THIS IS A PPT ON THE COMMODITY FUTURES TRADING IN INDIA

1. COMMODITY FUTURES IN INDIA
 ASHISH KRISHNAN
 DRASHTI BHAYANI
 PROF. PINAKIN
JAISWAL
PREPARED BY: GUIDED BY:

2. WHAT IS COMMODITY FUTURES
 Commodities futures are an agreement to buy or sell a
commodity at a specific date in the future at a specific
price. Just like the price of bananas at the grocery store,
the prices of commodities change on a weekly or even
daily basis.
 If the price goes up, the buyer of the futures
contract makes money, because he gets the product at
the lower, agreed-upon price and can now sell it at the
today's higher market price. If the price goes down, the
futures seller makes money, because he can buy the
commodity at the today's' lower market price, and sell it
to the futures buyer at the higher, agreed-upon price.

3. COMMODITY FUTURES IN INDIA
 Commodity futures trading in India was in a state of
hibernation for four decades, which was marked by
suspicion on the benefits of futures trading. This is
replaced by policy, institutional and market activism in
the last few years. This is partly a response to the
predominant role being assigned to the market forces in
price determination and the consequent need for
providing market-based de-risking tools.
 It is also the result of a growing awareness that
derivatives trading do perform substantial risk mitigating
functions to the stakeholders.
 This resurgence of interest in commodity derivatives is
timely since global commodity cycle is on the

4. COMMODITY FUTURES IN INDIA
 The most important changes that have taken place
in the commodity futures space were the removal of
prohibition on futures trading in a large number of
commodities and the facilitation of setting up
modern, demutualised exchanges by the
Government of India.
 These two initiatives together are becoming
instrumental in changing the contours of the
commodity futures markets in India in terms of both
participation and practices.
 There are, however, still a number of obstacles in
fully exploiting the opportunities available to the

5. LIST OF TRADED COMMODITIES
 Agricultural product:- Corn, Oats, Rough Rice, Soya
beans, Rapeseed, Soya bean Meal, Soybean Oil,
Wheat, Cocoa, Coffee, Cotton No.2, Sugar No.11,Sugar
No.14.
 Livestock and Meat:- Lean Hogs, Frozen Pork Bellies,
Live Cattle, Feeder Cattle.
 Energy:- WTI Crude Oil, Brent Crude, Ethanol, Natural
Gas, Heating Oil, Gulf Coast Gasoline, RBOB Gasoline,
Propane, Uranium.
 Precious Metal:- Gold, Platinum, Palladium, Silver.
 Industrial Metals:- Copper, Lead, Zinc, Tin, Aluminum,
Aluminum alloy, Nickel, Aluminum alloy, Recycled steel

6. EXCHANGES WHERE COMMODITIES
FUTURES ARE TRADED IN INDIA
 The National Commodity and Derivative Exchange, the
Multi Commodity Exchange of India Ltd and the National
Multi Commodity Exchange of India Ltd.
 All three have electronic trading and settlement systems
and a national presence.
 Apart from that there is Ace Derivatives & Commodity
Exchange Ltd., Bhatinda Om and Oil Exchange Ltd and
Universal Commodity Exchange

7. HOW TO CHOOSE A BROKER
 Several already-established equity brokers have sought
membership with NCDEX and MCX.
 The likes of Refco Sify Securities, SSKI (Sharekhan)
and ICICIcommtrade (ICICIdirect), ISJ Comdesk (ISJ
Securities) and Sunidhi Consultancy are already offering
commodity futures services.

8. WHAT IS THE MINIMUM INVESTMENT
NEEDED
 One can have an amount as low as Rs 5,000. All
one needs is money for margins payable upfront to
exchanges through brokers. The margins range from
5-10 % of the value of the commodity contract.
 For trading in bullion, that is, gold and silver, the
minimum amount required is Rs 650 and Rs 950 for
on the current price of approximately Rs 65,00 for
gold for one trading unit (10 gm) and about Rs 9,500
for silver (one kg).
 The prices and trading lots in agricultural
commodities vary from exchange to exchange (in
kg, quintals or tonnes), but again the minimum funds
required to begin will be approximately Rs 5,000.

9. DELIVERY/SETTLEMENT IN CASH
 One can do both. All the exchanges have both
systems - cash and delivery mechanisms. The
choice is up to the individual. If one wants his/her
contract to be cash settled, one has to indicate at
the time of placing the order that he/she does not
intend to deliver the item.
 If one plans to take or make delivery, one needs
to have the required warehouse receipts. The
option to settle in cash or through delivery can be
changed as many times as one wants till the last
day of the expiry of the contract.

10. HOW TO START TRADING IN
COMMODITY FUTURES
 As of now one will need only one bank account.
 One will need a separate commodity demat
account from the National Securities Depository
Ltd to trade on the NCDEX just like in stocks.

11. WHAT ARE THE BROKERAGE OR
TRANSACTION CHARGES
 The brokerage charges range from 0.10-0.25
per cent of the contract value. Transaction
charges range between Rs 6 and Rs 10 per
lakh/per contract.
 The brokerage will be different for different
commodities. It will also differ based on trading
transactions and delivery transactions. In case
of a contract resulting in delivery, the brokerage
can be 0.25 - 1 per cent of the contract value.
The brokerage cannot exceed the maximum
limit specified by the exchanges.

12. WHO IS THE REGULATOR
 The exchanges are regulated by the Forward
Markets Commission. Unlike the equity markets,
brokers don't need to register themselves with
the regulator.
 The FMC deals with exchange administration
and will seek to inspect the books of brokers
only if foul practices are suspected or if the
exchanges themselves fail to take action. In a
sense, therefore, the commodity exchanges are
more self-regulating than stock exchanges. But
this could change if retail participation in
commodities grows substantially.

13. PLAYERS IN COMMODITY FUTURES
 The commodities market will have three broad
categories of market participants apart from brokers
and the exchange administration - hedgers,
speculators and arbitrageurs. Brokers will
intermediate, facilitating hedgers and speculators.
 Hedgers are essentially players with an underlying
risk in a commodity - they may be either producers or
consumers who want to transfer the price-risk onto the
market.
 Producer-hedgers are those who want to mitigate the
risk of prices declining by the time they actually
produce their commodity for sale in the market;
consumer hedgers would want to do the opposite.

14. IN CASE OF DEFAULT
 Both the exchanges, NCDEX and MCX,
maintain settlement guarantee funds.
 The exchanges have a penalty clause in case of
any default by any member. There is also a
separate arbitration panel of exchanges.

15. MARGIN APPLICABLE IN THE COMMODITIES
MARKET
 As in stocks, in commodities also the margin is
calculated by (value at risk) VaR system.
Normally it is between 5 per cent and 10 per
cent of the contract value.
 The margin is different for each commodity. Just
like in equities, in commodities also there is a
system of initial margin and mark-to-market
margin. The margin keeps changing depending
on the change in price and volatility.

16. CIRCUIT FILTERS
 Yes the exchanges have circuit filters in place.
The filters vary from commodity to commodity
but the maximum individual commodity circuit
filter is 6 per cent.
 The price of any commodity that fluctuates
either way beyond its limit will immediately call
for circuit breaker.