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Basics of
Commodities




IIFL Training Team
Commodities as an asset class is
 integral to completion of the
      Investment Puzzle




       IIFL Training Team
Product                Participants           Risk
• Commodity             • Speculators      • Limit
  future                • Hedgers          • Cover
• Factors effecting     • Arbitragers      • Our responsibility
  commodity prices
• Charges
• Delivery process




      The Commodities market
                      IIFL Training Team
What is a Commodity?

 Commodity includes all kinds of goods
 “Every kind of movable property other than actionable
  claims, money and securities"




         Agro                              Non agro
                      IIFL Training Team
Derivatives

Derivatives are financial contracts, which derive their value
 from an underlying asset. The underlying "asset can be
 equity, commodity, foreign exchange, interest rates, real
                  estate or any other asset.




                        IIFL Training Team
Commodity Market Types



                                      Spot


Buyer   Seller
                                      Forward
                 IIFL Training Team
Futures Contract

Legally binding agreement to buy or sell an underlying asset
sometime in future
Quantity – Lot size fixed
Delivery time - Expiry date is fixed




                         IIFL Training Team
Futures Position

 BUY Futures : Right as well as obligation to buy
  underlying commodity at the future date

 SELL Futures : Right as well as obligation to sell
  underlying commodity at the future date

Right – To claim profit, if any
Obligation – To pay loss, if any




                         IIFL Training Team
International Exchanges


Chicago Board of Trade (CBOT)                    New York Mercantile Exchange (NYMEX)




 London Metal Exchange (LME)                     Tokyo Commodity Exchange (TOCOM)




                                IIFL Training Team
Domestic Exchange

 Cotton 1893 (Bombay Cotton Exchange)
 Oilseeds 1900 (Gujarati Vyapari Mandali)
 Wheat 1913 (Chamber of Commerce – Hapur)
 Bullion 1920 in Mumbai
 Jute 1927 (Calcutta Hessian Exchange ltd)
 After 1940s, futures trading faced rough weather as
  governments wanted to curb inflation.
 Resurgence after 2003




                       IIFL Training Team
Structure of Indian Commodity Market
                   Ministry of
                Consumer Affairs &
                Public Distribution



                   Forward Markets
                     Commission
                       (FMC)




                                               Other regional
  NCDEX      MCX                        NMCE
                                                exchanges




                   IIFL Training Team
Leading Commodity Exchanges




          IIFL Training Team
Commodities Traded on Exchanges
                             Commodities Market




Precious Metals      Base Metals                     Energy   Agriculture
- Gold            - Copper                    - Crude Oil     - oil seeds
- Silver          - Zinc                      - Natural Gas   - Spices
- Platinum        - Nickel                    - ATF           - Cereals
                  - lead                                      - Others
                  - Aluminum
                  - Tin




                                IIFL Training Team
Lot Size and Margin - MCX
                                                                         CONTRACT MARGIN
MCX SYMBOL    %MARGIN Price Quotation    Lot      LOT SIZE    PRICE         SIZE     RS.
ALUMINIUM         5.00           1 KG        5 MT     5000     109.65        548,250 27,413
CARDAMOM         10.25           1 KG     500 KG       500     1581.1        790,550 81,031
COPPER            5.00           1 KG        1 MT     1000       429.6       429,600 21,480
CRUDE OIL         5.00      1 BARREL 100 BARREL        100        4144       414,400 20,720
GOLD              4.00          10 GM        1 KG      100      20511      2,051,100 82,044
GOLDGUINEA        4.00           8 GM       8 GM          1     16289         16,289    652
GOLDM             4.00          10 GM     100 GM         10     20514        205,140  8,206
LEAD              5.00           1 KG        5 MT     5000     110.55        552,750 27,638
LEAD MINI         5.00           1 KG        1 MT     1000     110.55        110,550  5,528
MENTHAOIL         8.00           1 KG     360 KG       560     1134.4        635,264 50,821
NATURALGAS        6.25       1 MMBTU 1250 MMBTU       1250       186.2       232,750 14,547
NICKEL            6.00           1 KG     250 KG       250     1076.5        269,125 16,148
POTATO            5.00         100 KG      30 MT       300       668.9       200,670 10,034
SILVER            5.00           1 KG      30 KG         30     44370      1,331,100 66,555
SILVERM           5.00           1 KG        5 KG         5     44361        221,805 11,090
ZINC              5.50           1 KG        5 MT     5000     103.75        518,750 28,531
ZINCM             5.50           1 KG        1 MT     1000       103.7       103,700  5,704




                                IIFL Training Team
Lot Size and Margin - MCX

                                                                            CONTRACT MARGIN
NCDEX SYMBOL   %MARGIN Price Quotation      Lot      LOT SIZE    PRICE         SIZE      RS.
CHARJDDEL          5.00        100 KG         10 MT       100        2542       254,200  12,710
CHLL334GTR        10.00        100 KG           5 MT        50       8034       401,700  40,170
GARGUMJDR          9.00        100 KG           5 MT        50       6430       321,500  28,935
GARSEDJDR          8.00        100 KG         10 MT       100        2463       246,300  19,704
GURCHMUZR          5.50         40 KG         10 MT       250         993       248,250  13,654
JEERAUNJHA         9.00        100 KG           3 MT        30     14583        437,490  39,374
POTATO             5.50        100 KG         15 MT       150       624.8        93,720   5,155
PPRMLGKOC          7.00        100 KG           1 MT        10     22836        228,360  15,985
RMSEEDJPR          5.00         20 KG         10 MT       500       578.3       289,150  14,458
SUGARM200          5.50         10 KG         10 MT      1000        3044     3,044,000 167,420
SYBEANIDR          5.50        100 KG         10 MT       100     2370.5        237,050  13,038
SYOREFIDR          5.25         10 KG         10 MT      1000     623.45        623,450  32,731
TMCFGRNZM         16.50        100 KG           5 MT        50     10880        544,000  89,760




                                  IIFL Training Team
Market Timings of Indian Exchanges

Monday to Friday
 Bullion/ Metals Trading:
  During May – October :10.00 am to 11.30 pm
  During November – April :10.00 am to 11.55 pm

 Agro Commodities: 10.00 am to 5.00 pm

Saturday
 All Commodities: 10:00 am to 2:00 pm



                      IIFL Training Team
Order Management

Time Conditions                              Price Conditions
 •   Day                                      •   Market Order
 •   Good Till Cancel (GTC)                   •   Limit Order
 •   Good Till Date (GTD)                     •   Stop Loss Order
 •   Immediate or Cancel
     (IOC)




                        IIFL Training Team
Clients can trade on both on Exchanges

    Online                           Offline




     DEMO


                IIFL Training Team
Brokerage
  Brokerage Structure                          Charges
Registration fees           Rs.500
                            (adjustable against brokerage generated
                            by end of the next month)

Minimum Initial Margin      Rs.10,000
Trading Brokerage           0.05%
Delivery Brokerage          0.25%
Exchange/Transaction        Rs.4.00 per Lac for NCDEX
Charges                     Rs 2.50 per Lac for MCX
Stamp Duty                  Nil
Service Tax                 10.30%    on brokerage and
                            Exchange/Transaction charges
                          IIFL Training Team
Intention Matching

 In case of Intention matching, request from both the
  buyers and sellers are sought

 The Intentions should match for
   • Quantity – only the minimum quantity of the request
     will be matched
   • Warehouse Location

 If the intentions do not match both the request are cash
  settled with the final settlement price


                        IIFL Training Team
Sellers Option
 In case of sellers option the seller can opt to deliver at the
  warehouse location of choice

 Seller has the following options
   • Warehouse Location
   • Quantity

 The buyer can give the intention for preferential warehouse

 The buyer is not guaranteed of delivery at the warehouse
  given as preference if there are no sellers available
 It is obligatory for the buyer to take delivery, failing which
  buyer will be charged penalty as specified by the exchange

                            IIFL Training Team
Compulsory Delivery

 In case of compulsory delivery all the open position on
  the expiry needs to be settled through physical delivery
   • Sellers need to deliver
   • Buyers need to accept the delivery




                        IIFL Training Team
1 kg gold

                                 1 kg Silver




Demat of a Commodity
            IIFL Training Team
Process of Demat of a Commodity
                                      Credits
MCX/NCDEX     NSDL/CDSL                          DP
                                     Commodity




               R & T Agents
Warehouse
            Deposits Commodity


                       Depositor
  QCA


                IIFL Training Team
Websites for More information
                 Relevant websites for commodity
 For Energy:                                  – www.basemetals.com
    –   www.wtrg.com                           – www.metalsplace.com
    –   www.oilspace.com                       – www.international.standardbank.co
    –   www.naturalgas.org                       m
    –   www.futuresource.com                   – www.kitcometals.com
    –   www.gcitrading.com                Other sites
    –   www.futiresource.com                   –   www.Livecharts.co.uk
    –   www.forexfactory.com                   –   www.easy-forex.com
 For Bullion:                                 –   www.commodityoline.com
    –   www.gfms.co.uk                         –   www.bloomberg.com
    –   www.gold.org                           –   www.reuters.in
    –   www.thebulliondesk.com                 –   www.fxstreet.com
    –   www.kitco.com                          –   www.kitco.com
    –   www.goldseek.com                       –   www.kitcometals.com
                                               –   www.thebulliondesk.com
                                               –   www.123jump.com`



 For Base metals:
                                 IIFL Training Team
Thank You




 IIFL Training Team

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Commodity Basics

  • 2. Commodities as an asset class is integral to completion of the Investment Puzzle IIFL Training Team
  • 3. Product Participants Risk • Commodity • Speculators • Limit future • Hedgers • Cover • Factors effecting • Arbitragers • Our responsibility commodity prices • Charges • Delivery process The Commodities market IIFL Training Team
  • 4. What is a Commodity?  Commodity includes all kinds of goods  “Every kind of movable property other than actionable claims, money and securities" Agro Non agro IIFL Training Team
  • 5. Derivatives Derivatives are financial contracts, which derive their value from an underlying asset. The underlying "asset can be equity, commodity, foreign exchange, interest rates, real estate or any other asset. IIFL Training Team
  • 6. Commodity Market Types Spot Buyer Seller Forward IIFL Training Team
  • 7. Futures Contract Legally binding agreement to buy or sell an underlying asset sometime in future Quantity – Lot size fixed Delivery time - Expiry date is fixed IIFL Training Team
  • 8. Futures Position  BUY Futures : Right as well as obligation to buy underlying commodity at the future date  SELL Futures : Right as well as obligation to sell underlying commodity at the future date Right – To claim profit, if any Obligation – To pay loss, if any IIFL Training Team
  • 9. International Exchanges Chicago Board of Trade (CBOT) New York Mercantile Exchange (NYMEX) London Metal Exchange (LME) Tokyo Commodity Exchange (TOCOM) IIFL Training Team
  • 10. Domestic Exchange  Cotton 1893 (Bombay Cotton Exchange)  Oilseeds 1900 (Gujarati Vyapari Mandali)  Wheat 1913 (Chamber of Commerce – Hapur)  Bullion 1920 in Mumbai  Jute 1927 (Calcutta Hessian Exchange ltd)  After 1940s, futures trading faced rough weather as governments wanted to curb inflation.  Resurgence after 2003 IIFL Training Team
  • 11. Structure of Indian Commodity Market Ministry of Consumer Affairs & Public Distribution Forward Markets Commission (FMC) Other regional NCDEX MCX NMCE exchanges IIFL Training Team
  • 12. Leading Commodity Exchanges IIFL Training Team
  • 13. Commodities Traded on Exchanges Commodities Market Precious Metals Base Metals Energy Agriculture - Gold - Copper - Crude Oil - oil seeds - Silver - Zinc - Natural Gas - Spices - Platinum - Nickel - ATF - Cereals - lead - Others - Aluminum - Tin IIFL Training Team
  • 14. Lot Size and Margin - MCX CONTRACT MARGIN MCX SYMBOL %MARGIN Price Quotation Lot LOT SIZE PRICE SIZE RS. ALUMINIUM 5.00 1 KG 5 MT 5000 109.65 548,250 27,413 CARDAMOM 10.25 1 KG 500 KG 500 1581.1 790,550 81,031 COPPER 5.00 1 KG 1 MT 1000 429.6 429,600 21,480 CRUDE OIL 5.00 1 BARREL 100 BARREL 100 4144 414,400 20,720 GOLD 4.00 10 GM 1 KG 100 20511 2,051,100 82,044 GOLDGUINEA 4.00 8 GM 8 GM 1 16289 16,289 652 GOLDM 4.00 10 GM 100 GM 10 20514 205,140 8,206 LEAD 5.00 1 KG 5 MT 5000 110.55 552,750 27,638 LEAD MINI 5.00 1 KG 1 MT 1000 110.55 110,550 5,528 MENTHAOIL 8.00 1 KG 360 KG 560 1134.4 635,264 50,821 NATURALGAS 6.25 1 MMBTU 1250 MMBTU 1250 186.2 232,750 14,547 NICKEL 6.00 1 KG 250 KG 250 1076.5 269,125 16,148 POTATO 5.00 100 KG 30 MT 300 668.9 200,670 10,034 SILVER 5.00 1 KG 30 KG 30 44370 1,331,100 66,555 SILVERM 5.00 1 KG 5 KG 5 44361 221,805 11,090 ZINC 5.50 1 KG 5 MT 5000 103.75 518,750 28,531 ZINCM 5.50 1 KG 1 MT 1000 103.7 103,700 5,704 IIFL Training Team
  • 15. Lot Size and Margin - MCX CONTRACT MARGIN NCDEX SYMBOL %MARGIN Price Quotation Lot LOT SIZE PRICE SIZE RS. CHARJDDEL 5.00 100 KG 10 MT 100 2542 254,200 12,710 CHLL334GTR 10.00 100 KG 5 MT 50 8034 401,700 40,170 GARGUMJDR 9.00 100 KG 5 MT 50 6430 321,500 28,935 GARSEDJDR 8.00 100 KG 10 MT 100 2463 246,300 19,704 GURCHMUZR 5.50 40 KG 10 MT 250 993 248,250 13,654 JEERAUNJHA 9.00 100 KG 3 MT 30 14583 437,490 39,374 POTATO 5.50 100 KG 15 MT 150 624.8 93,720 5,155 PPRMLGKOC 7.00 100 KG 1 MT 10 22836 228,360 15,985 RMSEEDJPR 5.00 20 KG 10 MT 500 578.3 289,150 14,458 SUGARM200 5.50 10 KG 10 MT 1000 3044 3,044,000 167,420 SYBEANIDR 5.50 100 KG 10 MT 100 2370.5 237,050 13,038 SYOREFIDR 5.25 10 KG 10 MT 1000 623.45 623,450 32,731 TMCFGRNZM 16.50 100 KG 5 MT 50 10880 544,000 89,760 IIFL Training Team
  • 16. Market Timings of Indian Exchanges Monday to Friday  Bullion/ Metals Trading: During May – October :10.00 am to 11.30 pm During November – April :10.00 am to 11.55 pm  Agro Commodities: 10.00 am to 5.00 pm Saturday  All Commodities: 10:00 am to 2:00 pm IIFL Training Team
  • 17. Order Management Time Conditions Price Conditions • Day • Market Order • Good Till Cancel (GTC) • Limit Order • Good Till Date (GTD) • Stop Loss Order • Immediate or Cancel (IOC) IIFL Training Team
  • 18. Clients can trade on both on Exchanges Online Offline DEMO IIFL Training Team
  • 19. Brokerage Brokerage Structure Charges Registration fees Rs.500 (adjustable against brokerage generated by end of the next month) Minimum Initial Margin Rs.10,000 Trading Brokerage 0.05% Delivery Brokerage 0.25% Exchange/Transaction Rs.4.00 per Lac for NCDEX Charges Rs 2.50 per Lac for MCX Stamp Duty Nil Service Tax 10.30% on brokerage and Exchange/Transaction charges IIFL Training Team
  • 20. Intention Matching  In case of Intention matching, request from both the buyers and sellers are sought  The Intentions should match for • Quantity – only the minimum quantity of the request will be matched • Warehouse Location  If the intentions do not match both the request are cash settled with the final settlement price IIFL Training Team
  • 21. Sellers Option  In case of sellers option the seller can opt to deliver at the warehouse location of choice  Seller has the following options • Warehouse Location • Quantity  The buyer can give the intention for preferential warehouse  The buyer is not guaranteed of delivery at the warehouse given as preference if there are no sellers available  It is obligatory for the buyer to take delivery, failing which buyer will be charged penalty as specified by the exchange IIFL Training Team
  • 22. Compulsory Delivery  In case of compulsory delivery all the open position on the expiry needs to be settled through physical delivery • Sellers need to deliver • Buyers need to accept the delivery IIFL Training Team
  • 23. 1 kg gold 1 kg Silver Demat of a Commodity IIFL Training Team
  • 24. Process of Demat of a Commodity Credits MCX/NCDEX NSDL/CDSL DP Commodity R & T Agents Warehouse Deposits Commodity Depositor QCA IIFL Training Team
  • 25. Websites for More information Relevant websites for commodity  For Energy: – www.basemetals.com – www.wtrg.com – www.metalsplace.com – www.oilspace.com – www.international.standardbank.co – www.naturalgas.org m – www.futuresource.com – www.kitcometals.com – www.gcitrading.com  Other sites – www.futiresource.com – www.Livecharts.co.uk – www.forexfactory.com – www.easy-forex.com  For Bullion: – www.commodityoline.com – www.gfms.co.uk – www.bloomberg.com – www.gold.org – www.reuters.in – www.thebulliondesk.com – www.fxstreet.com – www.kitco.com – www.kitco.com – www.goldseek.com – www.kitcometals.com – www.thebulliondesk.com – www.123jump.com`  For Base metals: IIFL Training Team
  • 26. Thank You IIFL Training Team