The document provides an overview of commodity markets, including: - Commodity markets allow for the trading of raw materials through standardized contracts on regulated exchanges. - Modern commodity markets originated from the trading of agricultural products like wheat and corn in the 19th century. - The global value of physical commodity exports and derivatives trading has grown significantly in recent decades. - Commodities provide an alternative asset class that offers inflation hedging and diversification when added to traditional stock and bond portfolios. - Key commodity exchanges in India are the Multi Commodity Exchange of India and the National Commodity & Derivatives Exchange, which are regulated by the Forward Markets Commission.

1. Commodities
Market
Wealth Management
Presented By: Prashant
Shukla

2. What is Commodity market?
• Commodity markets are markets where raw or
primary products are exchanged or traded.
• These raw commodities are traded on
regulated commodity exchanges, in which they
are bought and sold in standardized contracts.
It is similar to an equity market, but instead of
buying or selling shares one buys or sells
commodities.

3. History of Commodity Market
• Modern Commodity Market have their roots in
the trading of agricultural products.
• Wheat and corn, cattle and live stocks, were
widely traded in the 19th century in India.

4. Size of the Market
• The trading of commodities includes physical
trading of food items, Energy and Metals, etc.
and trading of derivatives.
• In the five years up to 2007, the value of
global physical exports of commodities
increased by 17% while the commodity
derivative trading on exchanges rose to more
than 200%.

5. Continued…
• Agricultural contracts trading grew by 32% in
2007, energy 29% and industrial metals by
30%.
• Precious metals trading grew by 3%
• OTC trading accounts for the majority of
trading in gold and silver.

6. Commodities – An Alternate Asset
Class
• Traditional choice of asset allocation includes
stocks, bonds and real estate.
• Now portfolio has shifted to alternative assets
like hedge funds, private equity, derivatives
and commodities.
• Traded on spot and forward markets.
• Positively correlated with inflation.
• Independent risk and return profile.

7. Global classification of commodities
• Precious Metals: Gold, Silver, Platinum, etc.
• Other Metals: Nickel, Aluminum, Copper, Zinc,
etc.
• Agro-Based Commodities: Wheat, Rice, Corn,
Cotton, Oils, Oilseeds, etc.
• Soft Commodities: Coffee, Cocoa, Sugar, etc.
• Petrochemicals: High Density Polyethylene,
Polypropylene.
• Energy: Crude Oil, Natural Gas, Gasoline, etc.

8. Commodities that are not traded in
the commodity market.
• Rare metals - Germanium, Cadmium, Cobalt,
Chromium, Magnesium, Manganese,
Molybdenum, Silicon, Rhodium, Selenium,
Titanium, Vanadium, Wolframite, Niobium,
Lithium, Indium, Gallium, Tantalum, Tellurium,
and Beryllium.
• Agricultural products - Fresh Flowers, Cut
Flowers, Melons, Lemons, Tung Oil, Gum Arabic,
Pine Oil, Xanthan, Milk, Tomatoes, Grapes, Eggs,
Potatoes, and Figs.

9. How to Trade in Commodities

10. Continued…
• Spot trading - Spot trading is any transaction
where delivery either takes place
immediately, or if there is a minimum lag, due
to technical constraints, between the trade and
delivery. Commodities constitute the only spot
markets which have existed nearly throughout
the history of humankind.

11. Continued…
• Forward Contract - A forward contract is an
agreement between two parties
(counterparties) for the delivery of a physical
asset (e.g., oil or gold) at a certain time in the
future for a certain price that is fixed at the
inception of the contract.
• Forward contracts can be customized to
accommodate any commodity, in any quantity,
for delivery at any point in the future, at any
place.

12. Continued…
• Futures contracts are highly uniform and well-
specified commitments for a carefully described
good (quantity and quality of the good) to be
delivered at a certain time and place (acceptable
delivery date) and in a certain manner (method
for closing the contract) and the permissible
price fluctuations are specified (minimum and
maximum daily price changes).

13. Continued…
• Under the Forward Contracts (Regulation) Act,
1952, forward trading in commodities notified
under section 15 of the Act can be conducted
only on the Exchanges, which are granted
recognition by the Central Government
(Department of Consumer Affairs, Ministry of
Consumer Affairs, Food and Public
Distribution).

14. • Let’s assume your total portfolio is $250,000
and you invest 80% in stocks and bonds
($200,000) and 20% in managed Commodities
($50,000). Let’s assume at the end of the year
you realize a 5% return on your stocks and
bonds and a 25% return on Commodities. The
result would be as follows:

15. • Now let’s assume you earn 10% on the 80% of
your portfolio invested in stocks and bonds,
but lose 25% in managed futures. The results
would be as follows:

16. Risk factors involved
• Changing demand–supply dynamics.
• Climatic factors.
• Industry related factors.

17. The Major Actors in commodity
market
• Speculator
A trader who enters the futures market in pursuit
of profit, accepting risk in the endeavor.
• Hedger
A Trader who enters the futures market to reduce
some pre-existing risk exposure.
• Broker
An Individual or firm acting as an intermediary
by conveying customers’ trade instructions.
Account executives or floor brokers are examples
of brokers.

18. Portfolio Diversification
• Hedge against inflation.
• An improved risk/return profile in strategic
asset allocation.

19. Structure of Indian Commodity
Futures Exchanges

20. FORWARD MARKETS COMMISSION
• Forward Markets Commission (FMC) is
headquartered at Mumbai.
• It is a regulatory authority which is overseen by
the Ministry of Consumer Affairs, Food and
Public Distribution, Govt. of India.
• It was set up in 1953 under the Forward Contracts
(Regulation) Act, 1952.
• The Act provides that the Commission shall
consist of not less than two but not exceeding four
members appointed by the Central Government.

21. OBJECTIVES OF FMC
• To create competitive conditions so that no
unscrupulous participants could use these
leveraged contracts for manipulating prices.
• To ensure that the market has appropriate risk
management system.
• To ensure fairness and transparency in trading,
clearing, settlement and management of the
exchange so as to protect and promote the
interest of various stakeholders.

22. FUNCTIONS OF THE FMC
• FMC advises the central government to either
grant recognition or to withdraw the
recognition of any association.
• It keeps the forward market under strong
observation and takes action wherever
necessary.
• To make recommendations generally with
respect to improving the organization and
working of forward markets.

23. Continued…
• 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
considerers it necessary.
• To collect and publish the information relating
to trading conditions in respect of goods
including information relating to demand,
supply and prices.

24. COMMODITY EXCHANGE
• An entity, usually an incorporated non-profit
association, that determines and enforces rules
and procedures for the trading of commodities
and related investments, such as commodity
futures.
• Commodities exchange also refers to the
physical centre where trading takes place.

25. Continued…
• 18 existing commodity exchanges in India
offering domestic contracts in 8 commodities
and 2 exchanges that have permission to
conduct trading in international (USD
denominated) contracts.

26. Continued…
• The two most important commodity exchanges
in India are;
1)Multi-Commodity Exchange of India Limited
(MCX),
2)National Multi-Commodity & Derivatives
Exchange of India Limited (NCDEX)

27. National Commodity and Derivatives
Exchange Limited - NCDEX
• National Commodity & Derivatives
Exchange Limited (NCDEX) is an
online commodity exchange. It has
commenced its operations on December
15, 2003.
• LIC, NABARD & NSE are Promoter
Shareholder.
• NCDEX is regulated by Forward Markets
Commission.

28. • NCDEX currently facilitates trading of
57, commodities including :
• Agri-based commodities
• Bullion
• Energy
• Ferrous metals
• Non-ferrous metals
• Plastics

29. Institution Share Domain Expertise
NABARD 15 % Apex bank for agricultural lending
ICICI Bank 8 % Largest private sector bank in India. Listed on NYSE
NSE 15 % Largest stock exchange in India. Highest volume in single stock futures in world.
LIC 15 % Largest life insurance company in India
CRISIL 12% India’s first & largest credit rating agency. Now a Standard & Poor company
IFFCO
12% Largest farmer cooperative with affiliation of 36,000 cooperatives
PNB
8% Large public sector bank with strong rural reach specially in North India
Canara Bank 8% Large public sector bank with strong rural reach specially in South India
Goldman
Sachs
7% Global Expertise in commodity markets

30. Multi Commodity Exchange of India
Ltd - MCX
• MCX is an independent multi commodity
exchange, headquartered in Mumbai, 2003.
• MCX is promoted by Financial Technologies.
• It is recognized by the government for
conducting the following in the area of
commodities futures and options:
• facilitating online trading
• clearing
• settlement operations

31. Continued…
MCX offers connects to the following;
• Producers and Processors
• Traders
• Corporate house
• Regional trading centers
• Importers
• Exporters
• Co-operatives
• Industry Associations and institutions

32. National Multi Commodity Exchange
of India Limited
• National Multi Commodity Exchange of India
Limited (NMCE) is the first de-mutualized,
Electronic Multi-Commodity Exchange in India.
• On 25th July, 2001, it was granted approval by
the Government to organize trading in the edible
oil complex.
• It has operationalized from November 26, 2002.
• It is being supported by Central Warehousing
Corporation Ltd., Gujarat State Agricultural
Marketing Board and Neptune Overseas Limited.

33. Conclusion

34. Thank You…