around $134 million. It is the first ever IPO by an Indian exchange.  MCX is India's No. 1 commodity exchange with 83% market share in 2009  The exchange's main competitor is National Commodity & Derivatives Exchange Ltd. The Multi Commodity Exchange of India Limited (MCX), India’s first listed exchange, is a state-of-the-art, commodity futures exchange that facilitates online trading, and clearing and settlement of commodity futures transactions, thereby providing a platform for risk management. The Exchange, which started operations in November 2003, operates within the regulatory framework of the Forward Contracts (Regulation) Act, 1952. MCX offers trading in varied commodity futures contracts across segments including bullion, ferrous and non-ferrous metals, energy and agricultural commodities. The Exchange focuses on providing commodity value chain participants with neutral, secure and transparent trade mechanisms, and formulating quality parameters and trade regulations, in conformity with the regulatory framework. The Exchange has an extensive national reach, with 2000 members, operations through 486,770 trading terminals (including CTCL), spanning over 1879 cities and towns across India. MCX is India’s leading commodity futures exchange with a market share of 84.04 per cent in terms of the value of commodity futures contracts traded in FY2014-15.
  • 15. 11 2. National Commodity and Derivatives Exchange, Ltd., Mumbai (NCDEX) National Commodity & Derivatives Exchange Limited (NCDEX) is an online commodity exchange based in India. It has an independent Board of Directors and professional management, who have interest in commodity markets. It provides a commodity exchange platform for market participants to trade in commodity derivatives. It is a public limited company, incorporated on 23 April 2003 under the Companies Act, 1956. It obtained its Certificate for Commencement of Business on 9 May 2003, and began operations on 15 December 2003. NCDEX is the only commodity exchange in the country promoted by national institutions. NCDEX is regulated by the Forward Markets Commission (FMC), and is subject to the Companies Act 2013, Stamp Act, Contracts Act, Forward Commission (Regulation) Act, and various other laws. 3. National Multi Commodity Exchange, Ahmadabad (NMCE) The first state-of-the-art demutualised multi-commodity Exchange, National Multi Commodity Exchange of India Ltd. (NMCE) was promoted by commodity-relevant public institutions, viz., Central Warehousing Corporation (CWC), National Agricultural Cooperative Marketing Federation of India (NAFED), Gujarat Agro- Industries Corporation Limited (GAICL), Gujarat State Agricultural Marketing Board (GSAMB), National Institute of Agricultural Marketing (NIAM), and Neptune Overseas Limited (NOL). While various integral aspects of commodity economy, viz., warehousing, cooperatives, private and public sector marketing of agricultural commodities, research and training were adequately addressed in structuring the Exchange, finance was still a vital missing link. Punjab National Bank (PNB) took equity of the Exchange to establish that linkage. Even today, NMCE is the only Exchange in India to have such investment and technical support from the commodity relevant institutions. These institutions are represented on the Board of Directors of the Exchange and also on various committees set up by the Exchange to ensure good corporate governance. Some of them have also lent their personnel to provide technical support to the Exchange management. The day-to-day operations of the Exchange are managed by the experienced and qualified professionals with impeccable integrity and expertise.
  • 16. 12 2.6 PERFORMANCE IN CURRENT COMMODITY MARKET:  During the period under review (January to March 2015), the total value of trade in all commodities traded at the recognized Exchanges was ₹16.09 lakh crore as against ₹ 15.77 lakh crore during the previous quarter (October to December 2014) and ₹18.98 lakh crore during the corresponding period of last year.  Food items viz. Chana, Refined Soya Oil, Jeera and Rape/Mustard seed contributed major share to the total value of trade in Agricultural Commodities. In Non-food items, Castor seed and Guar seed contributed major share in the commodity futures trading.  During the period, the value of trade in Bullion was ₹5.74 lakh crore and in Metals (other than Bullion) it was ₹3.27 lakh crore.  Value of trade in Agriculture Commodities and Energy Products amounted to ₹2.21 lakh crore and ₹4.87 lakh crore respectively.  The total value of trade at the National Multi Commodity Exchanges was ₹16.05 lakh crore and at the Commodity Specific Exchanges, it was ₹0.04 lakh crore.  The four national commodity Exchanges contributed 99.75 % of the total value of trade in the commodity futures market. These are MCX Mumbai (87.48 %), NCDEX Mumbai (11.51 %), NMCE Ahmedabad (0.72 %) and ACE Mumbai (0.04%). The following table indicates the total volume and value of trade during the quarter January to March 2015 in the major commodity Exchanges.
  • 17. 13 2.7 DO’S AND DON’T’S FOR CLIENTS/INVESTORS IN COMMODITY FUTURES MARKET: 2.7.1 DEALING WITH MEMBERS: DO’S:  Trade only through Registered Members of the Exchange. Check from the Exchange website at http://www.mcxindia.com/SitePages/MembersDetails.aspx to see whether the Member is registered with the Exchange.  Insist on filling up a standard 'Know Your Client (KYC)' form before you commence trading  Insist on getting a Unique Client Code (UCC) and ensure all your trades are done under the said UCC.  Insist on filling up a standard ‘Member-Client Agreement’.  Insist on reading and signing a standard 'Risk Disclosure Agreement'.  Obtain a copy of your KYC, Member-Client Agreement and/ or other documents executed by you with the Member, from the Member.  Cross check the genuineness of trades carried out at MCX through the trade verification facility available on MCX website. The trades can be verified online athttp://www.mcxindia.com/SitePages/TradeVerification.aspx where trade information is available up to 5 working days from the trade date.  Insist on a duly signed Contract Note in specified format for every executed trade within 24 hours of trade, highlighting the details of the trade along with your UCC.  Ensure that the Contract Note contains all the relevant information such asMember Registration Number, Order No., Order Date, Order time, Trade No., Trade rate, Quantity, Arbitration Clause, etc.  Obtain receipt for collaterals deposited with the Member towards margins.  Go through the Rules, Bye-laws, Regulations, Circulars, Directives, Notifications of the Exchange as well as of the Regulators, Government and other authorities and details of Client-Trading Member Agreement to know your rights and duties vis-à-vis those of the Member.  Ask all relevant questions and clear your doubts with your Member before transacting.  Insist on receiving the bills for every settlement.  Insist on Monthly statements of your ledger account and report any discrepancies in the statement to your Member within 7 working days. In case of unsatisfactory response report the discrepancy to the Exchange within 15 working days from the date of cause of action.  Scrutinize minutely both the transaction & holding statements that you receive from your Depository Participant.
  • 18. 14  Keep Delivery Instruction Slips (DIS) book issued by DPs in safe possession.  Ensure that the DIS numbers are preprinted and your account number (UCC) is mentioned in the DIS book.  Freeze your Demat account in case of your absence for longer duration or in case of not using the account frequently.  Pay required margins in time and only by Cheque and ask for receipt thereof from the Member.  Deliver the commodities in case of sale or pay the money in case of purchase within the time prescribed.  Understand and comply with accounting standards for derivatives. DON’TS:  Do not deal with any unregistered intermediaries.  Do not undertake off-market transactions as such transactions are illegal and fall outside the jurisdiction of the Exchange.  Do not enter into assured returns arrangement with any Member  Do not get carried away by luring advertisements, rumours, hot tips, explicit/ implicit promise of returns, etc.  Do not make payments in cash/ take any cash towards margins and settlement to/ from the Member.  Do not start trading before reading and understanding the Risk Disclosure Agreement and entering into the prescribed agreement with the Member.  Do not neglect to set out in writing, orders for higher value given over phone.  Do not accept unsigned/duplicate contract note/confirmation memo.  Do not accept contract note/confirmation memo signed by any unauthorized person.  Do not delay payment/deliveries of commodities to Member.  Do not forget to take note of risks involved in the investments.  Do not sign blank Delivery Instruction Slips (DIS) while furnishing securities deposits and/or keep them with Depository Participants (DP) or broker to save time.  Do not pay brokerage in excess of that rates prescribed by the Exchange
  • 19. 15 2.7.2 DEALING IN COMMODITY FUTURES: DO’S:  Familiarize yourself with all the provisions of Forward Contracts (Regulations) Act, 1952 dealing with futures trading in commodities and amendments thereof from time to time  Understand the provisions and rates relating to the sales tax, value added tax, APMC Tax, Mandi Cess and Tax, octroi, excise duty, stamp duty, etc., as applicable on the underlying commodity of any contracts offered for trading by MCX.  Read, understand and be updated about the guidelines and circulars of the Exchange and of the Forward Markets Commission issued from time to time and kept on the respective websites.  Read the commodity contracts circulars issued & kept on MCX website and carefully note the contract specifications of the commodity in which you wish to trade. The contract specifications are subject to change from time to time.  Before entering into buy and sell transactions please be aware of all the factors that go into the mechanism of pricing, trading, clearing and settlement.  Read the product note of the commodity in which you wish to deal to understand the commodity and parameters that impact on the trading and settlement of the commodity.  Understand the Delivery & Settlement Procedures given in the Exchange Circular of the commodity kept on the Exchange website that you wish to deal in the futures market.  Study historical and seasonal price movements of the commodity that you wish to deal in the futures market.  Keep track of Governments' Policy announcements from time to time of the commodity that you wish to deal in the futures market.  Apply your own prudent judgment for investments in commodity futures and take informed decisions.  Comply with Taxation and other Central Government/State Governments regulatory issues.  Go through all Rules, Bye Laws, Regulations, Circulars and directives issued by MCX.  Since futures trading attract various types of margins, be aware of the risks associated with your positions in the market and margin calls made from time to time.  Collect/Pay Mark-to-Market margins Cheque on your futures positions on a daily basis from/to your Member.  Be aware of your risk taking ability and fix stop-loss limits. Liquidate your positions at such levels to reduce further losses, if any.  In case of any doubt/problems, contact Exchange's Help Desk or email atcustomersupport@mcxindia.com
  • 20. 16 DON’TS:  Do not fall prey to market rumours.  Do not go by any explicit/ implicit promise made by analysts/ advisors/ experts/ market intermediary until convinced  Do not take trading decisions based on reports/ predictions made in various print and electronic mediums without proper evaluation.  Do not deal based on Bull/Bear run of commodity markets sentiments.  Do not trade on any product without knowing the risks associated with it.
  • 21. 17 CHAPTER 3 COMPANY PROFILE 3.1 CAPITAL FOCUS OVERVIEW: Capital focus is a partnership firm and Capital Focus is the fastest growing commodity trading company and it is registered with MCX India and FMC India. The company’s management has decades of experience in commodity trading and have used their wide experience to get the best product and service offerings to their customers. The day to day affairs are managed by the Managing Director of the company. Management always seek to ensure that our activities make a positive contribution to the lives of the traders and those involved in our operations. Capital Focus is a financial institution founded by market professionals with an in-depth knowledge of Commodity and Capital Markets, Capital Focus is a recognized and respected financial product provider. It provide market access and trade execution services, through our on-line trading platform in Indian commodity markets. Capital Focus was founded by traders to serve traders. With many years of experience in Commodity Advisory services, we are in a position to understand the precise needs of Commodity traders. The aim is to provide you with professional service, execution, and trading functionality demanded by traders. The investment philosophy for the Capital Focus is to seek to produce returns for its investors using various investment strategies focusing on delivering attractive risk-adjusted rates of return. Capital focus was started in the year 2012 and it was founded by three partners. They are: 1) Mr. R. Sivacoumar, 2) Mr. Manoj, 3) Mr. Vijay Shailendarr The registered and corporate office of capital focus was located in Pondicherry. Capital focus has 5 branches located in different cities of tamilnadu. The branches contain cities such as Chennai, Madurai, Coimbatore, trichy and Tuticorin. ISO CERTIFICATION: Capital Focus has reached a milestone after 3 years. Capital focus got an ISO 9001:2008 Certificate as well as service mark recently in 2015.
  • 22. 18 MANAGEMENT: 1) The company have built a lean, responsive business model by retaining a flat management structure. 2) Local managers have scope to develop business strategies and solution approaches that benefit their customers. 3) The company manage risk and financial performance with proprietary IT systems. 4) Capital Focus partner firms and its subsidiaries are active in numerous districts in all over India. 3.2 CORE VALUES OF THE COMPANY: 1) The main responsibility of Capital Focus is to fulfill the needs of their customer base nationally and support them with the best possible services & technical tools and empower them to be successful traders. Customer requirements will be met with the highest quality manner, appropriate to each market segment being served. The company develop and maintain a philosophy that is value oriented, highly ethical and unique to each customer needs. 2) We will build our reputation as the best firm to work with by ensuring that our people, our clients and our communities achieve their full potential. 3) Our reputation is created on the basis of how people within our organization and our partner firm members act with customers, colleagues and their communities. 4) At Capital Focus, our clients trust and value the advice, expertise and experience which we bring up to them to help them be successful in trading. The expertise support and technical tools provided by Capital Focus has groomed numerous novice customers to become successful traders. 5) We have a strong technical team whom we encourage to make a sustainable difference for clients, communities, firms and user experience, while simultaneously ensuring that everyone has access to the knowledge and skills they need to be the most relevant in the market and to be a successful trader. MISSION AND GOALS: Our goal is to create long term relationships with our clients. To achieve our goal, our clients' interests come first. We are smart enough to know that once our clients are satisfied, our success will follow. We take great pride in the professional quality of our work. We have an uncompromising determination to achieve excellence in everything we undertake. We are dedicated to comply fully with the laws, regulation and ethical principles that govern us. We provide our clients with a safe and secure trading environment.
  • 23. 19 MEMBERSHIP INFORMATION DETAILS: EXCHANGE MCX MEMBER ID 46335 FMC REG. NO. MCX/TM/PART/1987 3.3 PRODUCTS AND SERVICES: 3.3.1 ADVANCED TECHNICAL CHART: Capital Focus Advance Chart is a product which helps the customers to predict the market movements and harness the potential of charts effectively to tap profit-making opportunities in the market.  Provides historical charts with more than 5 years of Commodity data  Special indicators from Capital Focus market research team  Offers 100+ Indicators (including all popular ones) and 20+ advanced drawing tools for better price trend analysis  Provides multiple charts in a single screen to track multiple commodities during the trading hours  Provides charts across multiple timeframes  Provides the ability to overlay multiple scripts on a single chart  Enables creation of custom conditions and custom indicators
  • 24. 20 3.3.2 CAPITAL FOCUS TRADING PLATFORM: ONLINE TRADING PLATFORM: In finance, an online trading platform is a computer software program that can be used to place orders for financial products over a network with a financial intermediary. This includes products such as stocks, bonds, currencies, commodities and derivatives with a financial intermediary, such as brokers, market makers, Investment banks or stock exchanges. Such platforms allow electronic trading to be carried out by users from any location. Electronic trading platforms typically stream live market prices on which users can trade and may provide additional trading tools, such as charting packages, news feeds and account management functions. Some platforms have been specifically designed to allow individuals to gain access to financial markets that could formerly only be accessed by specialist trading firms such as those allowing margin trading on forex and derivatives such as contract for difference. They may also be designed to automatically trade specific strategies based on technical analysis or to do high-frequency trading. ODIN-DIET An application-based trading front office solution enabling clients to connect to Capital Focus servers via the Internet. It is a light-weight easily downloadable application which facilitates efficient trading and incorporates many appealing features required by active clients. ODIN-CLIENT ODIN™ Institutional Client empowers dealers with single console operations to accept buy-side orders and execute the orders efficiently. It is a FIX compliant solution that enhances level of operational ease and execution efficiency and facilitates trading on multiple exchanges/exchange segments. This is specially designed for the dealers to punch orders for different clients in the same terminal. MT CLIENT An advanced version of desktop based trading software with lot of additional features in-built for active traders. Capital Focus MT Client is a free version and it comes with an in-build chart which is live and demonstrates the market trend with basic market indicators. NEST TRADER: OMNESYS NEST Trader is an intuitive front-end solution that connects to a robust backend server to fetch market data, execute orders and facilitate trading. Using NEST Trader one can trade multiple asset classes across multiple venues using a single front end. 3.3.3 ONLINE TRADING: Investors who trade through an online brokerage firm are provided with an online trading platform. This online trading platform acts as the hub, allowing investors to purchase and sell the commodities. Capital focus launched online trading service through the web. This online trading also launched in tablet and mobile sites.
  • 25. 21 3.3.4 FIXED BROKERAGE SCHEME: Capital focus offers clients that clients can execute unlimited trading at Rs.1999 per month. 3.3.5 T20 BROKERAGE SCHEME: Capital focus introduced a cheaper scheme called T20 Scheme and clients can execute unlimited lots per trade with Rs. 20 for buy/sell. 3.3.6 CHART OFFER: Capital focus offers technical analysis charts of commodities, stocks and currency to clients and non-clients. 3.3.7 LEVELS AND SUPPORT: The company provides levels and support which the price to buy and sell. It provides 3 levels and contains today’s levels, weekly levels and advance levels. The company provides price buy and sell position. If the given price is a buy above position, client can execute 3 levels to cover the profit position. The three levels contain T1, T2 and T3. If client bought the buy above position price,  Then the client executes T1 order price and he will get less profit and risk is less.  Then the client executes T2 order price, he will get profit above the T1 profit and risk is medium.  Then the client executes T3 order price, he will get profit above the T2 profit and risk is high. The same process is for sell below position. If the given price is a sell below position, clients can execute 3 levels to cover the profit position.
  • 26. 22 3.3.8 EXPOSURE: Exposure will be given only to intraday trader. Intraday trader buys and sells commodities on the same day itself. Company provides 6 times fund to the clients to trade the commodities because commodities have a high amount. So the company provides this exposure service. Client can get loss upto 70% of his money and then his position will be covered automatically by using the software. Clients will have remaining 30% of money, so client have to pay brokerage charge to the firm. 3.4 COMPANY OPERATIONS: 3.4.1 LIVE BACK OFFICE: A back office is a part of most trading companies where tasks dedicated to running the company itself take place. Back offices may be located somewhere other than company headquarters. In investment firms, the back office includes the administrative functions that support the trading of commodities, including record keeping, trade confirmation, trade settlement, and regulatory compliance. In capital focus, the back office accesses are:  Handling clients calls and queries  Handling RMS Server  Handling client complaints  Handling clients requests Examples of back-office tasks include IT departments that keep the phones and computers running, accounting, and human resources. These tasks are often supported by back-office database systems. A back-office system will keep a record of the client’s trading transactions, and updating the client information as needed. Invoices, receipts, and reports can also be produced by the back-office system. The essential roles of back office cover the three main areas of reputation, risk, and reward, which are described below: 1. Reputation- any institution needs to protect its reputation in the competitive market. Due to negligence on the part of back office, an excellent service from the front office can be destroyed. Therefore efficient processing and follow up operation can make all the difference. 2. Risk- Risk management is of utmost importance in today’s world. If risk cannot be properly managed and the original input is either incomplete or inaccurate, then it leads to incorrect data being included in management or external reports.
  • 27. 23 3. Reward- Back office cannot make money, but it can easily dissipate profits earned by the front office. An efficient back office today has the incentive to perform to its utmost by the right to participate in the front office profits. Essentially back office role is that post settlement functions. Post settlement involves a lot of responsibilities relating to processing/payment (e.g., Confirmations and account maintenance) to the consequences (e.g., cash management, nostro reconciliation and margin account management) and ancillary matters (e.g., management reports, P&L calculations). In trading firm, the back office includes a heavyweight IT processing system that handles position keeping, clearance, and settlement. 3.4.2 PLACING ORDERS: Staffs place the client’s orders. 3.4.3 OPENING TRADING ACCOUNT: The trading account Opening Procedures are: In capital focus, the ACCOUNT OPENING is free and the documents needed to open trading account 1. Bank account 2. PAN Card 3. Address Proof 4. Canceled cheque leaf 5. Passport size photograph MINIMUM INVESTMENT AMOUNT: The minimum investment amount is approximately Rs. 500/-. It varies for different commodities. For example, if you want to trade on gold (1gm), you need approximately Rs. 150/- . But starting your trading with Rs. 10,000 will be ideally good. TRANSFERING MONEY TO TRADE You can directly deposit to our companies account, Net-banking, Demand draft and cheques are all possible ways. WITHDRAWAL OF MONEY You can send payout request through mail or telephone on or before 12:30 PM on any working day, which will be processed on the same day itself. BASIC NEEDS FOR TRADING All you need is Internet connection and trading application. Don't bother about trading software, we will install it to your computer and we will guide you to operate the platform.
  • 28. 24 EXCHANGE MCX - Multi Commodity Exchange of India Ltd is a state-of-the-art electronic commodity futures exchange. MCX was established in 2003 and based in Mumbai. It is the world's sixth largest commodity trading exchange. TRADING TIME MCX will open at 10 AM and will close at 11.30 PM. Within these timings you can trade. 3.4.4 INVESTORS EDUCATION: Apart from trading operation, Capital Focus is engaged in different programs for investors such as: 1. Free Technical class session 2. Makkal TV show 3. Technical classes for clients 1. FREE TECHNICAL SESSION: Capital Focus conducts free technical class for the benefits of their clients. It conducts monthly once in one of the city of tamilnadu. 2. MAKKAL TV PROGRAM: Valaagam is a Tamil show which gives an overview of the current commodity market status. Valaagam provides up-to-date news about the commodity market, and a detailed analysis and opinion on the performances of the commodities. Callers can call-in with their doubts on what to buy or sell. Be sure to clarify your doubts concerning the commodity market and get useful suggestions from experts. This is a weekly live program. The director of capital focus is engaged with this program weekly once and he clarifies client’s doubts concerning commodities market and provides useful suggestions from experts. 3.4.5 COMMODITIES TRADING IN CAPITAL FOCUS: 1. ALUMINI 2. ALUMINIUM 3. BRCRUDEOIL 4. CARDAMOM 5. COPPER 6. COPPERM 7. COTTON 8. CPO 9. CRUDEOIL
  • 29. 25 10. CRUDEOILM 11. GOLD 12. GOLDGUINEA 13. GOLDM 14. GOLDPETAL 15. KAPAS 16. KAPASKHALI 17. LEAD 18. LEADMINI 19. MENTHAOIL 20. NATURALGAS 21. NICKEL 22. NICKELM 23. SILVER 24. SILVERM 25. SILVERMIC 26. ZINC 27. ZINCMINI 3.4.6 COMMODITY TRADING: 1. BUY AND SELL CONCEPT Commodities buy at a lower price and sells at a higher price to gain profit. 2. SELL AND BUY CONCEPT Commodities sell at a higher price and buys at a lower price to gain profit. 3. STOPLOSS AND TARGET/COVERING ORDER Stoploss order stops the loss position of the client and covering order sets the target price to gain profit. There are two types of stoploss orders. They are: Buying stoploss-> sell and buy concept Selling stoploss-> buy and sell concept
  • 30. 26 4. MARGIN Clients have to maintain a margin amount to the brokerage firm to trade. Each commodity has a different margin. 5. DAILY PRICE RANGE MCX sets the daily price range to trade the commodities. Clients have to trade the commodities at this range. 6. HEDGING Hedging means that clients buys commodities at different contracts. Loss was stopped and maintained. 7. LIMIT ORDER The order wherein the price is to be specified while placing the same. 8. DAY ORDER A Day order is valid for the day on which it is entered. If the order is not matched during the day, the order gets cancelled automatically at the end of the trading day. 9. GTC A Good Till Cancelled (GTC) order is an order that remains in the system until the expiry of the respective contract in which it is entered or until when the same is cancelled by the member. 10. GTD A Good Till Date (GTD) order is valid till the date specified by the member. After the specified date the unexecuted orders get automatically cancelled by the system. 11. IOC An Immediate or Cancel (IOC) order allows a member to execute the orders as soon as the same is placed in the market, failing which the order will get cancelled immediately. 12. MARKET ORDER The order at the best available price at the time of placing the same.
  • 31. 27 CHAPTER 4 NEED FOR THE STUDY OBJECTIVES, METHODOLOGY & LIMITATIONS 4.1 OBJECTIVES OF THE STUDY: The objectives of the study are  To study the concepts of commodities trading in india.  To study of the various trends in commodity trading.  To study the role of commodities in indian financial markets.  To study in detail the role of futures and forwards.  To analyze the present situation of the commodities in indian market and suggest for any improvements thereafter. 4.2 SCOPE OF THE STUDY:  As longer as the trading practices more or less the same over time, examining trends in fundamental analysis and technical analysis can draw meaningful interpretations.  This commodity project helps to analyze the overall performance of the commodity market.  The project helps to understanding the commodity trading practices works carried over in an organisation.
  • 32. 28 4.3 RESEARCH METHODOLOGY: Research methodology is a way to solve the research problems systematically. Research may be one common parlance referred to as knowledge. In research methodology we not only talk of the research methods, but also consider the logic behind the methods we use in the content of our research study and explain why we are using a particular method or technique. Hence in this study various steps that are generally adopted in studying research problem along with the logic behind them. It is a broad outline of the method and procedure adopted for the purpose of the study. A research design is simply the framework or plan for a study that is used as a guide in collecting and analyzing that data. SOURCES OF DATA DATA COLLECTION: The data collection was done through primary and secondary data Data collection methods:  Primary data  Secondary data Primary data Any information which is collected a fresh and for the first time is called primary data the primary data happen to be original in character. Secondary data The study is based on secondary source of data that is collected from the capital focus company, but is not given to be included in the report as the privacy policy. The study was mainly done through published source of the company like company website, MCX website, and magazines and also with the help of company prospects, brochures and other services. Research methodology carried for this study is purely from Secondary data from various web sites mentioned below. WEBSITES: 1. www.wikipedia.com 2. www.investopedia.com 3. www.mcxindia.com Company follows a privacy policy, so that company will not share the information to others.
  • 33. 29 4.4 TOOLS USED FOR ANALYSIS: Graphical Representation of Analysis through SPSS. : Pie charts 4.5 LIMITATIONS OF THE STUDY: The study is limited to “Commodity Trading – Investment and Speculation” in the Indian context.  Although every effort has been made to study the “COMMODITY TRADING” in detail, in an organization, it is not possible to make an exhaustive study in a limited duration of 6 weeks.  The study cannot say as totally perfect as it is subjected to any alteration.  The study is not based on the international perspective of commodity markets. It is limited to national level only.  The study is mainly based the secondary source of data on company’s website and also some data collected from informal discussion with staffs.  Time is the major limiting factor of the study. It is not possible to analyse all the aspect in details within the time allowed. The duration of the study period is limited.  The study is carried basing on the information and documents provided by the organization and based on the interaction with the various employees of the respective departments.  Due to lack of time constraint data is collected only five years.  Due to income tax problem eliminate the top secretes of the company. 4.6 PERIOD OF STUDY: This study contains the investment analysis of commodities for a period of five years starting from 2009 to 2014.
  • 34. 30 CHAPTER 5 DATA ANALYSIS AND INTERPRETATION 5.1 ANALYSIS OF MAJOR GROUP OF COMMODITIES TRADED DURING THE YEAR 2013-2014: The major group of commodities are: 1. Energy Products 2. Bullion Products 3. Agricultural Products 4. Metal Products COMMODITY TRADED VALUE PERCENTAGE OF TRADED VALUE ENERGY 24.72 24% BULLION 43.09 43% AGRI 16.02 16% METALS OTHER THAN BULLION 17.61 17%
  • 35. 31 INTERPRETATION:  Bullion group of commodities has highest value of traded during this year.  Agri and base metals have lowest value of traded during the year. ANALYSIS OF INDIVIDUAL GROUP OF COMMODITIES FROM YEAR 2009 TO 2014: ENERGY PRODUCTS: Energy Products are Crude Oil, Natural Gas, Brent Crude oil and Crude Oil Mini YEAR TRADED VALUE (IN LAKH CRORE) PERCENTAGE OF TRADED VALUE 2013-14 24.72 24% 2012-13 37.68 22% 2011-12 28.51 16% 2010-11 23.11 19% 2009-10 15.78 20% INTERPRETATION:  Energy products have traded higher in the year 2012-13.  Energy products have traded lower in the year 2009-10.  The energy products were averagely and yearwise traded was 25 lakh crore.
  • 36. 32 BULLION: Bullion Products are Gold, Gold Guinea, Gold M, Gold Petal, Silver, Silver M, Silver Micro, etc. YEAR TRADED VALUE (IN LAKH CRORE) PERCENTAGE OF TRADED VALUE 2013-14 43.09 43% 2012-13 78.63 46% 2011-12 101.82 56% 2010-11 54.94 45% 2009-10 31.64 40% INTERPRETATION:  Bullion products have traded higher in the year 2011-12.  Bullion products have traded lower in the year 2009-10.  The bullion products were averagely and yearwise traded was 61 lakh crore. AGRI COMMODITIES: Agricultural Products-Cardamon, Castorseed, Chana, etc. YEAR TRADED VALUE (IN LAKH CRORE) PERCENTAGE OF TRADED VALUE 2013-14 16.02 16% 2012-13 21.56 13% 2011-12 21.96 12% 2010-11 14.56 12% 2009-10 12.18 15%
  • 37. 33 INTERPRETATION:  Agri products have traded higher in the year 2011-12.  Agri products have traded lower in the year 2009-10.  The agri products were averagely and yearwise traded was 16 lakh crore. METALS OTHER THAN BULLION: (BASE METALS) Base metals are Aluminium, Aluminium Mini, Copper, Copper Mini, Lead, Lead Mini, Nickel, Nickel Mini, Zinc, Zinc Mini, etc. YEAR TRADED VALUE (IN LAKH CRORE) PERCENTAGE OF TRADED VALUE 2013-14 17.61 17% 2012-13 32.60 19% 2011-12 28.97 16% 2010-11 26.88 22% 2009-10 18.02 23% INTERPRETATION:  Base metals products have traded higher in the year 2012-13.  Base metals products have traded lower in the year 2013-14.  The base metals products were averagely and yearwise traded was 24 lakh crore.
  • 38. 34 5.2 ANALYSIS OF COMMODITIES TRADED AT ALL COMMODITY EXCHANGES: Out of 17 recognized exchanges (6 National and 11 Regional Exchanges), Multi Commodity Exchange (MCX), Mumbai, National Commodity and Derivatives Exchange (NCDEX), Mumbai, National Multi Commodities Exchange, (NMCE), Ahmedabad, ACE Derivatives Commodity Exchange (ACE), Mumbai, Indian Commodity Exchange, Ltd. (ICEX), Mumbai, and Universal Commodity Exchange Ltd. (UCX), Navi Mumbai contributed 99.72% of the total value of the commodities traded during the year. TOTAL VALUE OF COMMODITIES TRADED AT EXCHANGES DURING THE YEAR 2013-14: The total value of the Commodities traded at the Exchanges during the 2013-14 is graphically presented below:
  • 39. 35 COMMODITY EXCHANGE TOTAL VALUE TRADED (IN CRORE) PERCENTAGE OF VALUE TRADED MCX 8611449 84% NCDEX 1146328 11% NMCE 152819 1.51% ICEX 85664 0.84% UCX 73013 0.72% ACE 46756 0.46% INTERPRETATION:  MCX has highest value traded exchange.  The most active commodity exchange is MCX. TOTAL VALUE OF COMMODITIES TRADED AT EXCHANGES FROM 2009 TO 2014: 1. MCX: YEAR TOTAL VALUE TRADED (IN CRORE) PERCENTAGE OF VALUE TRADED 2013-14 86,11,449 84% 2012-13 1,48,81,057 87% 2011-12 1,55,97,095 86% 2010-11 98,41,502 82% 2009-10 63,93,302 82% INTERPRETATION:  The average of traded value percentage of MCX is 84%.  The highest traded value of MCX during the year 2011-12.  The lowest traded value of MCX during the year 2009-10.
  • 40. 36 2. NCDEX: YEAR TOTAL VALUE TRADED (IN CRORE) PERCENTAGE OF VALUE TRADED 2013-14 11,46,328 11% 2012-13 15,98,425 10% 2011-12 18,10,210 9% 2010-11 14,10,602 11% 2009-10 9,17,584 11% INTERPRETATION:  The average of traded value percentage of MCX is 10%.  The highest traded value of MCX during the year 2011-12.  The lowest traded value of MCX during the year 2009-10.
  • 41. 37 5.3 ANALYSIS OF COMMODITIES TRADED AT MCX COMMODITY EXCHANGE:  The total turnover of commodity futures traded on Exchange stood at 86,114.49 billion in FY 2013-14, as against 148,810.57 billion in the previous fiscal.  MCX is a fully electronic commodity futures exchange, enjoys a competitive edge due to its domain expertise, experienced leadership team, step ahead in innovation & product mix, multiple domestic and international alliances, robust business model and scalable technology platform framework, and extensive reach with more than 2000 members, operating through over 467,000 terminals including Computer to Computer Link (CTCL) across over 1900 cities and towns across India.  The number of contracts traded on your Exchange in FY 2013-14 stood at 214 million as compared with 375 million in FY 2012-13. While the average daily turnover stood at 278 billion in FY 2013-14, as compared with 487.9 billion in FY 2012-13, it is noteworthy that, on April 15, 2013 your Exchange recorded its highest daily turnover since inception of 1,199.41 billion.  MCX silver micro futures, MCX silver mini futures, MCX copper futures, MCX gold petal futures, MCX gold mini futures were among the top 20 metal futures & options contracts and MCX crude oil futures and MCX natural gas futures were among the top 20 energy futures & options contracts in the global ranking of commodity futures contracts in CY 2013. COMMODITY TRADED VALUE (IN CRORES) PERCENTAGE OF TRADED VALUE GOLD 2482438 28% CRUDE OIL 1794312 20.8% SILVER 1780756 20.6% COPPER 776666 9% NATURAL GAS 655322 7% LEAD 398401 4% ZINC 228653 2.6% NICKEL 187172 2.17% ALUMINIUM 134964 1.57% COTTON 62439 0.73% OTHER COMMODITIES 110321 1.28%
  • 42. 38 1. Gold: The ready price of Gold, which was quoted at Rs. 29426.00 per 10 gm on 30.03.2013 declined to Rs. 28619.00 on 31.03.2014, showing a fall of 2.74%. In the futures section, the price which was quoted at Rs. 29394.00 per 10 gm (April 2013 contract) on 30.03.2013 declined to Rs. 28536.00 (April 2014 contract) per 10 gm on 31.03.2014, showing a fall of 2.92%. The total quantity traded in contracts of Gold was 0.09 lakh tonnes valued at Rs. 2482438.18 crore. MCX Gold futures prices in the first half of FY 2013-14 saw both a descent (on expectations of a rollback of stimulus package by the US) and then an ascent (on sharp fall in the Indian Rupee against the US Dollar). On the other hand, MCX gold futures in the second half of the year traded in a range-bound manner. Overall, at the close of FY 2013-14 MCX gold futures was at Rs. 28,536 per 10 grams, down 2.9 per cent on a y-o-y basis. Amid an average daily volatility of about 1.4 per cent, during the fiscal, gold futures recorded a total traded volume of 8,777.7 MT, worth around Rs. 24.82 lakh crore. The year-end open interest in MCX gold futures contracts remained healthy at 13.8 MT. Importantly, MCX continued to deliver its price discovery function efficiently in 2013-14, which was evident from a high correlation of about 96 per cent between MCX gold futures prices and spot prices.
  • 43. 39 GOLD TRADING ANALYSIS: YEAR TRADED VALUE (IN CRORES) PERCENTAGE VALUE OF TRADE 2013-14 2482438 28% 2012-13 3720129 25% 2011-12 4224785 27% 2010-11 2469246 25% 2009-10 1922207 30% 2. Crude Oil The ready price of Crude Oil, which was quoted at Rs. 5288.00 per Barrel on 30.03.2013 rose to Rs. 6110.00 on 31.03.2014, showing a rise of 15.54%. In the futures section, the price which was quoted at Rs. 5400.00 per Barrel (April 2013 contract) on 30.03.2013 rose to Rs. 6119.00 (April 2014 contract) per Barrel on 31.03.2014, showing a rise of 13.31%. The total quantity traded in Crude Oil was 4211.48 lakh tonnes valued at Rs. 1794312.34 crore. In FY 2013-14, MCX crude oil (light sweet) futures steadily rose through the year, barring the volatile months during August and September, largely influenced by the high volatility in USD-INR rates. Overall, MCX crude oil futures rose by 13.3 per cent during the year, with the year-end closing price of the commodity being Rs. 6,119 per barrel. The total traded volume of MCX crude oil futures during the fiscal stood at 3.08 billion barrels (valued at Rs. 17.94 lakh crore). Notably, the open interest in crude oil futures contract was 0.89 million barrels at the end of FY2013-14, signifying a healthy long-term interest in crude oil futures on the MCX platform. Further, during FY2013-14, the Exchange’s price discovery in oil futures (light sweet) contracts remained highly efficient at a correlation of more than 98 per cent with the underlying spot prices.
  • 44. 40 CRUDE OIL TRADING ANALYSIS: YEAR TRADED VALUE (IN CRORES) PERCENTAGE VALUE OF TRADE 2013-14 1794312 20.8% 2012-13 2981891 20% 2011-12 2463336 15% 2010-11 1764067 17% 2009-10 1219045 19% 3. Silver The ready price of Silver, which was quoted at Rs. 52620.00 per kg on 30.03.2013 declined to Rs. 43028.00 on 31.03.2014, showing a fall of 18.23%. In the futures section, the price which was quoted at Rs. 53072.00 per kg (May 2013 contract) on 30.03.2013 declined to Rs. 42805.00 per kg (May 2014 contract) on 31.03.2014 showing a fall of 19.35%.The total quantity traded in contracts of silver was 3.91 lakh tonnes valued at Rs. 1780756.98 crore. Like in the case of gold, prices of MCX silver futures in the first half of 2013-14 initially declined and then rose. Thereafter, in the second half of the year, MCX silver futures prices witnessed range- bound movement and finally closed at Rs. 42,805 per kg, down by 19.35 per cent on a y-o-y basis. Amid an average daily volatility of 1.9 per cent, silver futures volumes of around 3.91 lakh tonnes, valued at about Rs. 17.80 lakh crore, were traded on MCX in 2013-14. The year-end open interest remained healthy at 729.6 MT, reflecting sustained stakeholder interest in MCX silver futures trading. On its part, the MCX platform continued to exhibit efficient price discovery in silver with correlation between its futures price and spot price staying above 98 per cent in 2013-14.
  • 45. 41 SILVER TRADING ANALYSIS: YEAR TRADED VALUE (IN CRORES) PERCENTAGE VALUE OF TRADE 2013-14 1780756 20.6% 2012-13 4086933 27% 2011-12 5738871 36% 2010-11 2700017 27% 2009-10 1141707 17% 4. Copper The ready price of Copper, which was quoted at Rs. 407.95 per kg on 30.03.2013 declined to Rs. 403.00 on 31.03.2014, showing a fall of 1.21%. In the futures section, the price which was quoted at Rs. 410.20 per kg (April 2013 contract) on 30.03.2013 declined to Rs. 404.15 per kg (April 2014 contract) on 31.03.2014 showing a fall of 1.47%. The total quantity traded in Copper contracts was 183.67 lakh tonnes valued at Rs. 776666.28 crore. YEAR TRADED VALUE (IN CRORES) PERCENTAGE VALUE OF TRADE 2013-14 176666 9.02% 2012-13 1443348 9.7% 2011-12 1437082 9.2% 2010-11 1145074 11% 2009-10 903409 14% Amid a relatively volatile price movement involving several bouts of rise and fall in 2013-14, MCX copper futures was at Rs. 404.15 a kg at the end of the year, marking a y-o-y fall of 1.47 per cent.
  • 46. 42 Notably, MCX copper futures prices displayed a high correlation of more than 97 per cent with spot prices, underpinning the efficiency of the MCX price discovery platform. In FY 2013-14, amid an average daily volatility of 1.23 per cent, MCX copper futures recorded a total traded volume of 18.36 million MT, valued at Rs. 7.76 lakh crore. The open interest at the close of FY2013-14 stood at 24,689 MT, signifying strong long-term interest in MCX copper futures. Further, continuing in its efforts to support trader’s participation on the MCX platform, spread benefit was made available during the year between different variants of copper (copper, copper mini) futures contracts.
  • 47. 43 5.4 ANALYSIS AT BROKERAGE FIRM: TRADERS INTEREST BASED ON OCCUPATION: INTERPRETATION:  The above graph depicts that 37% of the respondents are government employees, 25% are from private service, 1% are from others like agriculturist, 24% are businessmen & 13% are private service.  Most of the clients were from government service & business men. occupation 24 24.0 24.0 24.0 13 13.0 13.0 37.0 37 37.0 37.0 74.0 25 25.0 25.0 99.0 1 1.0 1.0 100.0 100 100.0 100.0 business prof ession govt service private service others Total Valid Frequency Percent Valid Percent Cumulativ e Percent occupation 1.0% 25.0% 37.0% 13.0% 24.0% others private service govt service profession bus iness
  • 48. 44 TRADERS INTEREST BASED ON ANNUAL INCOME: Annual income INTERPRETATION: The above graph depicts that most of the investors income lies between 10001-200000 followed by 38%, 37% investors income lies between 50000-100000, 14% of the investors lies between 20001-400000, 6% of the investors lies below 50000 & 5% of the investors lies more than 400000. Aannual income 6 6.0 6.0 6.0 37 37.0 37.0 43.0 38 38.0 38.0 81.0 14 14.0 14.0 95.0 5 5.0 5.0 100.0 100 100.0 100.0 below 50000 5000-100000 10001-200000 200001-400000 more than 400001 Total Valid Frequency Percent Valid Percent Cumulativ e Percent Aannual income 5.0% 14.0% 38.0% 37.0% 6.0% more than 400001 200001-400000 10001-200000 50000-100000 below 50000
  • 49. 45 TRADERS AWARENESS LEVEL OF COMMODITY MARKET: Awareness level of commodity market INTERPRETATION: The above pie chart depicts that 64% of the trader aware about the Commodity Future market and 36% of them are not aware about Commodity Future Market. So there is a need to create awareness about the commodity future market and its benefits. There is a lot of potential is there to create customer and influence them to invest in Commodity Future market. Awreness of commodity market 64 64.0 64.0 64.0 36 36.0 36.0 100.0 100 100.0 100.0 yes no Total Valid Frequency Percent Valid Percent Cumulativ e Percent Awreness of commodity market 36.0% 64.0% no yes
  • 50. 46 TRADERS PREFERENCE IN COMMODITIES: Interpretation: Among the persons who have invested in commodity in them 10% prefer to trade in agro products, 5% in base metals, 16% in precious metals & 5 % in energy products .here not attempted indicates the people who have not invested in commodity market have not attempted this question. commodity you prefer for trading 64 64.0 64.0 64.0 10 10.0 10.0 74.0 5 5.0 5.0 79.0 16 16.0 16.0 95.0 5 5.0 5.0 100.0 100 100.0 100.0 not attempted Agro products Base metals Precious metals Energy products Total Valid Frequency Percent Valid Percent Cumulativ e Percent commodity you prefer for trading 5.0% 16.0% 5.0% 10.0% 64.0% Energy products Precious metals Bas e metals Agro products not attempted
  • 51. 47 TRADERS FACTORS CONSIDERED WHILE TRADING IN COMMODITY MARKET: Interpretation: Most of the investors consider 11% of return, 13% of risk, 3% price& 8% of season. While investing in commodities mainly they considered returns & risk while investing in commodity market they mainly consider returns & risk. Here not attempted indicates the people who have not invested in commodity market have not attempted this question. Factors considered while trading in commodity market 65 65.0 65.0 65.0 3 3.0 3.0 68.0 8 8.0 8.0 76.0 13 13.0 13.0 89.0 11 11.0 11.0 100.0 100 100.0 100.0 not attempted price season risk return Total Valid Frequency Percent Valid Percent Cumulativ e Percent Factors considered while trading in commodity market 11.0% 13.0% 8.0% 3.0% 65.0% return risk season price not attempted
  • 52. 48 TRADERS BENEFIT LEVEL IN FUTURES MARKET: Interpretation: Most of the investors say it is in neutral position & some who are benefited lot they will go for factors like agree & strongly agree & percentage of disagree is very less among invested people. commodity future mkt provides benefit 62 62.0 62.0 62.0 9 9.0 9.0 71.0 10 10.0 10.0 81.0 18 18.0 18.0 99.0 1 1.0 1.0 100.0 100 100.0 100.0 not attemted strongly agree agree neutral disagree Total Valid Frequency Percent Valid Percent Cumulativ e Percent commodity future mkt provides benefit 1.0% 18.0% 10.0% 9.0% 62.0% disagree neutral agree strongly agree not attemted
  • 53. 49 TRADERS HAVE NOT INVESTED IN COMMODITY MARKET: Interpretation: The above pie chart shows that most of the traders are not interested to invest in Commodity Future Market due to complex understanding involved in it around 33% of the traders are given this reason and 5% of them are not interested in investing in this market, 6 & 7% think that it involves high risk and high investment So there is great need to create awareness about Commodity Future market by telling its advantages. Reasons why they have not invested in commodity mkt 39 39.0 39.0 39.0 5 5.0 5.0 44.0 10 10.0 10.0 54.0 7 7.0 7.0 61.0 33 33.0 33.0 94.0 6 6.0 6.0 100.0 100 100.0 100.0 those who hv invested Not intersted Inf o non availability high investment complex understanding high risk Total Valid Frequency Percent Valid Percent Cumulativ e Percent Reasons why they have not invested in commodity mkt 6.0% 33.0% 7.0% 10.0% 5.0% 39.0% high risk complex understandin high investment Info non availabilit Not intersted those who hv investe
  • 54. 50 TRADERS PLANNING FOR TRADING IN FUTURE: Interpretation: From the above graph, it conclude that most of the traders are interested to invest in Commodity Future Market if proper awareness is created among them and other 33% are not interested to invest .These 67% of traders are the potential customers for the company. planning for trading in commodity mkt in future 67 67.0 67.0 67.0 33 33.0 33.0 100.0 100 100.0 100.0 yes no Total Valid Frequency Percent Valid Percent Cumulativ e Percent planning for trading in commodity mkt in future 33.0% 67.0% no yes
  • 55. 51 CHAPTER 6 FINDINGS, SUGGESTIONS & CONCLUSIONS 6.1 FINDINGS OF COMMODITY FUTURES MARKET: Commodity futures are globally recognized to be a part of every successful and diversified investment portfolio. The fact that the returns from most of the commodities in the last 53 years from 1951 to 2006 have been higher than the global inflation rate, establishes that investments in commodity are an effective hedge against inflation. Some of the reasons that make investing in commodity futures are described below:  Leverage: Commodity Futures trading is done on margins. The investor only deposits a fraction of the value of the futures contract with the broker to cover the exchange specified margin requirements. This gives the investor greater leverage and thus the ability to generate higher returns.  Liquidity: Unlike investment vehicles like real estate, investments in commodity futures offer high liquidity. It is equally easy to both buy and sell futures and an investor can easily liquidate his position whenever required. There is also another advantage of being able to use the profits from a trade elsewhere, without having to close the position.  Diversification: Investments in commodity markets are an excellent means of portfolio diversification. For example, gold prices have historically shown a low correlation with most other asset prices (such as equities) and thus offer an excellent means for portfolio diversification.  Inflation Hedge: As the commodity prices determine price levels and consequently inflation, investing in commodity futures can act as a hedge against inflation.
  • 56. 52 6.2 FINDINGS OF COMMODITY TRADING INVESTMENTS: • More than 50% of the Traders are aware about the commodity future Market. • Hardly 30% traders are invested in the commodity future market. • Most of the investors are not ready to invest in commodity future market they feel it involve high risk. • Returns and the Risk of the commodity are the most critical factors, which Traders will consider while investing in any commodity. • Most of the investors are ready to invest in commodity future market if proper information is provided. • As commodity future market is new and emerging, many investors and farmers are not fully aware of this market .as the market helps to trade transparently without middlemen and agents. • While finding the reasons why most of the people are not trading in commodity market I found that many respondents are not interested at all in this trade this is because of unawareness & mythical perception about commodity market. • Most of the clients were from government service & business men.
  • 57. 53 6.3 SUGGESTIONS: • There is need to create awareness about commodity Future Market. Awareness program has to be conducted by capital focus, because since this was new to the market and so it can be done through by giving advertisements in local channels, Newspapers, by sending E-mail to present customers etc. • More agents and marketing executives should be appointed to educate the customers because the customers having many myths in their mind. • And also create the awareness of electronic commodity trading. • Firm should approach people who are already into the business of commodities. Special campaigns / investors meets should be conducted for these people since they are aware of rate fluctuation, market trends etc. They have got market idea that benefits them in price prediction. They will be in high spirits when price risk of them will be managed. • To boost trading volumes of the national-level commodity futures bourses, the market regulator FMC, continued with various developmental activities such as conducting awareness programmes, capacity building programmes and stakeholder meets; and installing price ticker boards. The Commission also undertook various initiatives to improve the market integrity and to protect the interests of market participants.
  • 58. 54 6.4 CONCLUSION: Indian commodity market was fraught with many challenges during FY 2013- 14, which adversely affected the market sentiment and concomitantly resulted in a decline in trading volumes across the nation’s commodity futures exchanges. During FY 2013-14, the performance of India’s financial markets reflected the slowdown in the country’s real economy. The turnover of the commodity derivative exchanges fell by 40.51 per cent to Rs. 101.41 lakh crore in FY 2013-14 from Rs. 170.46 lakh crore during the last fiscal, according to the data maintained by the Forward Markets Commission (FMC). The decline in the turnover of these exchanges can be attributed to the sluggish participation on account of the challenges such as commodity transaction tax and that befell the market. Commodity futures markets are new and emerging market. The awareness of the market is very less among the investors who can use this trade to sell their products without the middlemen or agents it also help the actual buyers too. Here trader also can transfer his risk to some other who can handle it or can appetite the risk through hedging techniques. Compared to capital market, commodity market is less risky in volatility context here the prices do not change within a fraction of second. Significantly, minimum margin ready physical possession, no manipulation and fraud, maximum profitability is available over here since the commodity market helps all such as farmers, industries and individual investors, it is growing at a faster rate in global outlook.
  • 59. 55 CHAPTER 7 BIBLIOGRAPHY WEBSITES: 1. www.capitalfocus.in 2. www.mcxindia.com 3. www.fmc.gov.in 4. in.investing.com NEWS PAPERS: 1. Business Line 2. Economic times 3. Business Standard