COMMODITY FUTURES REPORT

A PROJECT REPORT ON COMMODITY FUTURES AND AWARENESS
LEVEL OF COMMODITY MARKET AT GEOJIT FINANCIAL SERVICE LTD
BANGALORE
Babasabpatilfreepptmba.com Page 1
Executive Summary:-
The function of the Financial Market is to facilitate the transfer of funds from
surplus sectors to deficit sector.
A derivative is a financial instrument that derives its value from an underlying
asset. This underlying asset can be stocks, bonds, currency, commodities, metals etc.,
there are different types of derivatives like:-
Futures
Forwards
Options and Swaps
A futures contract is an agreement between two parties to buy or sell the
underlying asset at a future date at today's future price
Options are deferred delivery contracts that give the buyers the right, but not the
obligation, to buy or sell a specified underlying at a set price on or before a specified
date.
A forward contract is an agreement between two entities to buy or sell the
underlying asset at a future date, at today's pre-agreed price.
Swaps are private agreements between two parties to exchange cash flows in the
future according to a prearranged formula.
I have taken the commodity futures, to study and analyze as it is the emerging
trend in the market, at Geojit Commodity Ltd. Geojit Commodity Ltd is the Subsidiary of
the Geojit Financial Service Ltd., it is serving in all the areas of financial market like
Share trading, Security analysis and portfolio management and commodity trading.
I conducted the survey in Bangalore City to know about the awareness of the
Commodity Market.

BANGALORE
Commodity as an asset class possess low correlation with equity and debt markets
which makes it attractive as a portfolio diversifer.Also,long term volatility witnessed in
commodity markets is lower than that witnessed in equity markets.
When I conducted surveys with customers and, according to their view they
prefer to invest mostly in commodities like Gold, Silver, Crude oil, etc. Because
percentage of return is more of these commodities also risk is attached to it. As well as
they prefer the Capital market because of its growth and they are having fare knowledge
about that market. Most of the customers are not aware of the commodity market .So
fare knowledge about the commodity market and its operation to the public.
Objective of the project are:
 To understand the commodity market, its working and mechanism and types of
commodities traded in India.
 To study the future contracts on commodities..
 To study the pricing of commodity futures.

BANGALORE
 To find the awareness level of commodity market in Bangalore city.
 To find the potential customers for commodity market.
 To know which commodity they prefer to invest in.
Findings:
 Commodity Futures have a bright future in coming days.
 Deciding on the prices depending on the formulas may go wrong. Because it is
cost plus carry, but in real sense the prices may even go down than the spot
prices.
 Price of a commodity is dependent on its demand and supply of that commodity
in the market.
 As the commodity future market is new and emerging, many investors and
farmers are not fully aware of this market. As this market, helps them to trade
transparently without middlemen or agents to earn the good profits.
Suggestions:
 Creating the awareness among the people and farmers about commodity market
through:

BANGALORE
 Making presentations in the villages to the farmers by video and
explaining them the uses and benefits of the commodity market
 Educate them on how to trade the commodity futures, i.e. getting
in to the contract before harvesting only, to get the minimum
guarantees.
 The Company should inform the benefits of Commodity trading to the present
investors who are investing in cash market.
 Investor who wants to trade internationally has to understand the import and
export duty, customs, octroi, and sales tax etc.
 Study the price volatility is must for the trader, i.e. study the fluctuation or
variations in the daily prices in the market. This volatility is the indicator of the
present trend in that commodity
Research Methodology:
Title:

BANGALORE
“Commodity Futures and Awareness level
of Commodity Market”
Scope of the Study:
The study is limited to only commodity market and it is only at Geojit
Financial Services Ltd. Bangalore. My study and analysis mainly based on the deciding
on the future price for the products using formula. I did this by selecting the three
commodities Gold, Silver and Wheat as example. and study is limited to the Bangalore
city only.
Sources of Data:
The data is collected through both the sources, they are:
Primary data:
The primary data has been collected from the employees of the Geojit Financial
Services Ltd...by applying Random Sampling Method
Secondary data:
The secondary data has been collected from
magazines,
newspaper,
books &
Internet etc.
Selection of Sample:

BANGALORE
 Population: People of Bangalore City.
 Sampling Frame: People those who are trading regular basis.
 Sampling Size: 100Units.
 Sampling Method: Random Sampling.
Tools for Analysis
 Cost carry Method
Considering storage costs
Without considering storage costs
Graphs and charts
Limitations of the Study:.
 The study is related to only the Commodity Futures Market.
 There is less investor in Commodity Market, so it is not possible to
know the investors perception regarding the Commodity Market.
 The study is limited to Bangalore City.

BANGALORE
COMPANY PROFILE
Company Profile

BANGALORE
OVERVIEW
Mr. C.J. George and Mr. Ranajit Kanjilal founded Geojit as a partnership firm in
the year 1987. In 1993, Mr. Ranajit Kanjilal retired from the firm and Geojit became a
proprietary concern of Mr. C .J. George. In 1994, it became a Public Limited Company
by the name Geojit Securities Ltd. The Kerala State Industrial Development Corporation
Ltd. (KSIDC), in 1995, became a co-promoter of Geojit by acquiring 24% stake in the
company, the only instance in India of a government entity participating in the equity of a
stock broking company. Geojit listed at The Stock Exchange, Mumbai (BSE) in the year
2000. In 2003, the Company was renamed as Geojit Financial Services Ltd. (GFSL). The
board of the company consists of professional directors; including a Kerala government
nominee with 2/3rd of the board members being Independent Directors. With effect from
July 2005, the company is also listed at The National Stock Exchange (NSE). Geojit is a
charter member of the Financial Planning Standards Board of India and is one of the
largest DP brokers in the country.
Company aims to be a niche player in the capital market through partnership
philosophy by carefully selecting business associates and other intermediaries in other
fields.
The capital market scene is facing increasing challenges with the inflow from FII
and increased competition from national as well as international players. Introduction of
new products like margin funding is threatening to alter the competitive positioning of
existing players. In order to effectively compete and continue its growth, Company has
promoted a NBFC named Geojit Credits Private Limited and the future business plans of
this Company are being worked out.

BANGALORE
As a result of the robust and proactive strategies adopted by the management,
Company achieved a good performance and the management is confident that the
positive trend would continue in the coming years.
Delisting
Pursuant to the special resolution passed by the members at the 9th Annual General
Meeting held on 27th September 2003 the Company has delisted its equity shares from
Delhi Stock Exchange during December 2004 in accordance with SEBI (Delisting of
Securities) Guidelines 2003.
Listing
The Equity shares of the company are listed with the Stock Exchange, Mumbai. The
Company has made an application to the National Stock Exchange of India for listing and
Shares would be listed shortly.
Increase in Share Capital
During the previous year, the Board of Directors at their Meeting held on 21st
December, 2004, allotted 15,50,000 shares against preferential issue for meeting the
capital requirements of the Company. In this regard, your Company had obtained the
approval of Shareholders at their Extra Ordinary General Meeting held on 7th October
2004 for the issue of the following shares in accordance with the SEBI (Disclosure &
Investor Protection) Guidelines, 2000.

BANGALORE
Shareholding Pattern for the quarter ended 31st
Mar 2006
Category
No. of
shares held
Percentage of
shareholding
A. Promoter's Holding
01. Promoters
a. Indian Promoters
b. Foreign Promoters
77,67,408
-
51.04
02. Persons acting in concert NIL NIL
Sub-Total 77,67,408 51.04
B. Non-Promoters Holding
03. Institutional Investors
a. Mutual Funds & UTI
b. Banking, Financial Institutions/
Insurance companies
(Central/State Gov.
Institutions/Non-Government
Institutions)
c. FIIs
-
1,80,300
NIL
6,29,824
-
1.18
NIL
4.14
Sub-Total 8,10,124 5.32
04. Others
a. Private Corporate Bodies
b Indian Public
c NRIs/OCBs
d. Any Other
(i) Directors/Relatives
/Associates (Independent
and are not in control
of the Company)
9,70,040
30,34,999
6,06,029
20,30,000
6.38
19.94
3.98
13.34
Sub-Total 66,41,068 43.64
Grand Total 1,52,18,600 100.00

BANGALORE
Overseas Joint Ventures
Barjeel Geojit Securities, LLC, Dubai, is a joint venture of Geojit with Al Saud
Group belonging to Sultan bin Saud Al Qassemi having diversified interests in the area of
equity markets, real estates and trading. Barjeel Geojit is a financial intermediary and the
first licensed brokerage company in UAE. It has facilities for off-line and on-line trading
in Indian capital market and also in US, European and Far-Eastern capital markets.
Doha Bank-Geojit in Qatar: Geojit has a tie up with Doha Bank in Qatar, which
offers capital market services from the India Desk.

BANGALORE
Milestones
The company crossed the following milestones to reach its present position as a
leading retail broking house in India.
1986
Geojit becomes a member of the Cochin Stock Exchange.
1994
The Kerala State Industrial Development Corporation (KSIDC), an arm of the
Government of Kerala, becomes a co-promoter of the company by acquiring 24%
equity stake in Geojit Financial Services Ltd., based on the evaluation report of
Ernst & Young.
This is the only venture in India where a state owned development institution is
participating in the equity of a stock broking company. Geojit becomes a
corporate broking house.
1995
Geojit comes out with a small Initial Public Offer (IPO) of Rs.9.5 million, which
was oversubscribed by 15 times. Geojit's issued and subsribed equity capital
increased to Rs.30 million and KSIDC's equity stake comes down to 17%.
Geojit becomes a member of the National Stock Exchange (NSE) and installs its
first trading terminal in Cochin, Kerala.

BANGALORE
1996
The company launches Portfolio Management Services after obtaining required
registration (Portfolio Management) from Securities Exchange Board of India
(SEBI).
1997
Geojit becomes a Depository Participant under National Securities Depository
Limited (NSDL) and begins providing Depository Services through its branches.
1999
Geojit becomes a member of The Stock Exchange, Mumbai (BSE) and activates
Bombay Online Terminals (BOLT) in different branches. The customer base of
Geojit crosses the 50,000 mark.
2000
Geojit becomes the first broking firm in the country to offer online trading
facility. The then SEBI Chairman, Mr. D.R.Mehta inaugurates the facility on 1st
February 2000.
Commences Derivative Trading after obtaining registration as a Clearing and
Trading Member in NSE.
Establishes the first Bank Gateway in the country for Internet Trading.
2001
Geojit's customer base crosses 100,000.
Becomes India's first DP to launch depository transactions through Internet.
Establishes Joint Ventures in the UAE for serving NRI clients.
The company issues bonus shares in the ratio of 1:1.
2002
Geojit ties up with MetLife for the marketing and distribution of insurance
products across the country.
The company becomes the first online brokerage house to launch integrated
internet trading system for both cash and derivatives segments.

BANGALORE
Sheikh Sultan Bin Saud Al Oassemi, a member of the ruling family of Sharjah,
UAE, joins the Board of Directors of Geojit.
2003
Geojit Commodities Limited, a wholly owned subsidiary of Geojit, becomes
member of National Multi-Commodity Exchange of India Ltd., National
Commodity & Derivatives Exchange Ltd., Multi Commodity Exchange and
launches Commodity Futures Trading in rubber, pepper, gold, wheat and rice.
Geojit Commodities Limited launches Online Futures Trading in multiple
commodities namely, agri-commodities, precious metals like gold and silver,
other metals like steel, aluminum, etc. and energy futures namely, crude oil and
furnace oil.
Geojit raises more than Rs.100 million through issue of preferential shares.
2005
Barjeel Geojit Securities LLC becomes a member of Dubai Gold Commodity
Exchange.
Customer base of Geojit crosses 250,000.
Geojit's reach spreads through a network of more than 300 branches.
The company issues bonus shares in the ratio of 1:1.
Geojit Credits, a subsidiary of Geojit Financial Services Ltd. registers with
Reserve Bank of India as a Non-Banking Financial Company (NBFC).
The company gets listed on National Stock Exchange of India Limited.
The company implements Employees Stock Option Scheme.
The company opens a first of its kind - all women's branch in Cochin.
2006
 Geojit relaunches Internet trading on Reuters TIB Mercury Platform.

BANGALORE
Board of directors
Mr. A. P. Kurian Non - Executive & Independent Chairman
Mr. C. J. George Managing Director & Chief Promoter
Mr. Jiji Thomson Non - Executive & Independent Director
Sheikh Sultan Bin Saud Al Qassemi Non - Executive & Independent Director
Mr. P. C. Cyriac Non - Executive & Independent Director
Mr. Mahesh Vyas Non - Executive & Independent Director
Management
Mr. C. J. George Managing Director
Mr. Punnose George Director
Mr. Satish Menon Chief Operating Officer
Mr. Binoy .V.Samuel Chief Financial Officer
Mr. A. Balakrishnan Chief Technology Officer
Mrs. Jaya Jacob Alexander Chief, Human Resources
Mr. K. Venkitesh Head - Channel Sales and Distribution
Ms. Farzana Khan Head-Online Products, Services and Operations

BANGALORE
Mr. Rakesh Jhunjhunwala Non - Executive Director
Mr. Ramanathan Bupathy Non - Executive & Independent Director
Mr. Punnoose George Non - Executive Director
Vision
“We will continually strive to raise our products and service standards by intelligent
application of technology and processes.”
Values and Beliefs
 We understand and respect customer needs to consistently deliver total quality
solutions through constant skills up gradation.
 We believe that our company culture helps to attract and retain best talent.
 We uphold uncompromising ethical standards and strive to maintain a distinctive
identity in public mind shore through innovation and quality
 We are committed to achieve profitable progress consistently.
 We freely share our investment experience across all ages and strata of society to
encourage wise investment for a better future.

BANGALORE
PRODUCTS AND SERVICES:
1. Equity
2. Depository
3. Portfolio management services
4. Distribution
5. Futures and Options
6. Commodity
7. Services and distribution
8. Research

BANGALORE
THEORETICAL FRAME
WORK

BANGALORE
An Overview of the Capital Market
INTRODUCTION
The deregulation and liberalization of the industry in India has been accompanied
by change in financial sector. It is widely acknowledged that economic development of a
country is directly related to the level of its industrial growth. The process of industrial
growth essentially requires the development of capital market, which provides long-term
finance to entrepreneurs. The capital market aims at mobilization & efficient allocation of
resources to the desired investment outlets & thus, plays a vital role in the development
of the national economy. The Indian capital market has been experiencing a process of
structural transformation since the early eighties signifying the widening & deepening of
the market by showing notable increases both in the number of participants as well as
instruments.
DEFINITION & MEANING OF CAPITAL MARKET
The dictionary of commerce defines capital market as a market for medium and
long-term finance.
Capital market is one of the sources for raising long-term finance by the
corporate. Capital market is the medium through which the companies and investors
interact. The companies will enter the capital market with shares and/or debenture issues,
which are subscribed by the investors. The investors will evaluate the company‟s

BANGALORE
offerings and based on the credentials of the offer take decisions regarding investment.
The primary purpose of capital market is to direct the flow of savings into long term
investments.
FEATURES OF CAPITAL MARKET
The following are the main features of the capital market:
1 It is a market for long-term funds exceeding a period of one year.
2 Capital market supplies funds for financing the fixed capital requirements
of trade, commerce as well as Govt.
3 The transaction in capital market involves various types of instruments
like shares, debentures etc.
4 It is open for both institutions and individuals.
5 Capital market instruments generally have Secondary market.
TYPES OF CAPITAL MARKET
On the basis of the status of the market, the capital markets in India is classified
as

BANGALORE
a) Organized capital market and
b) Unorganized capital market
 ORGANIZED CAPITAL MARKET
The constituents of the organized capital market are the Reserve Bank of India
financial institutions like IFCI, LIC, IDBI, UTI commercial banks, stock markets etc.
In the organized capital market the demand for capital comes from corporate
enterprises and government and semi-government institutions and supply comes from
household savings, institutions investors like banks investments trusts, insurance
companies, finance corporations, governments and international financing agencies.
 UNORGANIZED CAPITAL MARKET
Unorganized capital market consists of indigenous bankers, money lenders, chit
funds, traders etc.
A large part of the demand for funds in the unorganized capital market is for
consumption purposes. In fact many purposes, for which funds are very difficult to get
from the organized market, are financed by the unorganized sector. Unorganized capital
market in India is characterized by the existence of multiplicity of interest rates,
exorbitant rates of interest and lack of uniformity in their business dealings.

BANGALORE
On the basis of stage of development, capital market is classified into two types,
viz.,
i) Primary capital market
ii) Secondary capital market
 PRIMARY CAPITAL MARKET OR NEW ISSUE MARKET
Primary capital market is market for new issues, where long term funds are raised
by industrial, commercial enterprises, state government & central government from
investors through the issue of shares, debentures & bonds.
 SECONDARY CAPITAL MARKET OR STOCK EXCHANGE MARKET
Secondary market is markets for secondary sale of securities which have already
passed through the new issue market are traded in this market. An active secondary
market actually promotes the growth of the primary market & capital formation because
investors in the primary market are assured of a continuous market & they can liquidate
their investments.

BANGALORE
Derivatives
Derivatives defined
A derivative is a product whose value is derived from the value of one or more
underlying variables or assets in a contractual manner. The underlying asset can be
equity, forex, commodity or any other asset.
Products, participants and functions
Derivative contracts are of different types. The most common ones are forwards,
futures, options and swaps. Participants who trade in the derivatives market can be
classified under the following three broad categories hedgers, speculators, and
arbitragers.
1. Hedgers: Hedgers face risk associated with the price of an asset. They use the
futures or options markets to reduce or eliminate this risk.
2. Speculators: Speculators are participants who wish to bet on future movements in
the price of an asset. Futures and options contracts can give them leverage; that is, by

BANGALORE
putting in small amounts of money upfront, they can take large positions on the market.
As a result of this leveraged speculative position, they increase the potential for large
gains as well as large losses.
3. Arbitragers: Arbitragers work at making profits by taking advantage of discrepancy
between prices of the same product across different markets. If, for example, they see the
futures price of an asset getting out of line with the cash price, they would take offsetting
positions in the two markets to lock in the profit.
Some commonly used derivatives
Some of the more popularly used derivative contracts.
Forwards:
A forward contract is an agreement between two entities to buy or sell the
underlying asset at a future date, at today's pre-agreed price.
Futures:
A futures contract is an agreement between two parties to buy or sell the
underlying asset at a future date at today's future price. Futures contracts differ from
forward contracts in the sense that they are standardized and exchange traded.
Options:
There are two types of options - calls and puts.
 Calls give the buyer the right but not the obligation to buy a given quantity of
the underlying asset, at a given price on or before a given future date.
 Puts give the buyer the right, but not the obligation to sell a given quantity of
the underlying asset at a given price on or before a given date.

BANGALORE
 Warrants:
Options generally have lives of up to one year, the majority of options traded
on options exchanges having a maximum maturity of nine months. Longer dated
options are called warrants and are generally traded over-the-counter.
 Baskets:
Basket options are options on portfolios of underlying assets. The underlying
asset is usually a weighted average of a basket of assets. Equity index options are
a form of basket options.
 Swaps:
Swaps are private agreements between two parties to exchange cash flows in
the future according to a prearranged formula. They can be regarded as portfolios
of forward contracts. The two commonly used swaps are:
o Interest rate swaps: These entail swapping only the interest related cash
flows between the parties in the same currency.
o Currency swaps: These entail swapping both principal and interest
between the parties, with the cash flows in one direction being in a
different currency than those in the opposite direction.
 Swaptions:
Swaptions are options to buy or sell a swap that will become operative at the
expiry of the options. Thus a swaption is an option on a forward swap.

BANGALORE
Futures vs. Forwards
A futures contract is very similar to a forward contract, which is also a contract to
trade on a future date. The main differences are, that:
 futures are always traded on an exchange, whereas forwards always trade over-
the-counter
 futures are highly standardized, whereas each forward is unique
 the price at which the contract is finally settled is different:
o futures are settled at the settlement price fixed on the last trading date of
the contract (i.e. at the end)
o forwards are settled at the forward price agreed on the trade date (i.e. at
the start)
 the credit risk of futures is much lower than that of forwards:
o The profit or loss on a futures position is exchanged in cash every day.
After this the credit exposure is again zero.

BANGALORE
o the profit or loss on a forward contract is only realized at the time of
settlement, so the credit exposure can keep increasing
 In case of physical delivery, the forward contract specifies whom to make the
delivery to. The counter party on a futures contract is chosen randomly by the
exchange.
Evolution of the commodity market in India
Bombay Cotton Trade Association Ltd., set up in 1875, was the first organised
futures market. Bombay Cotton Exchange Ltd. was established in 1893 following the
widespread discontent amongst leading cotton mill owners and merchants over
functioning of Bombay Cotton Trade Association. The Futures trading in oilseeds started
in 1900 with the establishment of the Gujarati Vyapari Mandali, which carried on futures
trading in groundnut, castor seed and cotton. Futures trading in wheat were existent at
several places in Punjab and Uttar Pradesh. But the most notable futures exchange for
wheat was Chamber Of Commerce at Hapur set up in 1913. Futures trading in bullion
began in Mumbai in 1920. Calcutta Hessian Exchange Ltd. was established in 1919 for
futures trading in rawjute and jute goods. But organised futures trading in raw jute began
only in 1927 with the establishment of East Indian Jute Association Ltd. These two
associations amalgamated in 1945 to form the East India Jute & Hessian Ltd. to conduct
organised trading in both Raw Jute and Jute goods. Forward Contracts (Regulation) Act
was enacted in 1952 and the Forwards Markets Commission (FMC) was established in

BANGALORE
1953 under the Ministry of Consumer Affairs and Public Distribution. In due course,
several other exchanges were created in the country to trade in diverse commodities.
The Kabra committee report
After the introduction of economic reforms since June 1991 and the consequent
gradual trade and industry liberalization in both the domestic and external sectors, the
Government of India appointed in June 1993 a committee on Forward Markets under
chairmanship of Prof. K.N.Kabra. The committee was setup with the following
objectives:
1. To assess
(a) The working of the commodity exchanges and their trading practices in India and to
make suitable recommendations with a view to making them compatible with those of
other countries
(b) The role of the Forward Markets Commission and to make suitable recommendations
with a view to making it compatible with similar regulatory agencies in other countries so
as to see how effectively these agencies can cope up with the reality of the fast changing
economic scenario.

BANGALORE
2. To review the role that forward trading has played in the Indian commodity markets
during the last 10 years.
3. To examine the extent to which forward trading has special role to play in promoting
exports.
4. To suggest amendments to the Forward Contracts (Regulation) Act, in the light of the
recommendations, particularly with a view to effective enforcement of the Act to check
illegal forward trading when such trading is prohibited under the Act.
5. To suggest measures to ensure that forward trading in the commodities in which it is
allowed to be operative remains constructive and helps in maintaining prices within
reasonable limits.
6. To assess the role that forward trading can play in marketing/ distribution system in the
commodities in which forward trading is possible, particularly in commodities in which
resumption of forward trading is generally demanded.
The committee submitted its report in Sept 1994. The recommendations of
the committee were as follows:
 The Forward Markets Commission (FMC) and the Forward Contracts
(Regulation) Act, 1952, would need to be strengthened.
 Due to the inadequate infrastructural facilities such as space and
telecommunication facilities the commodities exchanges were not able to function
effectively. Enlisting more members, ensuring capital adequacy norms and
encouraging computerization would enable these exchanges to place themselves
on a better footing.
 In-built devices in commodity exchanges such as the vigilance committee and the
panels of surveyors and arbitrators be strengthened further.
 The FMC, which regulates forward/ futures trading in the country, should
continue to act a watchdog and continue to monitor the activities and operations
of the commodity exchanges. Amendments to the rules, regulations and bylaws of
the commodity exchanges should require the approval of the FMC only.

BANGALORE
 In the context of globalization, commodity markets in India could not function
effectively in an isolated manner. Therefore, some of the commodity exchanges,
particularly the ones dealing in pepper and castor seed, are upgraded to the level
of international futures markets.
 The majority of the committee recommended that futures trading be introduced in
the following commodities:
1. Basmati rice
2. Cotton
3. Raw jute and jute goods
4. Groundnut, rapeseed/mustard seed, cottonseed, sesame seed, sunflower
seed, safflower seed, copra and soybean, and oils and oilcakes of all of
them.
5. Rice bran oil
6. Castor oil and its oilcake
7. Linseed
8. Silver
9. Onions

BANGALORE
The liberalized policy being followed by the government of India and the gradual
withdrawal of the procurement and distribution channel necessitated setting in place a
market mechanism to perform the economic functions of price discovery and risk
management. The national agriculture policy announced in July 2000 and the
announcements in the budget speech for 2002ñ2003 were indicative of the governments
resolve to put in place a mechanism of futures trade/market. As a follow up, the
government issued notifications on 1.4.2003 permitting futures trading in the
commodities, with the issue of these notifications futures trading is not prohibited in any
commodity. Options trading in commodity are, however presently prohibited.
Commodities Traded In India
Commodities
Bullion Gold, Gold HNI, Gold M, I-Gold, Silver, Silver HNI, Silver M
Oil and Oil Seeds
Castor Oil, Castor Seeds,
Cottonseed, Crude Palm Oil, Groundnut Oil, Kapasia Khalli
(Cottonseed Oilcake), Mustard /Rapeseed Oil,
Mustard Seed (Sirsa), RBD Palmolein, Refined Soy Oil, Sesame
Seed, Soymeal, Soy Seeds
Spices Cardamom, Jeera, Pepper, Red Chilli
Metals
Aluminium,
Copper, Nickel, Sponge Iron, Steel Flat, Steel Long (Bhavnagar),
Steel Long (Gobindgarh), Tin, Zinc

BANGALORE
Fibre
Cotton Long Staple ,Cotton Medium Staple,Cotton Short Staple,
Kapas
Pulses Chana, Masur, Tur, Urad, Yellow Peas,
Cereal Basmati Rice, Maize, Rice, Sarbati Rice, Wheat
Energy Brent Crude Oil, Crude Oil,Furnace Oil
Plantation Cashew Kernel, Rubber
Petro-Chemical High Density Polyethylene (HDPE), Polypropylene (PP), PVC
Others
Guar Seed, Guargum, Gurchaku, Mentha Oil, Potato, Sugar M-30,
Sugar S-30,
COMMODITY FUTURES
Commodity futures are the part of the derivatives. India has a long history of
commodity futures trading, extending over 125 years. As the country embarked on
economic liberalization policies and signed the GATT agreement in the early nineties, the
government realized the need for futures trading to strengthen the competitiveness of
Indian agriculture and the commodity trade and industry.
Statutory framework for regulating commodity futures exists in India
Commodity futures contracts and the commodity exchanges organizing trading in
such contracts are regulated by the Government of India under the Forward Contracts
(Regulation) Act, 1952 (FCRA or the Act), and the Rules framed there under. The nodal

BANGALORE
agency for such regulation is the Forward Markets Commission (FMC), situated at
Mumbai, which functions under the aegis of the Ministry of Consumer Affairs, Food &
Public Distribution of the Central Government.
"Commodity"
Commodity includes all kinds of goods. FCRA defines "goods" as "every kind of
movable property other than actionable claims, money and securities". Futures' trading is
organized in such goods or commodities as are permitted by the Central Government. At
present, all goods and products of agricultural (including plantation), mineral and fossil
origin are allowed for futures trading under the auspices of the commodity exchanges
recognized under the FCRA. The national commodity exchanges have been recognized
by the Central Government for organizing trading in all permissible commodities which
include precious (gold & silver) and nonferrous metals; cereals and pulses; ginned and
unginned cotton; oilseeds, oils and oilcakes; raw jute and jute goods; sugar and gur;
potatoes and onions; coffee and tea; rubber and spices, etc.
"Commodity Exchange"
A commodity exchange is an association, or a company or any other body
corporate organizing futures trading in commodities.
Meaning of "Futures Contract"
A futures contract is an agreement between two parties to buy or sell a specified
quantity and quality of asset at a certain time in future at a certain price agreed at the time
of entering into the contract on the futures exchange.
A futures contract is a type of "forward contract". FCRA defines forward contract
as "a contract for the delivery of goods and which not a ready delivery contract is". Under

BANGALORE
the Act, a ready delivery contract is one, which provides for the delivery of goods and the
payment of price there for, either immediately or within such period not exceeding 11
days after the date of the contract, subject to such conditions as may be prescribed by the
Central Government. A ready delivery contract is required by law to be fulfilled by
giving and taking the physical delivery of goods. In market parlance, the ready delivery
contracts are commonly known as "spot" or "cash" contracts.
Salient features of a "Commodity Futures Contract”
 A commodity futures contract is a tradable standardized contract, the terms of
which are set in advance by the commodity exchange organizing trading in it. The
futures contract is for a specified variety of a commodity, known as the "basis".
 The quality parameters of the "basis" and the permissible tender able varieties; the
delivery months and schedules; the places of delivery; the "on" and "off"
allowances for the quality differences and the transport costs; the tradable lots.

BANGALORE
 The penalties for no issuance or non-acceptance of deliveries, etc., are all
predetermined by the rules and regulations of the commodity exchange.
 Consequently, the parties to the contract are required to negotiate only the
quantity to be bought and sold, and the price.
 The two major economic functions of a commodity futures market are price risk
management and price discovery.
Objectives of commodity futures are as follows.
 Hedging - price risk management by risk mitigation
 Speculation - take advantage of favorable price movements
 Leverage - pay low margin to enjoy large exposure
 Liquidity - ease of entry and exit of market

BANGALORE
 Price discovery - for making farming and business decisions
 Price stabilization along with balancing demand and supply position
 Facilitates integrated price structure
 Flexibility, certainty and transparency in purchasing commodities facilitate bank
Financing.
 Facilitates 'informed' lending to the banks.
Benefits of Commodity Future Market
It benefits to
Farmers
 Efficient Price Discovery/Forecast made by the exchange will enable farmers
decide cropping pattern and investment on inputs.
 Price Stability resulting from equilibrium in supply and demand for a commodity
would be possible through exchanges.
 Get an extensive market opened for them.

BANGALORE
 Get opportunity to trade, knowing the national and international trends and
standards.
 Can sell the commodity to the customer without any agents.
 Can decide the market even before harvest.
 Get an opportunity to gain profit by spending only a small percentage of the
actual commodity price.
 There is an opportunity to keep the commodity in the warehouse and use the
warehouse receipt to deal with financial needs, as it is an endorsable document.
Can avoid deliberate decrease in price in the name of quality.
 Farmers can trade by asking the help of the experts in trading organizations even
if they are computer illiterate.
Traders
 Can trade by spending only the margin amount.
 Can sell the commodities that he buys from the ready market and can rescue
himself from the loss happening from price fall.
 For those who have kept their commodity in the Central Warehouse, loans are
available on the basis of the stock. The benefit is that you can keep the
commodity somewhere without blocking the working capital in the stock.
Consumer, Industrialist & Exporters
 Can be sure that the commodity is available when they require it.
 Can calculate the price since it is predetermined and can arrange everything
according to that.
 Can buy goods without agents.
 Can buy them even while sitting in their office.
 Can be assured the quality of the good.

BANGALORE
 Commodities can be purchased with only margin amount instead of giving the
whole price.
Commodity futures trading cycle
NCDEX trades commodity futures contracts having one-month, two-month and
three-month expiry cycles. All contracts expire on the 20th of the expiry month. Thus a
January expiration contract would expire on the 20th of January and a February expiry
contract would cease trading on the 20th of February. If the 20th of the expiry month is a
trading holiday, the contracts shall expire on the previous trading day. New contracts will
be introduced on the trading day following the expiry of the near month contract. Figure
shows the contract cycle for futures contracts on NCDEX.
Benefits of trading in commodity futures
Futures‟ trading in commodities results in transparent and fair price discovery on
account of large-scale participation and reflects views and expectations of wider
section of people related to those commodities. Producers, traders and processors,
exporters/importers get an online platform through different exchanges for price risk
management. It provides a platform for producers to hedge their positions according

BANGALORE
to their view of the prices. The brokerage is expected to be 0.25% of the transaction
value.
Indian Commodity Futures Market
Introduction:
Global commodity market volumes far exceed that of markets. In India too, this
market is expected to generate volumes exceeding today‟s equity and derivative volumes.
It is being estimated that international trading in commodity futures market is expected to
be around five to ten times of physical commodity markets in the next few years. In
India, one can expect commodity futures market to be at least five times (at around Rs.
55.000 billion) that of the physical commodity markets (at around Rs 11,000 billion), at
least over the next five years. Retail, corporate or institutional investors can now manage
their commodity price-risk through participation in this market.
Regulatory Frame work:
Commodity Futures Trading functions under three tier regulatory framework.
1. Commodity Exchanges:
2. Forward Markets Commission (FMC)
3. Department of Consumer Affairs, Government of India
Commodity Exchanges:
The commodity Exchange is responsible for the orderly conducting of trade as per
the rules and bylaws of FMC.
Forward Markets Commission (FMC):

BANGALORE
The market regulator is responsible for recommending approvals of exchanges,
approves bylaws of exchanges and engages in surveillance for orderly conduction of
Future Trading.
Department of Consumer Affairs, Government of India:
The Ministry of Consumer Affairs, Food and Public Distribution approves the
Exchanges, approves a Commodity for Futures Trading and formulates policies and rules.
The National level multi-commodity exchanges are:
1. National Multi Commodity Exchange of India Ltd, Ahmedabad (NMCE)
The First De-Merged Electronic multi commodity exchange of India Granted the
National status on a permanent basis by the government of India and operational
since 26th
November 2002.This is presently working on-line and trading in many
active commodities like castor seed/oil, rapeseed and mustard seed/oil, aluminum,
soybean/oil, pepper, gold, silver etc. www.nmce.com.
2. National Board of Trade, Indore (N-BOT)--www.nbotind.org. This is also
presently working but not completely on-line, screen-based. In this exchange
maximum trades are carried out in soy oil. It is incorporated on July 30, 1999 to
offer integrated, state-of-the-art commodity futures exchange
3. National Commodity and Derivative Exchange, Mumbai (NCDEX)-- The
exchange is being promoted by ICICI Bank, National Stock Exchange (NSE), Life
Insurance Corporation and NABARD. It is more or less on the lines of the NSE of
the capital market. NCDEX is a public limited company incorporated on April 23,

BANGALORE
2003 under the Companies Act, 1956. It obtained its Certificate for Commencement
of Business on May 9, 2003. It has commenced its operations on December 15,
2003. www.ncdex.com.
4. Multi Commodity Exchange of India Ltd, Mumbai(MCX) www.mcxindia.com
The exchange is promoted mainly by professionals and supported by Financial
Technology (FT). The exchange has started operations from November 10 2003 and
has offered gold, silver and castor seed in the first phase of trading facility. The key
share holders are State Bank of India (India‟s largest commercial bank) & associates,
Fidelity International, National Stock Exchange of India Ltd. (NSE), National Bank
for Agriculture and Rural Development (NABARD), HDFC Bank, SBI Life
Insurance Co. Ltd., Union Bank of India, Canara Bank, Bank of India, Bank of
Baroda and Corporation Bank.
The general risks associated with commodity futures
The different types of risks associated with commodity futures are as follows:
1. Credit risks

BANGALORE
These are the usual risks associated with counter party default and which
must be assessed as part of any financial transaction.
2. Market risks
These are associated with all market variables that may affect the value of
the contract, for e.g., a change in the price of the underlying instrument
3. Operational risks
These are the risks associated with the general course of business
operations and include:
a. Settlements risks,
b. Legal risks, and
c. Deficiencies in information, monitoring and control systems, which result in
fraud, human error, system failures, management failures etc. Settlement risk
arises as a result of the timing differences between when an institution either pays
out funds or deliverable assets before receiving a assets or payments from a
counter party. Legal risk arises when a contract is not legally enforceable, reason
being
 Inadequate documentation
 The counter party lacks the required authority to enter into the
transaction
 The underlying transaction is not permissible
 Bankruptcy or insolvency of the counter party changes the contract
conditions
4. Strategic risks
These risks arise from activities such as:
1. Entrepreneurial behavior of traders in financial institutions
2. Misreading client requests

BANGALORE
3. Costs getting out of control
4. Trading with inappropriate counter parties.
5. Environmental Risk
This risk mainly on the agricultural commodities, which are dependent on
the climatic conditions, Unfavorable climatic conditions like flood etc., leads to
loss of the production.
6. Political Risk:
Due to the combination of government actions, ineffective legal systems,
war and revolution affect the prices of the commodities.
Pricing commodity futures

BANGALORE
Commodity futures began trading on the NCDEX from the 14th December 2003.
The market is still in its nascent phase; however the volumes and open interest on the
various contracts trading in this market have been steadily growing.
The process of arriving at a figure at which a person buys and another person sells
a futures contract for a specific expiration date is called price discovery. In an active
futures market, the process of price discovery continues from the market's opening until
its close. The prices are freely and competitively derived. Future prices are therefore
considered to be superior to the administered prices or the prices that are determined
privately. Further, the low transaction costs and frequent trading encourages wide
participation in futures markets lessening the opportunity for control by a few buyers and
sellers.
In an active futures markets the free flow of information is vital. Futures
exchanges act as a focal point for the collection and dissemination of statistics on
supplies, transportation, storage, purchases, exports, imports, currency values, interest
rates and other pertinent information. Any significant change in this data is immediately
reflected in the trading pits as traders digest the new information and adjust their bids and
offers accordingly. As a result of this free flow of information, the market determines the
best estimate of today and tomorrow's prices and it is considered to be the accurate
reflection of the supply and demand for the underlying commodity. Price discovery
facilitates this free flow of information, which is vital to the effective functioning of
futures market.
In this chapter we try to understand the pricing of commodity futures contracts
and look at how the futures price is related to the spot price of the underlying asset. We

BANGALORE
study the cost-of-carry model to understand the dynamics of pricing that constitute the
estimation of fair value of futures.
Investment assets versus consumption assets
When studying futures contracts, it is essential to distinguish between investment
assets and consumption assets. An investment asset is an asset that is held for investment
purposes by most investors. Stocks and bonds are examples of investment assets. Gold
and silver are also examples of investment assets. Note however that investment assets do
not always have to be held exclusively for investment. Silver, for example, has a number
of industrial uses. However, to classify as investment assets, these assets do have to
satisfy the requirement that they are held by a large number of investors solely for
investment. A consumption asset is an asset that is held primarily for consumption. It is
not usually held for investment. Examples of consumption assets are commodities such
as copper, oil, and pork bellies.
As we will learn, we can use arbitrage arguments to determine the futures prices
of an investment asset from its spot price and other observable market variables. For
pricing consumption assets, we need to review the arbitrage arguments a little differently.
To begin with, we look at the cost-of-carry model and try to understand the pricing of
futures contracts on investment assets.
The cost of carry model

BANGALORE
We use arbitrage arguments to arrive at the fair value of futures. For pricing
purposes, we treat the forward and the futures market as one and the same. A futures
contract is nothing but a forward contract that is exchange traded and that is settled at the
end of each day. The buyer who needs an asset in the future has the choice between
buying the underlying asset today in the spot market and holding it, or buying it in the
forward market. If he buys it in the spot market today, it involves opportunity costs. He
incurs the cash outlay for buying the asset and he also incurs costs for storing it. If instead
he buys the asset in the forward market, he does not incur an initial outlay. However the
costs of holding the asset are now incurred by the seller of the forward contract who
charges the buyer a price that is higher than the price of the asset in the spot market. This
forms the basis for the cost-of-carry model where the price of the futures contract is
defined as:
Where:
F Futures price
S Spot price
C Holding costs or carry-costs
The fair value of a futures contract can also be expressed as:
Where:
r Percent cost of Financing
T Time till expiration
F = S + C

BANGALORE
Whenever the futures price moves away from the fair value, there would be
opportunities for arbitrage. If F< Or F> , arbitrage would exist.
We know what are the spot and futures prices, but what are the components of holding
costs? The components of holding cost vary with contracts on different assets. At times
the holding cost may even be negative. In the case of commodity futures, the holding cost
is the cost of financing plus cost of storage and insurance purchased. In the case of equity
futures, the holding cost is the cost of financing minus the dividends returns.
Equation cost of carry uses the concept of discrete compounding, where interest
rates are compounded at discrete intervals, for example, annually or semiannually.
Pricing of options and other complex derivative securities requires the use of
continuously compounded interest rates. Most books on derivatives use continuous
compounding for pricing futures too.
When we use continuous compounding, equation cost of carry is expressed as:
Where:
r Cost of financing (using continuously compounded interest rate)
e 2.71828
So far we were talking about pricing futures in general. To understand the pricing
of commodity futures, let us start with the simplest derivative contract of a forward
contract. We use examples of forward contracts to explain pricing concepts because
forward contracts are easier to understand. However, the logic for pricing a futures
contract is exactly the same as the logic for pricing a forward contract. We begin with a
forward contract on an asset that provides the holder with no income and has no storage
or other costs. Then we introduce real world factors as they apply to investment
commodities and later to consumption commodities.

BANGALORE
HEDGING:
Hedging is a mechanism to reduce price risk inherent in open positions. Derivatives
are widely used hedging. A hedge can help lock in existing profits. Its purpose is to
reduce the volatility of a portfolio, by reducing the risk.
Hedging does not mean maximization of return. It only means reduction in variation
of return. It is quite possible that the return is higher in the absence of the hedge, but so
also is the possibility of much lower return.
Basic principle of hedging:
When an individual or a company decides to use the futures markets to hedge a risk, the
objective is to take a position that neutralizes the risk as much as possible.
Kinds of Hedging
There are basically two kinds of hedges that can be taken.
 Short Hedge
 Long Hedge

BANGALORE
Short Hedge
A short hedge is a hedge that requires a short position in futures contracts. A short
hedge is appropriate when the hedger already owns the asset, or is likely to own the asset
and expects to sell it at some time in the future.
For example:
A short hedge could be used by a cotton farmer who expects the cotton crop to be
ready for sale in the next two months.
Long Hedge
Hedges that involve taking a long position in a futures contract are known as long
hedges. A long hedge is appropriate when a company knows it will have to purchase a
certain asset in the future and wants to lock in a price now.
For Example:
Suppose that it is now January 15. A firm involved in industrial fabrication knows
that it will require 300 kgs of silver on April 15 to meet a certain contract. The spot price
of silver is Rs.1680.

BANGALORE
Advantages of hedging
Besides the basic advantage of risk management, hedging also has other
advantages:
 Hedging stretches the marketing period. For example, a livestock feeder does not have to
wait until his cattle are ready to market before he can sell them. The futures market
permits him to sell futures contracts to establish the approximate sale price at any time
between the time he buys his calves for feeding and the time the fed cattle are ready to
market, some four to six months later. He can take advantage of good prices even though
the cattle are not ready for market.
 Hedging protects inventory values. For example, a merchandiser with a large, unsold
inventory can sell futures contracts that will protect the value of the inventory, even if the
price of the commodity drops
 Hedging permits forward pricing of products. For example, a jewelry manufacturer can
determine the cost for gold, silver or platinum by buying a futures contract, translate that
to a price for the finished products, and make forward sales to stores at firm prices.
Having made the forward sales, the manufacturer can use his capital to acquire only as
much gold, silver, or platinum as may be needed to make the products that will fill its
orders

BANGALORE
Limitations of Hedging
 The asset whose price is to be hedged may not be exactly the same as the asset
underlying the futures contract.
 The hedger may be uncertain as to the exact date when the asset will be bought or sold.
Often the hedge may require the futures contract to be closed out well before its
expiration date. This could result in an imperfect hedge.
 The expiration date of the hedge may be later than the delivery date of the futures
contract. When this happens, the hedger would be required to close out the futures
contracts entered into and take the same position in futures contracts with a later delivery
date. This is called a rollover. Hedges can be rolled forward many times. However,
multiple rollovers could lead to short term cash flow problems.

BANGALORE
Speculation:
Speculators accept the risk that hedgers seek to avoid, giving the market the
liquidity required to service commercial hedge participants effectively by providing the
market with the necessary bids and offers to implement a continuous flow of transactions.
Speculation is the opposite of hedging. A speculator holds no offsetting cash
market position and deliberately incurs price risk in order to reap its potential reward.
General strategies for speculating:
In general, the speculator takes a view on the market and plays accordingly. If one
is bullish on the market, one can buy futures, and vice versa for bearish outlook.
There is another strategy of playing the spreads, in which case the speculators
trades the “basis”. When a basis risk is taken, the speculator primarily bets on either the
cost of carry (interest rate in case of index futures) going up ( in which case he would pay
the basis) or going down (receive the basis).

BANGALORE
ANALYSIS
AND
INTERPRETATION

BANGALORE
I have taken 3 products to study and to analyze.
1. Gold
2. Silver
3. Wheat
A futures contract on a commodity  Gold
A futures contract on a commodity Gold and work out the price of the contract.
The spot price of gold is Rs.9428/ 10gms. If the cost of financing is 12% annually, what
should be the futures price of 10gms of gold two months down the line? Let us assume
that we're on 15st
may 2006. How would we compute the price of a gold futures contract
expiring on 20th
July? From the discussion above we know that the futures price is
nothing but the spot price plus the cost-of-carry. Let us first try to work out the
components of the cost-of-carry model.
The spot price of gold, S= Rs.9428/ 10gms.
The cost of financing for 66 days e0.12*(66/365)
Let us assume that the storage cost = 0.
In this case the fair value of the futures, works out to be = Rs.9634.756
9428* e0.12*(66/365) =9634.756
If the contract was for a three-month period i.e. expiring on 30th June, the cost of
financing would increase the futures price. Therefore, the futures price would.

BANGALORE
9428* e0.12*(90/365) =9711.13
In the example above we saw how a futures contract on gold could be priced
using arbitrage arguments and the cost-of-carry model. In the example we considered, the
gold contract was for 10 grams of gold. Hence we ignored the storage costs. However, if
the one-month contract was for a 1kgs or more of gold instead of 10gms, then it would
involve non-zero holding costs which would include storage and insurance costs. The
price of the futures contract would then be Rs.9634.756 plus the holding costs.
Table gives the indicative warehouse charges for accredited warehouses/ vaults
that will function as delivery centers for contracts that trade on the NCDEX. Warehouse
charges include a fixed charge per deposit of commodity into the warehouse, and a per
unit per week charge. The per unit charges include storage costs and insurance charges.
Table 1: NCDEX – Inactive warehouse charges

BANGALORE
We saw that in the absence of storage costs, the futures price of a commodity that
is an investment asset is given by . . Storage costs add to the cost
of carry. If „U‟ is the present value of all the storage costs that will be incurred during the
life of a futures contract, it follows that the futures price will be equal to
Where:
r Cost of financing (annualized)
U Present value of all storage costs.
For ease of understanding let us consider a one-year futures contract on gold. Suppose the
fixed charge is Rs.310 per deposit up to 1 kg. And the variable storage costs are Rs.55 per
week per Kg, it costs Rs.518.65 to store one kg of gold for a year (9.43 weeks). Assume
that the payment is made at the beginning of the year. the spot gold price is Rs.8472 per
10 grams and the risk-free rate is 10% per annum. What would the price of one year gold
futures be if the delivery unit is one kg?
Total price per Kg is = ((9428*1000)/10) = Rs942800
F= (942800+310+518.65) e(0.12*(66/365))
F = 964322.43

BANGALORE
We see that the two-month futures price of a kg of gold would be Rs. 964322.43
The Two-months futures price for 10 grams of gold would be about = Rs.9643.22
2) A futures contract on a commodity  Silver
The spot price of silver, S= Rs.17028 per kg.
. cost of financing for 66 days? e0.12*(66/365)
17028* e0.12*(66/365) =17401.42
If the contract was for a three-month period i.e. expiring on 30th June, the cost of
financing would increase the futures price. Therefore, the futures price would.
17028* e0.12*(90/365) =17539.35

BANGALORE
3) A futures contract on a commodity  Wheat
Take per Example June 21st
future contract of Wheat for 1 quintal. And we are in the
June 1st
; spot price is Rs.871.60 per quintal.
The spot price of Wheat, S= Rs.871.60/ 100kg.
The cost of financing for 21 days or 3 weeks? e(0.12*(21/365))
871.60* e(0.12*(21/365))
= 890.71
And now we will calculate for 100 quintals considering the costs involved.
Total amount for 100 quintals are (871.60*100) = Rs.87160
The fixed charges per quintal = Rs.110
Variable charges/ premium =Rs.7 per Quintal per week, for 100 quintals (7*100) =
Rs.700 and for 3 weeks = Rs.2100
F=(87160+110+2100) e(0.12*(21/365))
= 89986.653

BANGALORE
We see that the 3 weeks futures price of 100 quintals of wheat considering cost would be
Rs.89986.653. The 3 weeks futures price for quintal of Wheat without considering cost
would be about = Rs890.71
GRAPHICAL REPRESENTATION

BANGALORE
Q.NO 1 : Which among these investment criteria you usually prefer?
Investment Criteria
0
10
20
30
40
50
60
70
Bank
Deposit
RealEstate
stocks
life
insuarnce
G
old
M
utualfunds
Bonds
Derivatives
m
arketO
thers
Criteria's
NoofResponses
Series6
Series1
Series2
Series5
Series4
Series3
Interpretation:
Bank
Deposit
Real
Estate
Stocks Life
Insurance
Gold Mutual
Funds
Bonds Derivates
Market
Others
66 41 48 50 57 39 46 38 13

BANGALORE
According to the survey we came to know that 66 respondents are invested
in Bank deposits,41 are in Real eastae,48 in stocks,50 in life insurance,57 in Gold,39 in
Mutual funds,46 in Bonds,38 in Derivatives Market,and13 others. so most of the
respondents are invested in Bank deposits and Gold.
Q.No.2 : Are you aware of commodity Market?
Yes No
37% 63%
Interpretation :
0
10
20
30
40
50
60
70
No of
Responden
ts
Opinoins
Awarness of Commodity Market
Yes
No

BANGALORE
The awareness level of respondents towards commodity market is 37%
and 63 % of the respondents are not aware of the commodity market. So majority of he
respondents are not aware of this commodity market. So Awareness has to be made.
Q.No3 : Are you invested in Commodity market?
yes No
35% 65%
Interpretation:
0
10
20
30
40
50
60
70
NO of
responses
opnions
Investment in commodity market
Yes
NO

BANGALORE
By conducting this survey we found that 35% of respondents are invested
in commodity market. And 65 % of the respondents are not invested in commodities. So
here the majority is lies with the respondents who are not invested in commodities.
Q.No4 : If yes, since how long are you trading with commodities?
<1 year 1-3 years >3 years
35% 20% 5%
Interpretation:
From this we can know that 35% of the respondents are invested less then
one year., and 20% of respondents are invested in 1to 3 years and 5% of respondents

BANGALORE
invested in more then three years. so here majority lies with the respondents who have
invested in less then one year.
Q .No 5 : If no, would you like to have knowledge of commodities market?
Yes No
60% 40%

BANGALORE
Interpretation:
From this we find that 60% of the respondents they would like to
have the knowledge of commodity market and 40% respondents are not
interested to know about this commodity market. Hence we should give
them the knowledge of commodity market in best manner.
Q.No6: Which among these commodities are you interested to trade with? How
do you rate them?
Gold
48
48.5
49
49.5
50
50.5
51
No of
responses
opnions
Knowledge of Commodity Market
Yes
No

BANGALORE
Yes No
73% 27%
0
20
40
60
80
No of
response
s
Yes No
opinoins
Gold
Series1
Interpretation:
Among the different commodities 73% of the respondents are interested to trade in Gold,
and 27% of the respondents are not interested to trade in gold. Here the majority of the
respondents are interested to trade in gold .
Silver

BANGALORE
0
20
40
60
No of
responses
Yes No
opinions
Silver
Series1
Series2
Interpretation:
Here 42% of the respondents are interested to trade in Silver, and
58% of respondents are not interested to trade in this silver. Hence most of the
respondents does not interested to trade in silver.
Crude Oil
Yes No
42% 58%

BANGALORE
Yes No
75% 25%
0
10
20
30
40
50
60
70
80
No of
Response
s
Yes No
opinions
Crude oil
Series1
Series2
Interpretation
From this we came to know that 75% of the respondents are interested to trade in Crude
oil ,and 25%of the respondents are not interested to trade in this commodity. Hence
majority lies with the respondents who are interested to invest in this crude oil.
Sugar

BANGALORE
0
10
20
30
40
50
60
70
No of
Responses
Yes No
Opinion
Sugar
Series1
Series2
Series3
Series4
Interpretation:
Here 69% of the respondents are interested to invest in sugar ,and 31% of respondents
are not interested to invest in this crude oil. So majority of the respondents are interested
to invest in this crude oil.
Yes No
69% 31%

BANGALORE
Wheat
0
10
20
30
40
50
60
70
No of
responses
Yes No
Opinions
Wheat
Series1
Series2
Series3
Series4
Interpretation:
Here39% of the respondents are interested to trade in this wheat but 61% of respondents
are not interested to trade in this commodity .so majority here is that most of the
respondents are not interested to trade in wheat.
Yes No
39% 61%

BANGALORE
Gold (Ratings)
Interpretation:
From this survey we can know that 31% of respondents have given 1 preference to
gold .32% are given 2 preference ,14%respondents have given3rd preference,11%are
given 4Th
preference 12% have given 5ht preference. so majority here is 32% of
respondents have given 2nd
preference.
Items Gold Silver Crude oil Sugar Wheat
Ratings 31% 32% 14% 11% 12%

BANGALORE
Silver(Ratings)
Ratings 28% 32% 14% 14% 12%
Interpretation:
Silver .32% are given 2 preference ,14%respondents have given3rd preference,14%are
given 4Th
preference 12% have given 5ht preference. So majority here is 32% of
respondents have given 2nd
preference.

BANGALORE
Crude oil (Ratings)
Interpretation:
Crude oil .14% are given 2 preference, 35%respondents have given3rd reference,17%are
given 4Th
respondents have given 3rd
preference to the crude oil. .
Ratings 20% 14% 35% 17% 14%

BANGALORE
Sugar(Ratings)
Interpretation:
Sugar.14% are given 2 preference ,15%respondents have given3rd preference,34%are
given 4Th
respondents have given 4th
preference to the sugar .
Ratings 27% 14% 15% 34% 10%

BANGALORE
Wheat(Ratings)
Interpretation:
Wheat.15% are given 2 preference ,24%respondents have given3rd preference,13%are
given 4Th
respondents have given 5th
preference to the wheat..
Ratings 13% 14% 24% 13% 35%

BANGALORE
Q.No7: Which Factors do you normally see while trading in commodity market?
Factors for Trading in commodity market
0
5
10
15
20
25
30
35
PriceSeason
M
arketRate
RiskReturnsliquidity
Saftey
Factors
NoofResponses
Series1
Series2
Series3
Series4
Series5
Interpretation:
From this survey we found that while trading in commodity market 30%of the
respondents will see this price factor while investing in this. And 5% will
Price Season Market Rate Risk Returns Liquidity Safety
30% 5% 7% 20% 27% 5% 6%

BANGALORE
see season ,7&% will see market rate and 20% will see risk ,27%will see the returns 5%
will see liquidity and remaining 6% will see safety while investing in this commodity
market.
Q.No8: Which facilities do you expect from service provider of a commodity trading?
Up-To Date Information
1 2 3 4 5
18% 36% 18% 17% 11%
Interpretation:
Here 18% of the respondents expect up-to date information from the service provider,
and 36% of respondents will expect market knowledge ,18% will expect less brokerege

BANGALORE
,17% will see the comforts, 11% will expect Good service.so majority of the respondents
will expect Market knowledge from the service provider of the commodity.
Market Knowledge
Interpretation:
1 2 3 4 5
46% 16% 13% 15% 10%

BANGALORE
and 16% of respondents will expect market knowledge ,13% will expect less brokerage
,15% will see the comforts, 10% will expect Good service. so majority of the
respondents will expect up-to date information from the service provider of the
commodity.
Less Brokerage
Interpretation:
1 2 3 4 5
70% 3% 6% 14% 7%

BANGALORE
and 3% of respondents will expect market knowledge ,6% will expect less brokerage
will expect Up-to –date information from the service provider of the commodity.
Comforts
1 2 3 4 5
15% 11% 19% 24% 31%
0
10
20
30
40
No of
Response
s
Ratings
Comforts
Series1 15 11 19 24 31
1 2 3 4 5

BANGALORE
Interpretation:
and11% of respondents will expect market knowledge ,19% will expect less brokerage
will expect Good Service.from the service provider of the commodity.
Good Service
1 2 3 4 5
16% 26% 13% 16% 19%

BANGALORE
0
10
20
30
No of
Response
s
Ratings
Good Service
Series1 16 26 13 16 29
1 2 3 4 5
Interpretation:
and 26% of respondents will expect market knowledge, 13% will expect less brokerage,
16% will see the comforts, 29% will expect Good service. So majority of the respondents
will expect Good Service from the service provider of the commodity.

BANGALORE
FINDING
&
SUGGESTIONS
Findings
 Commodity Futures have a bright future in coming days.
 Deciding on the prices depending on the formulas may go wrong. Because it is
cost plus carry, but in real sense the prices may even go down than the spot
prices.
 Price of a commodity is dependent on its demand and supply of that commodity
in the market.

BANGALORE
 As the commodity future market is new and emerging, many investors and
farmers are not fully aware of this market. As this market, helps them to trade
transparently without middlemen or agents to earn the good profits.
 Consumption products are perishable in nature, so investing in these
commodities are risky, as compared to investment commodities. And also there
is a normal loss may arise which should be bared by the trader in case he wants
delivery.
 Here 63% of the respondents are not aware of the commodity market.
 There is no growth in commodity market, and it is in the initial stage.
 65% of the respondents are not invested in commodity market.
 60% of respondents are interested to invest in the commodity market.
 73% of the respondents are interested to invest in the gold,42%in silver,75%in
crude oil,69%in sugar,39%in wheat.
 Most important factor the respondents will see while investing is Price 30% and
27% Returns.
 The investor has to invest only 5% of margin and he can hold the commodity.
 The commodity market prices depend upon the demand & supply as well as on
global market.
 The investor should know the market idea, within a range he has to play. In spot
market for commodity, the investors have to understand the price movement, and
in future market it is difficult to play without knowing the spot market.
Suggestions:
 Creating the awareness among the people and farmers about commodity market
through:
 Making presentations in the villages to the farmers by video and
explaining them the uses and benefits of the commodity market

BANGALORE
 Educate them on how to trade the commodity futures, i.e. getting
in to the contract before harvesting only, to get the minimum
guarantees.
 The Company should inform the benefits of Commodity trading to the present
investors who are investing in cash market.
 Agents should be given information regarding changes in the price margins of
different commodities, because they are not aware of the market.
 Company should approach people who are already into the business of gold,
silver , sugar ,crude oil etc.
 Through personal contact we can create awareness.
Conclusion:
The commodity futures market is new and emerging market. The
awareness of the market is very less among the farmers who can use this trade to
sell their products without the middlemen or agents it also helps the actual buyers

BANGALORE
too. The study of price volatility helps the traders to trade effectively even it have
some draw-backs they can be avoided with careful study and observation of
current happenings in market, political issues, change in demand and supply,
production and consumption pattern etc,. Here trader also can transfer his risk to
some other who can handle it or can appetite the risk through hedging technique.
The cash market also influences the commodity future market.

BANGALORE
ANNEXURE
Questionnaire

BANGALORE
Name:__________________________________________________
Address:________________________________________________
Contact No:(Mobile/LL) __________________________________
E-Mail:_________________________________________________
Age
Occupation: ____________________________________________
1) Which among these investment criteria you usually prefer?
Bank Deposits
Real Estate
Stocks
Life Insurance
Gold
Mutual Funds
Bonds
Derivatives market
Others if Specify ________________
2) Are you aware of Commodity Market?
Yes No
3) Are you invested in Commodity market?
Yes No
4) If yes, since how long are you trade with Commodities?
<1 year 1-3 years > 3 years

BANGALORE
5) If no, would you like to have knowledge of Commodities market?
Yes No
6) Which among these Commodities are you interested to trade with? How
do you rate them? [Rate 1 for most preferred & 5 for least preferred].
Items Gold Silver Crude Oil Sugar Wheat
Yes/No
Ratings
7) Which factor do you normally see while trading in commodity market?
Price
Season Market Rate Risk Returns Liquidity Safety
8) Which facilities do you expect from service provider of a commodity
trading?
(Give the ratings,1-5,1for high,5for low).

BANGALORE
9) Your valuable suggestions are welcomed.
________________________________________________
________________________________________________
Thank you
Data Code Sheet:
Sl. Qno Q Qno Qn Qno.5A Qno.5 Qno.6 Qno.7
Up-To Date Information
Market Knowledge
Less Brokerage
Comforts
Good service

BANGALORE
No. 1 No
2
3 o 4 B
1 2 3 4 5 6 7 8 9 1 2 1 2 3 1 2 1 2 3 4 5 Rankings 1 2 3 4 5 6 7 1 2 3 4 5
Y N YN Y N Y N Y N 1 2 3 4 5
1 1 1 1 1 1 1 1 1 1 1 1 1 2 5 1 3 4 1 1 1 2 1 4 3 5
2 1 1 1 1 1 1 1 1 1 1 1 1 4 5 1 2 3 1 1 1 1 2 1 4 5 3
3 1 1 1 1 1 1 1 1 1 1 1 1 4 5 1 2 3 1 1 1 1 1 4 2 5 3
4 1 1 1 1 1 1 1 1 1 1 1 1 1 5 4 1 3 2 1 1 1 2 3 4 1 5
5 1 1 1 1 1 1 1 1 1 1 1 1 1 5 2 4 3 1 1 1 1 4 2 5 3
6 1 1 1 1 1 1 1 1 1 1 1 5 2 1 3 4 1 1 1 1 2 3 4 1 5
7 1 1 1 1 1 1 1 1 1 1 1 4 5 1 2 3 1 1 1 2 1 5 4 3
8 1 1 1 1 1 1 1 1 1 1 1 1 3 5 1 2 4 1 1 1 1 1 4 5 3 2
9 1 1 1 1 1 1 1 1 1 1 1 1 2 3 4 1 5 1 1 1 3 5 4 1 2
10 1 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 1 1 3 4 2 5
11 1 1 1 1 1 1 1 1 1 1 1 1 4 5 2 1 3 1 1 1 1 2 1 3 4 5
12 1 1 1 1 1 1 1 1 1 1 1 1 1 3 4 1 2 5 1 1 1 3 4 1 5 2
13 1 1 1 1 1 1 1 1 1 1 1 5 1 4 2 3 1 1 1 1 3 4 5 1 2
14 1 1 1 1 1 1 1 1 1 1 1 1 1 2 3 4 5 1 1 1 1 1 5 1 4 2 3
15 1 1 1 1 1 1 1 1 1 1 1 3 2 1 4 5 1 1 1 3 4 1 5 2
16 1 1 1 1 1 1 1 1 1 1 1 1 1 4 5 1 2 3 1 1 1 1 2 4 5 3 1
17 1 1 1 1 1 1 1 1 1 1 1 3 5 2 1 4 1 1 1 5 4 1 2 3
18 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 3 1 4 5 2

BANGALORE
19 1 1 1 1 1 1 1 1 1 1 1 1 2 1 3 4 5 1 1 1 1 5 2 3 4 1
20 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 3 4 5 1 1 1 4 5 1 3 2
21 1 1 1 1 1 1 1 1 1 1 1 1 1 2 5 3 4 1 1 1 5 1 2 4 3
22 1 1 1 1 1 1 1 1 1 1 1 1 2 5 3 4 1 1 1 4 1 3 5 2
23 1 1 1 1 1 1 1 1 1 1 1 1 1 2 1 5 4 3 1 1 1 3 2 4 5 1
24 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 4 5 3 1 1 1 4 1 5 3 2
25 1 1 1 1 1 1 1 1 1 1 1 2 5 1 4 3 1 1 1 2 3 1 5 4
26 1 1 1 1 1 1 1 1 1 1 2 3 1 4 5 1 1 1 2 1 3 4 5
27 1 1 1 1 1 1 1 1 1 1 3 4 5 2 1 1 1 1 1 3 2 1 4 5
28 1 1 1 1 1 1 1 1 1 1 1 5 4 3 1 2 1 1 1 4 3 5 1 2
29 1 1 1 1 1 1 1 1 1 1 1 2 5 1 3 4 1 1 1 4 3 2 5 1
30 1 1 1 1 1 1 1 1 1 1 1 2 5 4 1 3 1 1 1 3 2 1 4 5
31 1 1 1 1 1 1 1 1 1 1 1 1 5 4 1 3 2 1 1 1 1 2 3 4 1 5
32 1 1 1 1 1 1 1 1 1 1 1 3 4 2 1 5 1 1 1 1 2 3 1 5 4
33 1 1 1 1 1 1 1 1 1 1 1 1 2 5 1 3 4 1 1 1 4 5 1 3 2
34 1 1 1 1 1 1 1 1 1 1 3 4 5 2 1 1 1 1 1 2 1 3 4 5
35 1 1 1 1 1 1 1 1 1 1 5 4 3 2 1 1 1 1 1 5 3 4 1 2
36 1 1 1 1 1 1 1 1 1 1 1 4 5 3 2 1 1 1 1 1 2 3 4 5 1
37 1 1 1 1 1 1 1 1 1 1 1 1 4 1 5 2 3 1 1 1 4 3 1 2 5
38 1 1 1 1 1 1 1 1 1 1 1 1 1 4 5 3 1 2 1 1 1 2 1 4 3 5
39 1 1 1 1 1 1 1 1 1 1 1 1 1 2 3 4 5 1 1 1 4 5 1 2 3
40 1 1 1 1 1 1 1 1 1 1 1 2 1 5 4 3 1 1 1 1 2 3 4 1 5

BANGALORE
41 1 1 1 1 1 1 1 1 1 1 1 1 1 4 2 3 5 1 1 1 5 1 3 4 2
42 1 1 1 1 1 1 1 1 1 1 1 1 2 4 3 5 1 1 1 1 1 4 2 3 5
43 1 1 1 1 1 1 1 1 1 1 1 3 2 4 5 1 1 1 1 1 4 2 3 5 1
44 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 1 3 1 4 2 5
45 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 2 3 1 4 5
46 1 1 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 1 4 2 5 3 1
47 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 2 3 5 4 1
48 1 1 1 1 1 1 1 1 1 1 1 1 1 1 3 2 4 5 1 1 1 3 1 4 5 2
49 1 1 1 1 1 1 1 1 1 1 2 3 5 4 1 1 1 2 5 4 3
50 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 4 1 2 3 5
51 1 1 1 1 1 1 1 1 1 2 3 1 5 4 1 1 3 1 4 5 2
52 1 1 1 1 1 1 1 1 1 1 1 1 4 2 3 5 1 1 1 3 4 5 2
53 1 1 1 1 1 1 1 1 1 1 1 1 1 2 3 4 5 1 1 2 1 3 5 4
54 1 1 1 1 1 1 1 1 1 1 1 1 3 2 4 5 1 1 4 1 3 5 2
55 1 1 1 1 1 1 1 1 1 1 5 2 3 4 1 1 5 4 1 2 3
56 1 1 1 1 1 1 1 1 1 1 1 1 1 1 5 3 2 4 1 1 2 1 5 3 4
57 1 1 1 1 1 1 1 1 1 1 1 5 3 2 1 4 1 1 4 3 2 1 5
58 1 1 1 1 1 1 1 1 1 1 1 3 4 2 1 5 1 1 1 1 1 2 5 3 4
59 1 1 1 1 1 1 1 1 1 1 3 4 2 1 5 1 1 1 1 1 1 1 2 3 4 5 1
60 1 1 1 1 1 1 1 1 1 1 1 1 2 5 3 4 1 1 1 1 1 1 1 1 2 3 4 5
61 1 1 1 1 1 1 1 1 1 1 1 1 3 5 2 4 1 1 2 3 5 4 1
62 1 1 1 1 1 1 1 1 1 1 5 4 2 3 1 1 1 1 1 4 3 5 1 2

BANGALORE
63 1 1 1 1 1 1 1 1 1 1 5 3 2 1 4 1 1 1 1 2 3 5 4
64 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 3 2 4 1 5 1 1 1 2 1 5 4 3
65 1 1 1 1 1 1 1 1 1 1 2 3 1 5 4 1 1 1 3 1 5 4 2
66 1 1 1 1 1 1 1 1 1 1 1 1 4 5 1 2 3 1 1 1 2 1 4 5 3
67 1 1 1 1 1 1 1 1 1 1 1 1 2 3 5 4 1 1 1 1 1 2 5 4 3
68 1 1 1 1 1 1 1 1 1 1 2 4 5 1 3 1 1 1 1 2 1 5 4 3
69 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 4 3 2 5 1 1 1 1 2 3 1 5 4
70 1 1 1 1 1 1 1 1 1 1 1 1 2 3 1 4 5 1 1 1 1 2 3 5 1 4
71 1 1 1 1 1 1 1 1 1 1 1 3 2 1 4 5 1 1 1 1 1 1 2 4 5 3
72 1 1 1 1 1 1 1 1 1 1 2 4 5 3 1 1 1 1 2 1 4 3 5
73 1 1 1 1 1 1 1 1 1 1 1 2 1 5 4 3 1 1 1 1 2 3 4 1 5
74 1 1 1 1 1 1 1 1 1 1 1 1 4 2 3 5 1 1 1 5 1 3 4 2
75 1 1 1 1 1 1 1 1 1 1 1 1 2 4 3 5 1 1 1 1 1 4 2 3 5
76 1 1 1 1 1 1 1 1 1 1 1 3 2 4 5 1 1 1 1 1 4 2 3 5 1
77 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 1 3 1 4 2 5
78 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 2 3 1 4 5
79 1 1 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 1 4 2 5 3 1
80 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 2 3 5 4 1
81 1 1 1 1 1 1 1 1 1 1 1 1 1 3 2 4 5 1 1 1 3 1 4 5 2
82 1 1 1 1 1 1 1 1 1 1 1 2 3 5 4 1 1 1 2 5 4 3
83 1 1 1 1 1 1 1 1 1 1 1 1 4 5 1 2 3 1 1 1 1 2 1 4 5 3
84 1 1 1 1 1 1 1 1 1 1 1 1 4 5 1 2 3 1 1 1 1 1 4 2 5 3

BANGALORE
85 1 1 1 1 1 1 1 1 1 1 1 1 1 5 4 1 3 2 1 1 1 2 3 4 1 5
86 1 1 1 1 1 1 1 1 1 1 1 1 5 2 4 3 1 1 1 1 4 2 5 3
87 1 1 1 1 1 1 1 1 1 1 1 5 2 1 3 4 1 1 1 1 2 3 4 1 5
88 1 1 1 1 1 1 1 1 1 1 1 4 5 1 2 3 1 1 1 2 1 5 4 3
89 1 1 1 1 1 1 1 1 1 1 1 1 3 5 1 2 4 1 1 1 1 1 4 5 3 2
90 1 1 1 1 1 1 1 1 1 1 1 2 3 4 1 5 1 1 1 3 5 4 1 2
91 1 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 1 1 3 4 2 5
92 1 1 1 1 1 1 1 1 1 1 1 1 4 5 2 1 3 1 1 1 1 2 1 3 4 5
93 1 1 1 1 1 1 1 1 1 1 1 1 3 4 1 2 5 1 1 1 3 4 1 5 2
94 1 1 1 1 1 1 1 1 1 1 1 4 5 1 2 3 1 1 1 1 2 4 5 3 1
95 1 1 1 1 1 1 1 1 1 1 1 3 5 2 1 4 1 1 1 5 4 1 2 3
96 1 1 1 1 1 1 1 1 1 1 1 2 4 1 3 5 1 1 1 3 1 4 5 2
97 1 1 1 1 1 1 1 1 1 1 1 1 2 1 3 4 5 1 1 1 1 5 2 3 4 1
98 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 3 4 5 1 1 1 4 5 1 3 2
99 1 1 1 1 1 1 1 1 1 1 1 1 1 2 5 3 4 1 1 1 5 1 2 4 3
10
0
1 1 1 1 1 1 1 1 1 1 1 1 2 5 3 4 1 1 1 4 1 3 5 2
BIBLIOGRAPHY

BANGALORE
Security Analysis and Portfolio Management By: Ronald Fischer and Jordan
Reports
Brouchers
Web Sites:
 www.nseindia.com
 www.geojit.com
 www.google.com
 www.commodityindia.com

COMMODITY FUTURES REPORT

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (20)

En vedette

En vedette (20)

Similaire à COMMODITY FUTURES REPORT

Similaire à COMMODITY FUTURES REPORT (20)

Plus de Babasab Patil

Plus de Babasab Patil (20)

Dernier

Dernier (20)

COMMODITY FUTURES REPORT