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    Commodity Derivatives 1

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    Bibhudatta Mishra
    This document provides an overview of commodity derivatives and their trading in India. It defines commodity derivatives as financial instruments derived from underlying commodities. It outlines the global commodity derivatives market and key exchanges. It then discusses India's commodity derivatives market, highlighting the National Commodity & Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX) as the largest exchanges. Finally, it explains the trading mechanisms, contract specifications, order types, and settlement processes for commodity derivative contracts on Indian exchanges.

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    Commodity Derivatives 1

    Uploaded by

    Bibhudatta Mishra
    153 views29 pages
    This document provides an overview of commodity derivatives and their trading in India. It defines commodity derivatives as financial instruments derived from underlying commodities. It outlines the global commodity derivatives market and key exchanges. It then discusses India's commodity derivatives market, highlighting the National Commodity & Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX) as the largest exchanges. Finally, it explains the trading mechanisms, contract specifications, order types, and settlement processes for commodity derivative contracts on Indian exchanges.

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    This document provides an overview of commodity derivatives and their trading in India. It defines commodity derivatives as financial instruments derived from underlying commodities. It outlines the global commodity derivatives market and key exchanges. It then discusses India's commodity derivatives market, highlighting the National Commodity & Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX) as the largest exchanges. Finally, it explains the trading mechanisms, contract specifications, order types, and settlement processes for commodity derivative contracts on Indian exchanges.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    153 views29 pages

    Commodity Derivatives 1

    Uploaded by

    Bibhudatta Mishra
    This document provides an overview of commodity derivatives and their trading in India. It defines commodity derivatives as financial instruments derived from underlying commodities. It outlines the global commodity derivatives market and key exchanges. It then discusses India's commodity derivatives market, highlighting the National Commodity & Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX) as the largest exchanges. Finally, it explains the trading mechanisms, contract specifications, order types, and settlement processes for commodity derivative contracts on Indian exchanges.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 29

    LOGO

    COMMODITY DERIVATIVES

    PRESENTED BY: BIBHUDATTA MISHRA C.MILAN MOHAPATRA POPSI PRANITA DAS ARADHANA MOHAPATRA

    AGENDA

    1
    2 3

    COMMODITY DERIVATIVES GLOBAL MARKET INDIAN SCENARIO

    TRADING MECHANISM

    DERIVATIVES
    Derivatives refers to a broad class of financial instruments which mainly include option and future. These instruments derive their value from the price and other related variables of the underlying asset.

    COMMODITY
    COMMODITY DEFINED : Every kind of movable good excluding money, securities and actionable claims Commodities includes Metals (Bullion & Other Metals) Agro Products Perishable / Non Perishable Consumable / Non Consumable

    COMMODITY DERIVATIVES
    Derivative contracts where the underlying assets are commodities are called commodity derivatives. Commodity derivatives are investment tools that allow investors to profit from certain items without possessing them. This type of investing dates back to 1848 when the Chicago Board of Trade was established.

    CONT
    Initially the idea behind commodity derivatives was to provide a means of risk protection for farmers. They could promise to sell crops in the future for a pre-arranged price.

    The buyer of a derivative contract buys the right to exchange


    a commodity for a certain price at a future date. Although this person is a contract buyer, he may be buying or selling the commodity. He does not have to pay the full value of amount of the commodity that he is investing in. He only needs to pay a small percentage, known as the margin price.

    The contract seller is the person who accepts a margin. He agrees that
    on a certain date he will buy or sell the commodity stated in the contract at a certain price. Both parties are generally required to honor the agreement despite losses.

    BENEFITS OF FUTURE TRADING


    Process of price discovery of commodities Hedge against uncertain movement in prices Future trading for speculative gains Leverage in trading Avoidance of counter party Trading on quality specific commodities

    GLOBAL MARKETS
    CBOT, CME, NYMEX, NBOT, COMEX, LME are some of the major exchanges in the western countries. The volume of future market is 10 times than that of spot market.

    THE INDIAN SCENARIO


    The commodity derivative market has been functioning in India since the nineteenth century with organized trading in cotton through the establishment of Cotton Trade Association in 1875. There are 25 commodity derivative exchanges in India as of now and derivative contracts on nearly 100 commodities are available for trade. National Commodity and Derivatives Exchange (NCDEX) is the largest commodity derivatives exchange with a turnover of around Rs 3,000 crore (Rs 30 billion) every fortnight.

    COMMODITIES TRADED IN NCDEX

    Metals
    Bullion Gold Gold Kilo Silver Mega silver

    Other metals

    CONTD
    Oil/Oil seeds
    Soya Been Soya Oil Guar Seed Guar Gum Castor Seed Mustard Mustard Oil Crude Palm Oil RBD Palm Olien

    Other Agro products


    Cotton Jute Pepper Rubber Sugar Urad Yellow peas Wheat Turmeric

    MULTI COMMODITY EXCHANGE (MCX)


    Multi Commodity Exchange (MCX) 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 holds a market share of over 80%* of the Indian commodity futures market, and has more than 2,149 registered members operating through over 2,47,000 trading terminals spread over 1,568 cities and towns across India. MILESTONES MCX's world ranking No.1 in Silver No.2 in Gold, Copper & Natural Gas and No.3 in Crude Oil

    SALIENT FUTURES OF MCX


    On-line monitoring at members and contract level exposure, price, open interest, quantity, client, etc. On-line margin adjustment - Business in relation to deposit System driven control and actions Electronic fund transfer Daily clearing Trading units and Max.order size Circuit filter. Exchange approved depositories. Seller to submit proof of delivery with proper quality certification to MCX

    TRADING MECHANISM
    Trading hours Weekdays Morning Session 10 a.m. to 4 p.m. Evening Session 5 p.m. to 11 p.m. Saturday: 10 a.m. to 2 p.m. Simultaneously three (3) months contracts are available for trading Expiring Contracts can only be traded till the end of Morning Session

    TICKER FORMAT
    Ticker : AAABBBCCC: AAA : Commodity BBB : Grade CCC : Location For Example : GLDPURMUM GLD : GOLD PUR : PURE MUM : MUMBAI

    INSTRUMENT TYPE
    Instrument Type COMDTY : Commodity (Spot) FUTCOM : Future Commodity OPTCOM : Option on Commodities Only trading in Futures is Allowed by FMC

    EXPIRY DATE
    Contract expiry is on 20th of every month If 20 is a holiday, the previous working day would be the expiry date Ticker: 20MMMYYYY For example : gold contract for the month of august 2004 would be : "20AUG2004 Expiring contracts can only be traded up to the morning session on the closing

    LOT SIZE
    Specific lot size for every commodity For Example : For Gold Contract Prices Displayed : Per 10 Grams Minimum Contract : Per 100 Grams (& in multiple thereof) Delivery Lot : Per 1 Kilo

    ORDER TYPES
    Regular lot order 1.Limit Order2. Market Order Futures Spread (SB) specified difference between two different calendar months in same commodity Immediate or Cancel (IOC) 2L Order (2L) Both price and quantity is specified for each of the two orders. 3L Order (3L) Price and quantity is specified for 3L Order (3L) Price and quantity is specified for three orders.

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    Company Logo

    TRADIG ON NCDEX

    CLEARING & SETTLEMENT

    SETTLEMENT

    Daily Settlement Final Settlement

    DAILY SETTLEMENT
    After the closing hours at the end of each day Determine the closing price for the day Weekdays : 11:15 p.m. to 11:30 p.m. Saturday : 2:15 p.m. to 2:30 p.m. Mark to Market Settlement 1) For daily price fluctuations. 2) All Trades are Marked to Market at daily settlement price 3) Pay In/ Pay Out required as the case maybe 4) Daily Process at the end of each day

    FINAL SETTLEMENT Cash Settlement Delivery Settlement

    FINAL SETTLEMENT- CASH SETTLEMENT


    Settlement for all open positions on the expiry date Determine all open positions for all the clients Determine the final settlement price for the contract Determination of Final Settlement Underlying Spot Price on Expiry date Bootstrapping of polled prices Disseminated to market at end of day

    FINAL SETTLEMENT - DELIVERY


    Delivery Intention on Delivery intention Window on the Contract Expiry Date Matching done by the Exchange on the basis of location and then Randomly Matching done will be binding for the member/clients Unmatched positions settled in cash Delivery Margin Requirements till physical delivery is made/received Transportation & other expenses to be paid by clients Warehousing fees Goods below the Allowable Variation considered as bad delivery and penalties considered as bad delivery and penalties are levied

    LOGO

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