Commodity Market Religare

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S. No. Topics Page No.

1 ACKNOWLEDGEMENT 1

2 EXECUTIVE SUMMARY 2

3 INTRODUCTION 5

4 RESEARCH METHODOLOGY

A. OBJECTIVE OF THE STUDY

B. RESEARCH DESIGN

6

7

5 COMPANY PROFILE 9

6 REVIEW OF LITRATURE

A. INTRODUCTION

B. COMMODITY MARKET

C. HISTORY OF COMMODITY MARKET

D. FACTORS AFFECTING COMMODITY

MARKET

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15

17

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7 COMMODITY EXCHANGES

A. MULTI COMMODITY EXCHANGE(MCX)

B. NATIONAL COMMODITY & DERIVATIVE

EXCHANGE LIMITED(NCDEX)

21

22

8 DERIVATIVE & FUTURE TRADING IN COMMODITY

MARKET

A. COMMODITY DEIVATIVE

B. DERIVATIVE MARKET

C. COMMODITY FUTURE TRADING IN INDIA

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27

30

31

9 DATA ANALYSIS AND INTERPRETATION 38

10 FINDINGS AND CONCLUSIONS

A. FINDINGS

B. LIMITATIONS

C. CONCLUSION

52

53

53

54

11 SUGGESTIONS 55

12 BIBLIOGRAPHY 57

13 ANNEXURE

A. DEFINITION RELATED TO COMMODITY

MARKET

B. QUESTIONNAIRE

C. PERFORMANCE APPRAISAL

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66

68

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INTRODUCTIONThe rapidly advancing technology, particularly the Internet, has drastically changed the

social and economic landscapes and every aspect of our daily lives. In the securities industry &

Futures Commodities, the internet has facilitated on-line trading, changing the way the market

works, as well as the way the investors access the market. Having taken advantage of

information technology at an opportune time, India has emerged as a front-running country of

on-line trading in the global securities & commodities markets.

The commodity market is playing the major role in development of an economy. By the help of

commodity derivative and future trading, the investors invest even the small portion of and get

the higher return with low risk than equity market. Also, an investor can take the benefit of

online trading.

On-line trading is broadly defined as a trading mechanism where investors place orders and

confirm trading results via electronic communication channels, such as the Internet, mobile

phones, In India, the whole process of securities & commodities transactions, from order

placement and routing, order execution, to trade confirmation, is fully automated, thus enablingthe investors who have placed orders to confirm their trading results within few seconds.

The main focus of this research is to know the consumer satisfaction about services provided by

Religare Commodities.

RESEARCH METHOLODOGY

STATEMENT OF THE PROBLEM

Online future commodities trading involve personal factors, technical factors, business

factors and economic factors. The interplay of these factors on commodities market requires a

deep study about the pattern process and procedures and performance.

This study is intended to identify the various concepts about online commodities trading and its

way of functioning. Also, tend to study about the customer satisfaction in different aspects of

trading in commodity market.

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OBJECTIVES OF THE STUDY

The project work is programmed and directed to some particular targets and the main

objectives of the study: -

To understand the commodity market and future trading.

To conduct a survey to know the satisfaction level of customers on different services like

margin trading, online trading etc provided by the Religare Commodity Limited.

To identify the target customers for commodity trading through Referrals.

To find an appropriate approach for attracting the people in investing into Religare

Commodities Ltd.

SCOPE OF THE STUDY:

Globalization of the financial market has led to a manifold increase in investment. New

markets have been opened; new instruments have been developed; and new services have been

launched. Besides, a number of opportunities and challenges have also been thrown open.

Online commodities trading are new as compared to equity market in India. Mainly four

exchanges are involved in online commodities trading MCX, NCDEX, NBOT and NMCE.

Hence, the scope of commodity market is very wide in the market.

1. RESEARCH DESIGN OF THE STUDY

The study is descriptive in nature and based on survey technique to find out facts and

affairs in the commodity market. The study consists of analysis about customers satisfaction of

Religare Commodities Ltd. For the purpose of the study, 150 customers are taken and their views

solicited on different parameters.

The methodology adopted includes:

1. Structured questionnaire

2. Discussions with the concerned by personal interview

2. SOURCES OF DATA :

Survey was conducted to know the satisfaction level of customers on the services

provided by the RCL. To conduct the study, primary and secondary data was considered.

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1) In primary data collection, the questionnaire and personal interview are used in collecting

the data. In questionnaire, the question is very simple and related to the customers desire

and preferences.

2) In secondary data collection, different journals, magazines and internet sites are used in

collecting the data relating to the commodity market and future trading.

SAMPLING PLAN:

1) POPULATION: (universe) customers of Religare Enterprise Ltd.

2) SAMPLING SIZE: A sample of one hundred fifty has been chosen for the purpose of

the study. Sample consists of small investors, large investors and traders of RCL.

3) SAMPLING METHODS: Since Religare Enterprise Ltd has many segments, 100%

coverage is difficult within the limited period of time. Probability sampling requires

complete knowledge about all sampling units in the universe. Hence convenience

sampling under non-probability sampling has been chosen for the study.

4) FIELD STUDY: The data has been collected with the help of questionnaire directly

from the respondents like businessmen, small shopkeepers, commodities traders and

service class people.

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COMPANY PROFILE

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ABOUT RELIGARE & ITS GROUP COMPANIES

Religare is a financial services company in India, offering a wide range of financial

products and services targeted at retail investors, high net worth individuals and corporate and

institutional clients. Religare is promoted by the promoters of Ranbaxy Laboratories Limited.

Religare operate from six regional offices and 25 sub-regional offices and have a presence in

330 cities and towns controlling 979 locations which are managed either directly by Religare or

by our Business Associates all over India, the company have a representative office in London.

While the majority of Religare offices provide the full complement of its services yet it has

dedicated offices for investment banking, institutional brokerage, portfolio management services

and priority client services.

Religare is a financial services company in India, offering a wide range of financial products and

services targeted at retail investors, high net worth individuals and corporate and institutional

clients. Religare is promoted by the promoters of Ranbaxy Laboratories Limited.

Religare financial services group comprises of Religare Securities Limited, Religare Comdex

Limited and Religare Finvest Limited, which provide services in equity, commodity and

financial services businesses.

RELIGARE SECURITIES LTD.

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Religare

Reality Ltd.

Religare

Insurance

Holding

Religare

Venture

Capital Pvt.

Religare

Securities

Ltd.

Religare

Finance

Ltd.

Religare

Capital Mkt

Ltd.

Religare

Commoditie

s Ltd

Religare

Insurance

Broking Ltd

Religare

Wealth

Mgt.

Religare

Finvest Ltd


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RELIGARE ENTERPRISES LIMITED IS THE HOLDING COMPANY &

ITS PRINCIPAL SUBSIDIARIES INCLUDE:

1. RELIGARE SECURITIES LIMITED (RSL)

Registered with SEBI as an registered stockbroker with membership of National Stock

Exchange (NSE) and Bombay Stock Exchange (BSE). Registered with SEBI for portfolio

management services (PMS) Registered with SEBI as a Depository Participant providing

services of National Securities Depository Limited (NSDL) and Central Depository Services

Limited (CDSL). Applied with SEBI to be sponsor of an asset management company (AMC) in

a joint venture with AEGON International N.V., a global provider of life insurance and pension

services.

2. RELIGARE COMDEX LIMITED

Registered with the Forward Market Commission (FMC) as a commodity broker.

Member of National Commodities and Derivative Exchange (NCDEX), Multi Commodity

Exchange (MCX) and National Multi Commodity Exchange of India Limited (NMCE).

3. RELIGARE FINVEST LIMITED

Registered with the Reserve Bank of India (RBI) as a non-banking finance company

(NBFC) and presently engaged in providing personal credit (such as loans against shares (LAS),

and personal loans), distribution of mutual funds, wealth management, IPO financing, and

corporate finance services.

4. RELIGARE INSURANCE BROKING LIMITED (RIBL)

Registered with the Insurance Regulatory Development Authority (IRDA) as a composite

broker, which enables RIBL to distribute products and services of life insurance companies,

non-life insurance companies and re-insurance businesses.

RELIGARE PRODUCTS

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COMPETITIVE ADVANTAGES OF RELIGARE

PARTICIPANT ON THE COUNTRYS PREMIER EXCHANGE: Religare is a member of

the countrys premier stock exchange The National Stock Exchange of India (NSE).

CLEARING MEMBERSHIP ON CAPITAL & DERIVATIVES SEGMENTS: It has

clearing memberships on both the capital market and derivatives segment of the exchange.

DEPOSITORY PARTICIPANTS WITH NSDL & CDSL: Religare is the depository

participants with the countrys premier depository service - National Securities Depository

Limited (NSDL), as well as with the only other depository with a countrywide reach - Central

Depository Services Limited (CDSL).

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RETAIL

SPECTRUM

INSTITUTIONAL

SPECTRUM

WEALTH SPECTRUM

Caters to a large number of

retail clients by offering allproducts under one roof

through our branch

network and online mode

1. Equity andCommodity Trading

2. Personal FinancialServices

a. Distribution of

mutual fundsb. Distribution of

insurancec. Distribution of

savings products

3. Personal Credita. Personal loan

servicesb. Loans against

shares

4. Online Investment

To provide customized

wealth advisory services tohigh net worth individuals

1. Wealth Advisory Services

2. Portfolio ManagementServices

3. International Equity

4. Priority Client EquityServices

5. Arts Initiative

To forge and build strong

relationships with corporateand institutional clients

1. Institutional EquityBroking

2. Investment Banking

a. Merchant Bankingb. Transaction

AdvisoryServices


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LEADING PRIVATE SECTOR BANK AS PARTNER: Religares banking partner is HDFC

Bank The foremost private sector bank in the country, which has the most technologically

advanced infrastructure in the country, with Internet banking allowing access to information

24 X 7.

BLOOMBERG INFORMATION SERVICES:The worlds two best information services are

Bloomberg LP and Reuters. These are prohibitively expensive for all but mutual funds and

financial institutions to own terminals of, and subscribe to. We however have two connections to

the Bloomberg Information Service, the premier services; both in Delhi and Mumbai, and these

provide us information ahead of the general public, and at par with the financial institutions. This

provides access to breaking news from across the globe, and across asset classes, and superior

research and analysis capabilities.

PRIME OFFICE LOCATIONS: Religare have prime office locations in the nations political

capital and the business capital Delhi and Mumbai, in the heart of the city.

RESEARCH CAPABILITIES: Religare have a dedicated team of analysts in their Bombay

office They provide fundamental analysis of stocks and markets, which are fundamentally

strong, and provide above market returns to investors, but over a slightly longer time frame

typically 6 months and above.

TECHNICAL ANALYSIS: Religare has in-house technical analyst, who is a recognized

leading practitioner of the science, publishes a daily technical newsletter. It has a success rate of

over 73% and tracks the progress of the calls on a real-time basis, and advises of any change in

the profit points or stop loss levels.

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INDIAN COMMODITY MARKET

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We are moving from a world in which the big eat the small to one in which the fast eat the

slow.

-Klaus Schwab, 2000

(Founder of the World Economic Forum)

A strong and vibrant cash market is a pre-condition for a successful and transparent futures

market.

INTRODUCTION

The vast geographical extent of India and huge population is aptly complemented by the

size of the market. The broadest classification of the Indian Market can be made in terms of the

commodity market and the bond market.

The commodity market in India comprises of all probable markets that we come across in our

daily lives. Such markets are social institutions that facilitate exchange of goods for money. The

cost of goods is estimated in terms of domestic currency. India commodity market can besubdivided into the following two categories:

Wholesale Market

Retail Market

The traditional wholesale market in India dealt with whole sellers who bought goods from the

farmers and manufacturers and then sold them to the retailers after making a profit in the

process. It was the retailers who finally sold the goods to the consumers. With the passage of

time the importance of whole sellers began to fade out for the following reasons:

The whole sellers in most situations, acted as mere parasites who did not add any value to

the product but raised its price which was eventually faced by the consumers.

The improvement in transport facilities made the retailers directly interact with the

producers and hence the need for whole sellers was not felt.

In recent years, the extent of the retail market (both organized and unorganized) has evolved in

leaps and bounds. In fact, the success stories of the commodity market of India in recent years

has mainly centered on the growth generated by the Retail Sector. Almost every commodity

under the sun both agricultural and industrial is now being provided at well distributed retail

outlets throughout the country.

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Moreover, the retail outlets belong to both the organized as well as the unorganized sector. The

unorganized retail outlets of the yesteryears consist of small shop owners who are price takers

where consumers face a highly competitive price structure. On the other hand the organized

sector is owned by various business houses like Pantaloons, Reliance, Tata and others. Such

markets are usually selling a wide range of agricultural articles and manufactured, edible and

inedible, perishable and durable. Modern marketing strategies and other techniques of sales

promotion enable such markets todraw customers from every section of the society. However

the growth of such markets has still centered on the urban areas primarily due to infrastructural

limitations.

Considering the present growth rate, the total valuation of the Indian Retail Market is estimated

to cross Rs. 10,000 billion by the year 2010. Demand for commodities is likely to become four

times by 2010 than what it presently is.

COMMODITY

A commodity may be defined as an article, a product or material that is bought and sold.

It can be classified as every kind of movable property, except Actionable Claims, Money &

Securities. Commodities actually offer immense potential to become a separate asset class for

market-savvy investors, arbitrageurs and speculators. Retail investors, who claim to understand

the equity markets, may find commodities an unfathomable market. But commodities are easy

to understand as far as fundamentals of demand and supply are concerned. Retail

investors should understand the risks and advantages of trading in commodities futures before

taking a leap. Historically, pricing in commodities futures has been less volatile compared with

equity and bonds, thus providing an efficient portfolio diversification option.

In fact, the size of the commodities markets in India is also quite significant. Of the country's

GDP of Rs 13, 20,730 crore (Rs 13,207.3 billion), commodities related (and dependent)

industries constitute about 58 per cent.

Currently, the various commodities across the country clock an annual turnover of Rs 1, 40,000

crore (Rs 1,400 billion). With the introduction of futures trading, the size of the commodities

market grows many folds here on.

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COMMODITY MARKET

Commodity markets are markets where raw or primary products are exchanged. These

raw commodities are traded on regulated commodities exchanges, in which they are bought and

sold in standardized contracts.

It covers physical product (food, metals and electricity) markets but not the ways that services,

including those of governments, nor investment, nor debt, can be seen as a commodity. Articles

on reinsurance markets, stock markets,bond marketsand currency marketscover those concerns

separately and in more depth. One focus of this article is the relationship between simple

commodity moneyand the more complex instruments offered in the commodity markets.

Commodity market is an important constituent of the financial markets of any country. It is the

market where a wide range of products, viz., precious metals, base metals, crude oil, energy and

soft commodities like palm oil, coffee etc. are traded. It is important to develop a vibrant, active

and liquid commodity market. This would help investors hedge their commodity risk, take

speculative positions in commodities and exploit arbitrage opportunities in the market.

HISTORY OF COMMODITY TRADING

COMMODITY TRADING IN INDIA

The history of organized commodity derivatives in India goes back to the nineteenth

century when the Cotton Trade Association started futures trading in 1875, barely about a decade

after the commodity derivatives started in Chicago. Over time the derivatives market developed

in several other commodities in India. Following cotton, derivatives trading started in oilseeds in

Bombay (1900), raw jute and jute goods in Calcutta (1912), wheat in Hapur (1913) and in

Bullion in Bombay (1920). However, many feared that derivatives lead to unnecessary

speculation in essential commodities, and were harmful to the healthy functioning of the markets

for the underlying commodities, and also to the farmers.

With a view to restricting speculative activity in cotton market, the Government of Bombay

prohibited options business in cotton in 1939. Later in 1943, forward trading was prohibited in

oilseeds and some other commodities including food-grains, spices, vegetable oils, sugar And

cloth. After Independence, the Parliament passed Forward Contracts (Regulation) Act, 1952

which Regulated forward contracts in commodities all over India. The Act applies to goods,

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http://en.wikipedia.org/wiki/Commodities_exchangehttp://en.wikipedia.org/wiki/Stock_markethttp://en.wikipedia.org/wiki/Bond_markethttp://en.wikipedia.org/wiki/Bond_markethttp://en.wikipedia.org/wiki/Currency_markethttp://en.wikipedia.org/wiki/Currency_markethttp://en.wikipedia.org/wiki/Commodity_moneyhttp://en.wikipedia.org/wiki/Commodity_moneyhttp://en.wikipedia.org/wiki/Stock_markethttp://en.wikipedia.org/wiki/Bond_markethttp://en.wikipedia.org/wiki/Currency_markethttp://en.wikipedia.org/wiki/Commodity_moneyhttp://en.wikipedia.org/wiki/Commodities_exchange


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which are defined as any movable property other than security, currency and actionable claims.

The Act prohibited Options trading in goods.

The Act envisages (imagine) three-tier regulation:

1) The Exchange which organizes forward trading in commodities can regulate trading on a

day-to-day basis,

2) The Forward Markets Commission provides regulatory oversight under the powers delegated

to it by the central Government.

3) The Central Government - Department of Consumer Affairs, Ministry of Consumer Affairs,

Food and Public Distribution - is the ultimate regulatory authority.

In 1970s and 1980s the Government relaxed forward trading rules for some commodities.

STRUCTURE OF COMMODITY MARKET

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DIFFERENT TYPES OF COMMODITIES TRADED

World-over one will find that a market exits for almost all the commodities known to us.

These commodities can be broadly classified into the following:

FACTORS AFFECTING COMMODITY MARKET

INFLATION: - It directly affect the functioning of the commodity market. If there is

inflation say 8% the rise in prices of commodities is very high which make the changes in

the prices of the commodities very frequently and volatility very high. WAR, INNOVATION OR CRISIS: - War also creates problems in smooth functioning

of the commodity market by not providing necessary funds as well as the commodities

for delivery purpose.

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METAL Aluminium, Copper, Lead, Nickel, Sponge Iron, Steel Long(Bhavnagar), Steel Long (Govindgarh), Steel Flat, Tin, Zinc

BULLION Gold, Gold HNI, Gold M, i-gold, Silver, Silver HNI, Silver M

FIBER Cotton L Staple, Cotton M Staple, Cotton S Staple, Cotton Yarn, Kapas

ENERGY Brent Crude Oil, Crude Oil, Furnace Oil, Natural Gas, M. E. Sour

Crude Oil

SPICES Cardamom, Jeera, Pepper, Red Chilli

PLANTATIONS Arecanut, Cashew Kernel, Coffee (Robusta), Rubber

PULSES Chana, Masur, Yellow Peas

PETROCHEMICALS HDPE, Polypropylene(PP), PVC

OIL & OIL SEEDS Castor Oil, Castor Seeds, Coconut Cake, Coconut Oil, Cotton Seed,

Crude Palm Oil, Groundnut Oil, Kapasia Khalli, Mustard Oil, Mustard

Seed (Jaipur), Mustard Seed (Sirsa), RBD Palmolein, Refined Soy Oil,

Refined Sunflower Oil, Rice Bran DOC, Rice Bran Refined Oil,

Sesame Seed, Soymeal, Soy Bean, Soy Seeds

CEREALS Maize

OTHERS Guargum, Guar Seed, Gurchaku, Mentha Oil, Potato (Agra), Potato

(Tarkeshwar), Sugar M-30, Sugar S-30


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PRODUCTION: - It means the manufactured goods and services dealt in commodity

market. Low production of goods and services creates the problems in the smooth

functioning of the trading.

DEMAND: - Demand also affects the functioning. If the demand is very high, there will

be more seller to buy that good ultimately rise in prices and less supply of that goods.

SUPPLY: - Proper supply of goods is essential for smoothly work in the commodity

market. If there is shortage in supply, make goods costlier and increase in the inflation

which directly affects the trading process.

LEADING COMMODITY MARKETS OF INDIA

The government has now allowed national commodity exchanges, similar to the BSE &

NSE, to come up and let them deal in commodity derivatives in an electronic trading

environment. These exchanges are expected to offer a nation-wide anonymous, order driven;

screen based trading system for trading. The Forward Markets Commission (FMC) will regulate

these exchanges. Consequently four commodity exchanges have been approved to commence

business in this regard. They are:

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S.NO. COMMODITY MARKET IN INDIA

1 MULTI COMMODITY EXCHANGE (MCX), MUMBAI

2 NATIONAL COMMODITY AND DERIVATIVE EXCHANGE LTD (NCDEX),

MUMBAI

3 NATIONAL BOARD OF TRADE (NBOT), INDORE

4NATIONAL MULTI COMMODITY EXCHANGE (NMCE), AHMEDABAD


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COMMODITY EXCHANGES IN INDIA:

A commodity exchange refers to the market place where buying and selling of

commodities for future delivery takes place. The two important commodity exchanges in India in

which most of the commodity are traded, are Multi-Commodity Exchange of India Limited

(MCX), and National Multi-Commodity & Derivatives Exchange of India Limited

(NCDEX).

I. MULTI-COMMODITY EXCHANGE (MCX)

MCX an independent multi-commodity exchange has permanent recognition from

Government of India for facilitating online trading, clearing and settlement operations for

commodity futures markets across the country. Key shareholders of MCX are Financial

Technologies (India) Ltd., State Bank of India, NABARD, NSE, HDFC Bank, State Bank of

Indore, State Bank of Hyderabad, State Bank of Saurashtra, SBI Life Insurance Co. Ltd.,

Union Bank of India, Bank Of India, Bank Of Baroda, Canara Bank, Corporation Bank.

Headquartered in Mumbai, MCX is led by an expert management team with deep domain

knowledge of the commodity futures markets. Through the integration of dedicated resources,

robust technology and scalable infrastructure, since inception MCX has recorded many first

to its credit.

Inaugurated in November 2003 by Mukesh Ambani, chairman & managing director, Reliance

Industries Ltd, MCX offers futures trading in the following commodity categories: Agro

Commodities, Bullion, Metals- Ferrous & Non-ferrous, Pulses, Oils & Oilseeds, Energy,

Plantations, Spices and other soft commodities. MCX has built strategic alliances with some of

the largest players in commodities eco-system, namely, Bombay Bullion Association, Bombay

Metal Exchange, Solvent Extractors' association of India, pulses importers association,

shetkari sanghatana, united planters association of India and India pepper and spice trade

association.

Today MCX is offering spectacular growth opportunities and advantages to a large cross section

of the participants including producers / processors, traders, corporate, regional trading centers,

importers, exporters, cooperatives, industry associations, amongst others MCX being

nation-wide commodity exchange, offering multiple commodities for trading with wide reach

and penetration and robust infrastructure, is well placed to tap this vast potential.

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II. NATIONAL COMMODITY & DERIVATIVES EXCHANGE

LIMITED (NCDEX)

National Commodity & Derivatives Exchange Limited (NCDEX) is a professionallymanaged online multi commodity exchange promoted by ICICI Bank Limited (ICICI Bank),

Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural

Development (NABARD) and National Stock Exchange of India Limited (NSE). Punjab

National Bank (PNB), CRISIL Limited (formerly the Credit Rating Information Services of

India Limited), Indian Farmers Fertilizer Cooperative Limited (IFFCO) and Canara Bank by

subscribing to the equity shares have joined the initial promoters as shareholders of the

Exchange. NCDEX is the only commodity exchange in the country promoted by national level

institutions. This unique parentage enables it to offer a bouquet of benefits, which are currently

in short supply in the commodity markets. The institutional promoters of NCDEX are prominent

players in their respective fields and bring with them institutional building experience, trust,

nationwide reach, technology and risk management skills.

NCDEX is a public limited company incorporated on April 23, 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.

NCDEX is a nation-level, technology driven de-metalized on-line commodity exchange with an

independent Board of Directors and professionals not having any vested interest in commodity

markets. It is committed to provide a world-class commodity exchange platform for market

participants to trade in a wide spectrum of commodity derivatives driven by best global

practices, professionalism and transparency.

NCDEX is regulated by Forward Market Commission in respect of futures trading in

commodities. Besides, NCDEX is subjected to various laws of the land like the Companies Act,

Stamp Act, Contracts Act, Forward Commission (Regulation) Act and various other legislations,which impinge on its working. NCDEX is located in Mumbai and offers facilities to its members

in more than 390 centers throughout India. The reach will gradually be expanded to more

centers. NCDEX currently facilitates trading of thirty six commodities - Cashew, Castor Seed,

Chena, Chilly, Coffee, Cotton, Cotton Seed Oilcake, Crude Palm Oil, Expeller Mustard Oil,

Gold, Guar gum, Guar Seeds, Guar, Jeera, Jute sacking bags, Mild Steel Ingot, Mulberry Green

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Cocoons, Pepper, Rapeseed - Mustard Seed ,Raw Jute, RBD Palmolein, Refined Soy Oil, Rice,

Rubber, Sesame Seeds, Silk, Silver, Soy Bean, Sugar, Tar, Turmeric, Arad (Black Mated),

Wheat, Yellow Peas, Yellow Red Maize & Yellow Soybean Meal. At subsequent phases trading

in more commodities would be facilitated.

Since 2002 when the first national level commodity derivatives exchange started, the exchanges

have conducted brisk business in commodities futures trading. In the last three years, there has

been a great revival of the commodities futures trading in India, both in terms of the number of

commodities allowed for futures trading as well as the value of trading. While in year 2000,

futures trading were allowed in only 8 commodities, the number jumped to 80 commodities in

June 2004. The value of trading in local currency saw a quantum jump from about INR 350

billion in 2001-02 to INR 1.3 Trillion in 2003-04. The data in the below Table indicates that the

value of commodity derivatives in India could cross the US$ 1 Trillion mark in 2006. The

market regulator Forward Markets Commission (FMC) disseminates fortnightly trading data for

each of the 3 national & 21 regional exchanges that have been set up in recent years to carry on

the futures trading in commodities in the country. Exhibit presents comparative trading data for

three fortnightly periods in March, June and September 2005 and brings up some interesting

facts.

TURNOVER OF INDIAN COMMODITY EXCHANGE

Indian Commdity Future Market (Rs Crores)

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EXCHANGES 2005 2006 2007 2008

Multi Commodiy

Exchange(MCX)

165,147 961,633 1,621,803 2,505,206

NCDEX 266,338 1,066,686 944,066 733,479

NMCE 13,988 18,385 101,731 24,072

NBOT 58,463 53,683 57,149 74,582

OTHERS 67,823 54,735 14,591 37,997

ALL EXCHANGES 571,759 2,155,122 2,739,340 3,375,336


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HOW COMMODITY MARKET WORKS?There are two kinds of trades in commodities. The first is the spot trade, in which one

pays cash and carries away the goods. The second is futures trade. The underpinning for futures

is the warehouse receipt. A person deposits certain amount of say, good X in a ware house and

gets a warehouse receipt. Which allow him to ask for physical delivery of the good from the

warehouse. But someone trading in commodity futures need not necessarily posses such a receipt

to strike a deal. A person can buy or sale a commodity future on an exchange based on his

expectation of where the price will go.

Futures have something called an expiry date, by when the buyer or seller either closes (square

off) his account or give/take delivery of the commodity. The broker maintains an account of all

dealing parties in which the daily profit or loss due to changes in the futures price is recorded.

Squiring off is done by taking an opposite contract so that the net outstanding is nil.

For commodity futures to work, the seller should be able to deposit the commodity at warehouse

nearest to him and collect the warehouse receipt. The buyer should be able to take physical

delivery at a location of his choice on presenting the warehouse receipt. But at present in India

very few warehouses provide delivery for specific commodities.

Today Commodity trading system is fully computerized. Traders need not visit a commodity

market to speculate. With online commodity trading they could sit in the confines of their home

or office and call the shots.

The commodity trading system consists of certain prescribed steps or stages as follows:

1. TRADING

The trading system on the NCDEX provides a fully automated screen based trading for

futures on commodities on a nationwide basis as well as online monitoring and surveillance

mechanism. It supports an order driven market and provides complete transparency of trading

operations. Order matching is essential on the basis of commodity, its price, time and quantity.

All quantity fields are in units and price in rupees. The exchange specifies the unit of trading and

the delivery unit for futures contracts on various commodities. The exchange notifies the regular

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lot size and tick size for each of the contracts traded from time to time. When any order enters

the trading system, it is an active order. It tries to finds a match on the other side of the book. If it

finds a match, a trade is generated. If it does not find a match, the order becomes passive and

gets queued in the respective outstanding order book in the system. Time stamping is done for

each trade and provides the possibility for a complete audit trail if required. 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. At this stage the following is the system implemented-

o Order receiving

o Execution

o Matching

o Reporting

o Surveillance

o Price limits

o Position limit

2. CLEARING

National Securities Clearing Corporation Limited (NSCCL) undertakes clearing of trades

executed on the NCDEX. The settlement guarantee fund is maintained and managed by NCDEX.

Only clearing members including professional clearing members (PCMs) only are entitled to

clear and settle contracts through the clearing house. At NCDEX, after the trading hours on the

expiry date, based on the available information, the matching for deliveries takes place firstly, on

the basis of locations and then randomly, keeping in view the factors such as available capacity

of the vault/warehouse, commodities already deposited and dematerialized and offered for

delivery etc. Matching done by this process is binding on the clearing members. After

completion of the matching process, clearing members are informed of the deliverable/

receivable positions and the unmatched positions. Unmatched positions have to be settled in

cash. The cash settlement is only for the incremental gain/loss as determined on the basis of final

settlement price. This stage has following system in place-

o Matching

o Registration

o Clearing

o Clearing limits

o Notation

o Margining

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o Price limits

o Position limits

o Clearing house.

3. SETTLEMENT

Futures contracts have two types of settlements, the MTM settlement which happens on acontinuous basis at the end of each day, and the final settlement which happens on the last

trading day of the futures contract. On the NCDEX, daily MTM settlement and the final MTM

settlement in respect of admitted deals in futures contracts are cash settled by debiting/crediting

the clearing accounts of CMs with the respective clearing bank.

All positions of a CM, brought forward, created during the day or closed out during the day, are

market to market at the daily settlement price or the final settlement price at the close of trading

hours on a day. On the date of expiry, the final settlement price is the spot price on the expiry

day. The responsibility of settlement is on a trading cum clearing member for all trades done on

his own account and his clients trades. A professional clearing member is responsible for

settling all the participants trades, which he has confirmed to the exchange. On the expiry date

of a futures contract, members submit delivery information through delivery request window on

the trader workstations provided by NCDEX for all open positions for a commodity for all

constituents individually. NCDEX on receipt of such information matches the information and

arrives at delivery position for a member for a commodity. The seller intending to make delivery

takes the commodities to the designated warehouse. These commodities have to be assayed by

the exchange specified assayer. The commodities have to meet the contract specifications with

allowed variances. If the commodities meet the specifications, the warehouse accepts them.

Warehouse then ensures that the receipts get updated in the depository system giving a credit in

the depositors electronic account. The seller the gives the invoice to his clearing member, who

would courier the same to the buyers clearing member. On an appointed date, the buyer goes to

the warehouse and takes physical possession of the commodities. This stage has following

system followed as follows-o Marking to market

o Receipts and payments

o Reporting

o Delivery upon expiration or maturity.

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DERIVATIVE AND FUTURES TRADING IN COMMODITY MARKET

DERIVATIVE

Commodities whose value is derived from the price of some other assets like security

currency interest level stock market index or anything else are known as Derivative. It is a

generic term for a variety of financial instruments. Essentially, this means you buy a promise to

convey ownership of the asset, rather than the asset itself. The legal terms of a contract are

much more varied and flexible than the terms of property ownership. In fact, its the flexibility

that appeals to investors.

When a person invests in derivative, the underlying asset is usually a commodity, bond, stock, or

currency. He bet that the value derived from the underlying asset will increase or decrease by a

certain amount within a certain fixed period of time.

A contract that specifies the rights and obligations between two parties to receive or deliver

future cash flows (or exchange of other securities or assets) based on some future event For

example: the right (but not obligation) to buy 100 barrels of oil at $80 per barrel in 2 years time

is a call option.

COMMODITY DERIVATIVES

Derivatives as a tool for managing risk first originated in the commodities markets. They

were then found useful as a hedging tool in financial markets as well. In India, trading in

commodity futures has been in existence from the nineteenth century with organised trading in

cotton through the establishment of Cotton Trade Association in 1875. Over a period of time,

other commodities were permitted to be traded in futures exchanges. Regulatory constraints in

1960s resulted in virtual dismantling of the commodities future markets. It is only in the last

decade that commodity future exchanges have been actively encouraged. However, the markets

have been thin with poor liquidity and have not grown to any significant level. In this chapter we

look at how commodity derivatives differ from financial derivatives. We also have a brief look atthe global commodity markets and the commodity markets that exist in India.

OPTION Right without obligation to exercise the contract.

FUTURE Right with obligation to exercise the contract.

OPTION

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When an investor with the help of a future forward contract, he basically locked himself

at a price with no room of taking the advantage of the favorable price moment of the asset in the

cash market as both the buyers and the sellers have the obligation to honor the contract.

Option addresses this issue of advantage to the hedger in case of favorable price movement in the

price of the underlying, by offering the right to buy or sell the underlying. Therefore the essential

difference between future and option contract is that in future contract both the parties has

obligation to perform the contract , while in case of options, only the seller has the obligation

while the buyer has the right without the obligation to exercise the contract.

In order to acquire the right of option, the option buyer pays to the option seller an option

premium which is the price pays for right.

TYPES OF OPTION

a. CALL OPTION:- the option which gives thebuyer a right to buy the underlying asset is

called a call option.

b. PUT OPTION:- the option which gives the buyer a right to sell the underlying asset is

called a put option.

SIMPLE BINOMIAL MODEL USED FOR PRICING CALL OPTION

Current share price = 100 today

Suppose next day price will be 115 or 95

but we do not know probability Pre-agreed exercise price of the call option is 100

Suppose share price increase to 115 or decrease to 95

Suppose we buy 0.75 shares to hedge the call sold option portfolio valuation next day

if share price rises = 0.75(115)-15=71.25

if share price falls = 0.75(95) - 0 = 71.25

STYLE OF OPTION

a. AMERICAN OPTION: - an option that is exercisable on or before the expiry date is

calledAmerican option.

b. EUROPEAN OPTION: - an option that is exercisable only on expiry date, is called

European option.

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FUTURE

Futures Contract means a legally binding agreement to buy or sell the underlying security

on a future date. Future contracts are the organized/standardized contracts in terms of quantity,

quality (in case of commodities), delivery time and place for settlement on any date in future.

The contract expires on a prespecified date which is called the expiry date of the contract. On

expiry, futures can be settled by delivery of the underlying asset or cash. Cash settlement enables

the settlement of obligations arising out of the future/option contract in cash.

TYPES OF FUTURES TRADERS

a. HEDGER

b. SPECULATOR

HEDGER -

An individual or company who offsets a cash market position by shifting some of the risk

of adverse fluctuations in price, by buying or selling a futures contract.

Example: a farmer plants his corn crop in March and immediately sells a September futures corn

contract. In the fall he harvests the corn and sells it on the cash market. He then buys back his

September futures contract. He locks in his price and avoids market fluctuations.

SPECULATOR

A market participant who tries to make a profit on buying or selling commodity futures

contracts and assumes the majority of the risk from the hedger.

Example: a person expects cotton to rally because of heavy rains in the Mississippi delta will

damage the crop and cause harvest delays. He buys a Dec contract of cotton and prays.

DERIVATIVE MARKET

The financial market for derivatives is known as the derivative market. The derivative

market has two parts:

1) EXCHANGE TRADE DERIVATIVES

2) OVER- THE- COUNTER DERIVATIVES

EXCHANGE TRADE DERIVATIVE

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The exchange traded derivatives are the futures and options. The futures are standardized

derivative contracts. The Euronext.liffe and the Chicago Mercantile Exchange are some

derivative markets, to name a few.

OVER- THE- COUNTER DERIVATIVES

The derivatives traded over the counter are known as the over the counter derivative

market .The over the counter derivative market consists of the investment banks and include

clients like hedge funds, commercial banks, government sponsored enterprises etc.

Over the counter (OTC) derivatives are privately negotiated contracts. Merchants entered into

contracts with one another for future delivery of specified amount of commodities at specified

price. A primary motivation for prearranging a buyer or seller for a stock of commodities in early

forward contracts was to lessen the possibility that large swings would inhibit marketing the

commodity after a harvest.

The OTC derivatives markets have the following features compared to exchange-tradedderivatives:

1) The management of counter-party (credit) risk is decentralized and located within

individual institutions.

2) There are no formal centralized limits on individual positions, leverage, or margining.

3) There are no formal rules for risk and burden-sharing.

4) There are no formal rules or mechanisms for ensuring market stability and integrity,

and for safeguarding the collective interests of market participants.

5) The OTC contracts are generally not regulated by a regulatory authority and the

exchange's self-regulatory organization, although they are affected indirectly by

national legal systems, banking supervision and market surveillance.

COMMODITY FUTURES TRADING IN INDIA

INTRODUCTION

Derivatives as a tool for managing risk first originated in the Commodities markets. They

were then found useful as a hedging tool in financial markets as well. The basic concept of a

derivative contract remains the same whether the underlying happens to be a commodity or a

financial asset. However there are some features, which are very peculiar to commodity

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derivative markets. In the case of financial derivatives, most of these contracts are cash settled.

Even in the case of physical settlement, financial assets are not bulky and do not need special

facility for storage. Due to the bulky nature of the underlying assets, physical settlement in

commodity derivatives creates the need for warehousing. Similarly, the concept of varying

quality of assetdoes not reallyexist as far as financial underlyings are concerned. However in

the case of commodities, the quality of the asset underlying a contract can vary largely. This

becomes an important issue to be managed.

FUTURES TRADING SYSTEM

The trading system on the NCDEX, provides a fully automated screen-based trading for

futures on commodities on a nationwide basis as well as an online monitoring and surveillance

mechanism. It supports an order driven market and provides complete transparency of trading

operations. The trade timings on the NCDEX are 10.00 a.m. to 4.00 p.m. After hours trading has

also been proposed for implementation at a later stage.

The NCDEX system supports an order driven market, where orders match automatically. Order

matching is essentially on the basis of commodity, its price, time and quantity. All quantity fields

are in units and price in rupees. The exchange specifies the unit of trading and the delivery unit

for futures contracts on various commodities . The exchange notifies the regular lot size and tick

size for each of the contracts traded from time to time. When any order enters the trading system,

it is an active order. It tries to find a match on the other side of the book. If it finds a match, a

trade is generated. If it does not find a match, the order becomes passive and gets queued in the

respective outstanding order book in the system. Time stamping is done for each trade and

provides the possibility for a complete audit trail if required.

GUIDELINES FOR ALLOTMENT OF CLIENT CODE

The trading members are recommended to follow guidelines outlined by the exchange for

allotment and use of client codes at the time of order entry on the futures trading system:

1) All clients trading through a member are to be registered clients at the member's back

office.

2) A unique client code is to be allotted for each client. The client code should be

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alphanumeric and no special characters can be used.

3) The same client should not be allotted multiple codes.

CONTRACT SPECIFICATIONS FOR COMMODITY FUTURES

NCDEX plans to trade in all the major commodities approved by FMC (Forwards Market

Commission) but in a phased manner. In the first phase, under the category of bullion, it has

already started trading in gold and silver, and in agri commodities, trading has commenced in

cotton (long and medium staple), soybean, soya oil, rape/ mustard seed, rape/ mustard oil, crude

palm oil and RBD palmolein.

In the second phase NCDEX plans to offer the following commodities for trading - rice, wheat,

coffee, tea. edible oil products like groundnut, sunflower, castor (seed, oil and cake), base metals

(aluminum, copper, zinc and nickel) and commodity indices like agro commodity index and

metal commodity index.

COMMODITY FUTURES CONTRACT AND THEIR SYMBOLS

1. Pure Gold Mumbai GLDPURMUM

2. Pure Silver New Delhi SLVPURDEL

3. Soybean Indore SYBEANIDR

4. Refined Soya Oil Indore SYOREFTDR

5. Rapeseed Mustard Seed Japura RMSEEDJPR

6. Expeller Rapeseed Mustard Oil Japura RMOEXPJPR

7. RBD Palm Olean Kakinada RBDPLNKAK

8. Crude Palm Oil Kindle CRDPOLKDL

9. J34 Medium Staple Cotton Bhatinda COTJ34BTD

10. S06 L S Cotton Ahmadabad COTS06ABD

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

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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.

ORDER ENTRY ON THE TRADING SYSTEM

The NCDEX trading system has a set of function keys built into the trading front-end. These

keys have been provided to facilitate faster operation of the system and enable quicker trading on

the system. The function keys can be operated from the keyboard of the user. The set of function

keys enable the following:

Buy open Trade cancel Exercise/ Position liquidation

Sell open Client master maintenance Portfolio offline order entry

Order cancellation Market by order Alphabetical sorting of contracts

Order modification Market by price Spread order status

Outstanding orders Activity log Spread activity log

Quick order cancel Security list/ portfolio setup Snap quote

Spread order entry Previous trades Online offline order entry

Trade modify Contract description Message log

Market watch setupMarket movement Buy close

Full message display Net position upload Sell close

Market inquiry Order status Liquidity schedule

MARGINS FOR TRADING IN FUTURES

Margin is the deposit money that needs to be paid to buy or sell each contract. The

margin required for a futures contract is better described as performance bond or good faith

money. The margin levels are set by the exchanges based on volatility (market conditions) and

can be changed at any time. The margin requirements for most futures contracts range from 2%

to 15% of the value of the contract.

In the futures market, there are different types of margins that a trader has to maintain. At this

stage we look at the types of margins as they apply on most futures exchanges.

1) INITIAL MARGIN: The amount that must be deposited by a customer at the time of

entering into a contract is called initial margin. This margin is meant to cover the largest

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potential loss in one day. The margin is a mandatory requirement for parties who are

entering into the contract.

2) MAINTENANCE MARGIN: A trader is entitled to withdraw any balance in the margin

account in excess of the initial margin. To ensure that the balance in the margin account

never becomes negative, a maintenance margin, which is somewhat lower than the initial

margin, is set. If the balance in the margin account falls below the maintenance margin,

the trader receives a margin call and is requested to deposit extra funds to bring it to the

initial margin level within a very short period of time. The extra funds deposited are

known as a variation margin. If the trader does not provide the variation margin, the

broker closes out the position by offsetting the contract.

3) ADDITIONAL MARGIN: In case of sudden higher than expected volatility, the

exchange calls for an additional margin, this is a preemptive move to prevent breakdown.

This is imposed when the exchange fears that the markets have become too volatile and

may result in some payments crisis, etc.

4) MARK-TO-MARKET MARGIN (MTM):At the end of each trading day, the margin

account is adjusted to reflect the trader's gain or loss. This is known as marking to market

the account of each trader. All futures contracts are settled daily reducing the credit

exposure to one day's movement. Based on the settlement price, the value of all positions

is marked-to-market each day after the official close. i.e. the accounts are either debited

or credited based on how well the positions fared in that day's trading session. If the

account falls below the maintenance margin level the trader needs to replenish the

account by giving additional funds. On the other hand, if the position generates a gain,

the funds can be withdrawn (those funds above the required initial margin) or can be used

to fund additional trades.

WHY COMMODITY FUTURES EXIST

One answer that is heard in the financial sector is "we need commodity futures markets

so that we will have volumes, brokerage fees, and something to trade''. One have to look at

futures market in a bigger perspective -- what is the role for commodity futures in India's

economy?

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In India agriculture has traditionally been an area with heavy government intervention.

Government intervenes by trying to maintain buffer stocks, they try to fix prices, and they have

import-export restrictions and a host of other interventions. Many economists think that they

could have major benefits from liberalization of the agricultural sector.

In this case, the question arises about who will maintain the buffer stock, how will one smoothen

the price fluctuations, how will farmers not be vulnerable that tomorrow the price will crash

when the crop comes out, how will farmers get signals that in the future there will be a great

need for wheat or rice. In all these aspects the futures market has a very big role to play.

If one thinks there will be a shortage of wheat tomorrow, the futures prices will go up today, and

it will carry signals back to the farmer making sowing decisions today. In this fashion, a system

of futures markets will improve cropping patterns.

Next, if the farmers are growing wheat and worried that by the time the harvest comes out prices

will go down, then they can sell wheat on the futures market. One can sell wheat at a price,

which is fixed today, which eliminates risk from price fluctuations. These days, agriculture

requires investments -- farmers spend money on fertilizers, high yielding varieties, etc. They are

worried when making these investments that by the time the crop comes out prices might have

dropped, resulting in losses. Thus a farmer would like to lock in his future price and not be

exposed to fluctuations in prices.

The third is the role about storage. Today the Indian Food Corporation in India which is doing a

huge job of storage, and it is a system, which does not work. Futures market will produce their

own kind of smoothing between the present and the future. If the future price is high and the

present price is low, an arbitrager will buy today and sell in the future. The converse is also true,

thus if the future price is low the arbitrageur will buy in the futures market. These activities

produce their own "optimal" buffer stocks, smooth prices. They also work very effectively when

there is trade in agricultural commodities; arbitrageurs on the futures market will use imports and

exports to smooth Indian prices using foreign spot markets.

In totality, commodity futures markets are a part and parcel of a program for agricultural

liberalization. Many agriculture economists understand the need of liberalization in the sector.

Futures markets are an instrument for achieving that liberalization.

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BENEFITS OF FUTURE TRADING

1. BENEFITS TO INDUSTRY

Hedging the price risk associated with futures contractual commitments.

Spaced out purchases possible rather than large cash purchases and its storage.

Efficient price discovery prevents seasonal price volatility.

Greater flexibility, certainty and transparency in procuring commodities would aid bank

lending.

Facilitate informed lending.

Hedged positions of producers and processors would reduce the risk of default faced by

banks. Lending for agricultural sector would go up with greater transparency in pricing

and storage.

Commodity Exchanges to act as distribution network to retail agri-finance from Banks to

rural households.

Provide trading limit finance to Traders in commodities Exchanges.

2. BENEFITS TO EXCHANGE MEMBER

Access to a huge potential market much greater than the securities and cash market in

commodities.

Robust, scalable, state-of-art technology deployment.

Member can trade in multiple commodities from a single point, on real time basis.

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Traders would be trained to be Rural Advisors and Commodity Specialists and through

them multiple rural needs would be met, like bank credit, information dissemination, etc.

3. BENEFITS TO INVESTOR

A good low-risk portfolio diversifier.

A highly liquid asset class, acting as a counterweight to stocks, bonds and real estate.

Less volatile, compared with, equities and bonds.

Investors can leverage their investments and multiply potential earnings.

Better risk-adjusted returns.

A good hedge against any downturn in equities or bonds as there is little correlation with

equity and bond markets.

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1. Gender

Inference: 78% male respondents are taken for the study and rest females to study the

satisfaction on the different services provided by the RCL.

2. Age Group

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Inference: Majority of respondents are taken in the age group of 30-40 year i.e. 43% and rest

of the respondents lie in age group of 20-30, 40-50 and above 50 with 18%, 16% and 23%

respectively.

3. Education status

Inference: Study is done on the respondents of different qualification, out of 150 respondents

40% respondents are graduate, 28% sr. secondary, 24% metric and rest are post graduate who are

associated with Religare Enterprise Ltd.

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4. Occupation

Inference: Majority of respondents is from service class i.e 45%, 32% are retired and rests

are businessman. These respondents deal in the commodity market.

5. Income Level

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Inference: There are 36% respondents who earn more than 300000, 28% earn between200000-300000, 21% earn between 100000-200000 and there are very less respondents in the

survey who earn less than 100000 i.e 15%.

A. Investment in equity and commodity Market

Attributes No. of persons Percentages

Equity 70 67%

Commodity 30 20%

Both 50 33%

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56%17%

28%

type of Investment

EquityCommodity

Both

Inference: The survey is conducted to know the satisfaction of customers and the question is

asked to know the respondents who deal with RCL. Here majority of investors are of Equity

market, almost one-sixth invest in only commodity and another one-fourth in both. Basically the

survey is conducted only those respondents who belong to Religare Enterprise.

150 respondents are taken for survey that are associated with Religare Enterprise Limited.

But the main focus to conduct the survey to know the satisfaction of customers of the

services provided by the RCL.

Hence, there are only 80 respondents who belong to RCL. So, the remaining answers have

been given by 80 respondents.

B. Different types of investors with RCL


Small investor 48 60%

Long term investor 20 25%

Dealers 12 15%

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Inference: Survey has been conducted to know the satisfaction of the customers. In the study,

only those respondents are taken who belong to the RCL. Out of 80 respondents, 60% customers

are small investors and 25% customers are long term investors and rest people are dealers.

C. Most Important Factor to be considered while investing money


Return Benefits 51 64%

Risk 16 20%

Safety 13 16%

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Inference: 64% of the respondents invest in the RCL to get the higher return, 20% invest

because they have risk taking abilities and rest people invest for safety in their investment, in

comparison to equity market, in the RCL. That mean customers have different perception

regarding investing their money.

D. Customers first source of awareness


Through RCL 27 34%

Newspaper/ magazine 10 12%

Brokers 11 14%

Agents 27 34%

Others 5 6%

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Inference: There are majority of customers whose first source of information is RCL itself i.e

34% and 34% respondents from Agents. And the remaining customers have first source of

information newspaper, brokers and other source like different sites on the internet. These

sources help the customers to take the decision regarding investment i.e which commodity would

be beneficial.

E. How a customer trades in commodity market


Online Trading 43 54%

Trading through telephone 22 28%

Both 15 18%

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Inference: 54% respondents who trade through online sitting at home can avail the any

opportunity without any interruption, 28% through telephonic and rest trade with both of the

methods of trading. The customers feel that if they trade online, they can avail the opportunities

to earn profits. In telephonic trading there are chances of losing the opportunity because of busy

line in trading house.

F. Customers satisfaction with trading facility provided by the

RCL


Most Satisfied 14 17%

Satisfied 41 52%

Neutral 16 20%

Unsatisfied 7 9%

Most Unsatisfied 2 2%

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Inference: There are 52% of the respondents who are satisfied with the trading facility

provided by the RCL. 20% are mostly satisfied. So it is reffered that RCL customers are getting

benefit of trading provided by the RCL and employees can able to solve the queries of the

customers.

G. Customers preference over other depository services in RCL.

Attributes No. of persons

Most Satisfied Satisfied Neutral Unsatisfie

d

Most

Unsatisfied

Quality

Service

40 26 6 8 0

Vast variety of

services

34 22 11 10 3

Reach 22 42 8 5 3

Safety 16 34 15 11 4

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Inference: The study, about the customer satisfaction, reveals that most of the customers are

satisfied with the different services provided by the RCL i.e Quality service 50%, Reach 52%,

Safety and Vast variety of services. There are other factors that show the customers are fully

satisfied with RCL. Thus, it shows competitive advantage over other companies like Share khan,

India infoline etc.

H. The problems faced by the respondents in the RCL

Attributes No. of persons

Very

Frequently

Frequently Less

Frequently

Least

Frequently

Frequent reminders

are given to RCL for

update of the

information

2 9 15 54

Irregular receipt of

Holding / Transaction

statements

3 10 19 48

Improper attention

given to the enquiries

3 8 25 44

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Margin Money

Problem

4 20 26 30

Inadequate

information

2 12 21 45

Inference: There are 80 respondents who deal with RCL. Out of total, there are very less

people who are facing the above problems very frequently i.e less than 4%, Approx 12%

respondents frequently face these types of problems at RCL. There are around 60% respondents

who face very less frequently these problems.

I. Which commodity to buy in the current economic situation


Agro Commodities 22 27%

Metals 33 41%

Energy 25 32%

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82%

18%

Favourable word of mouth publicity

YES NO

Inference: Here, 41% of the respondents say that they will invest in metals like gold, copper,

silver etc. because turnover is very high in metals and customers can earn high profits. 32%

respondents say that they will invest in energy sector like natural gas; power etc and remaining

will invest in agro commodities.

J. Will you suggest other person to open an account with RCL?

Inference: Here 82% customers say that they will advise to other person to trade with RCL

because they are satisfied with the provided services and they face very less problems in Religare

as comparison to other brokerage house and rests deny advising because they are not satisfied

with the service provided by the RCL.

~ 48 ~

27%

41%

32%

Lucrative Commodities in the near

future

Agro Commodities

Metals

Energy


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FINDINGS

1) The investors are satisfied with the services provided by Religare Commodities Limited

i.e. margin money facility, proper advises about investing etc. in dealing with the

Religare. Holding securities in electronic form gives some far-reaching advantages to the

investors.

2) Religare Enterprises Ltd offers a wide choice of products for investing in the stock

market & commodities market. It allows investing in shares, mutual funds and other

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financial products. With RCL one can manage own de-mat & trading account

independently.

3) The Religare Commodities Limited is providing trading facility with registered

commodities exchanges like NCDEX, MCX, NBOT and NMCE. Any investor can trade

with these exchanges by opening their account with RCL.

4) Religare Commodities Limited provides the facility of online trading.

5) Transaction details for the traders are available online.

6) Survey reveals that most of the customers are ready to the give reference of other

potentials customer.

7) Customers in the commodity market can trade with the margin money i.e 30%-40% of

total money required.

LIMITATIONS

1) Sample might not be the true representative of the population because sample size is very

small and taken in a very limited region by using the convenience sampling.

2) People were reluctant in disclosing the details of their investment distribution.

3) There might be chances of biasness.

CONCLUSIONCommodities market, contrary to the beliefs of many people, has been in existence in

India through the ages and still has to go a long way ahead. Perceptions of investors towards

commodity trading might change quite a lot with time.

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The project reveals that commodity market works in future and derivative in which investors

invest money through the contracts given i.e 2 months contacts, 3 months contracts which

expires last Thursday of every month. The future market also provide the benefits for the traders

who want investment but they dont have enough money at particular time they can invest with

margin money in commodities and pay later to earn profits. The investors can avail the benefits

by opting different options, forward contracting, apply hedging to minimize the loss if occur in

the commodity market. It also provides the facility of the hedging in the commodity market by

which a customer can minimize the losses which he is facing and ultimately save the principle

amount for future investment.

Religare Commodity Ltd has the quality staff which helps in retaining the customers for trading

and the employees provide the advice about the most beneficial commodities and provide the

solution to the queries of the customers. Thus, it is referred that employees is providing the

important role in satisfaction of the customers.

The project explains about satisfaction of the customers who are trading with the Religare

Commodities Limited on the services provided by the RCL which is essential to smooth

functioning of the trading. The firm is able to satisfy their customers by providing quality

services and earning the higher profits in the market.

At last, it can be concluded that most of the customers are satisfied with services provided by theReligare Commodities Limited and they are ready to give advice of potential customers.

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SUGGESTION1) The company should provide demo of online commodities trading in the office to the

customers of Religare Enterprise Ltd to make aware about how to trade in the commodity

market to increase the market share of the company. They will be able to understand the

commodity market and start trading in the market.

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2) Normal tendency of the customer is to prefer equity as compared to commodities. So

Religare Commodities Ltd should create the sessions of trading online for the customers

related to the commodity derivative trading in which a customer will see the benefit as

well as the risk involved with this which help in generating the trust for commodity

market.

3) After getting the printouts of the contract note, dispatch of the same should be taken place

with no delay and this can be cross verified with the sender (dispatch section).

4) The firm should motivate the customers to trade online to grab the market by making

them understood the use of computer because there are customers who dont know how

to trade online and sometimes drop the chances of earning money because of facing

overcrowding telephone lines.

5) Customers are facing overcrowding, non-availability of telephone lines, so the firm

should increase the telephone lines and recruit the new employees to make smooth

functioning.

6) The RCL official should conduct regular seminars on commodities trading to attract the

investors who invest in the equity market at Religare Enterprise Limited.

7) Most of the securities companies like Religare, Indiabulls, India infoline mainly focus on

equity market because the customers more focus towards the security market. So, the

firm should focus towards the commodity market and provide the benefits to the

customers in commodity market.

BIBLIOGRAPHY George Kleinman, Trading Commodities and Financial Futures:

A Step by Step guide to Mastering the Market

Johan C. Hull, Options, Futures and Other Derivatives

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http://www.commodities.in

http://www.finance.indiamart.com/markets/commodity/

http://hr.religare.in/adrenalin/help/commodity.pdf

http://www.commoditiescontrol.com

http://www.mcxindia.com

http://www.ncdex.com

http://www.investmentz.co.in

http://www.trade.indiainfoline.com

ANNEXURE

TERMS AND DEFINITIONS RELATED TO COMMODITY MARKET: -

Accruals:- Commodities on hand ready for shipment, storage and manufacture

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Arbitragers: - Arbitragers are interested in making purchase and sale in different

markets at the same time to profit from price discrepancy between the two markets.

At the Market: - An order to buy or sell at the best price possible at the time an order

reaches the trading pit.

Bear: - A person who expects prices to go lower.

Bid: - A bid subject to immediate acceptance made on the floor of exchange to buy a

definite number of futures contracts at a specific price.

Breaking: - A quick decline in price.

Bulging: - A quick increase in price.

Bull: - A person who expects prices to go higher.

Buy on Close: - To buy at the end of trading session at the price within the closing range.

Buy on opening: - To buy at the beginning of trading session at a price within the

opening range.

Call: - An option that gives the buyer the right to a long position in the underlying

futures at a specific price, the call writer (seller) may be assigned a short position in the

underlying futures if the buyer exercises the call.

Cash commodity: - The actual physical product on which a futures contract is based.

This product can include agricultural commodities, financial instruments and the cash

equivalent of index futures.

Close: - The period at the end of trading session officially designated by exchange during

which all transactions are considered made at the close.

Closing price: - The price (or price range) recorded during the period designated by the

exchange as the official close.

Day orders: - Orders at a limited price which are understood to be good for the day

unless expressly designated as an open order or good till canceled order.

Delivery: - The tender and receipt of actual commodity, or in case of agriculture

commodities, warehouse receipts covering such commodity, in settlement of futures

contract. Some contracts settle in cash (cash delivery). In which case open positions are

marked to market on last day of contract based on cash market close.

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Delivery month: - Specified month within which delivery may be made under the terms

of futures contract.

Delivery notice: - A notice for a clearing members intention to deliver a stated quantity

of commodity in settlement of a short futures position.

Derivatives: - These are financial contracts, which derive their value from an underlying

asset. (Underlying assets can be equity, commodity, foreign exchange, interest rates, real

estate

or any other asset.) Four types of derivatives are trades forward, futures, options and

swaps. Derivatives can be traded either in an exchange or over the counter.

Exchange: - Central market place for buyers and sellers. Standardized contracts ensure

that the prices mean the same to everyone in the market. The prices in an exchange are

determined in the form of a continuous auction by members who are acting on behalf of

their clients, companies or themselves.

Forward contract: - It is an agreement between two parties to buy or sell an asset at a

future date for price agreed upon while signing agreement. Forward contract is not traded

on an

Futures Contract:- It is an agreement between two parties to buy or sell a specified and

standardized quantity and quality of an asset at certain time in the future at price agreed

upon at the time of entering in to contract on the futures exchange. It is entered on

centralized trading platform of exchange. It is standardized in terms of quantity as

specified by exchange. Contract price of futures contract is transparent as it is available

on centralized trading screen of the exchange. Here valuation of Mark-to-Mark position

is calculated as per the official closing

Futures commission merchant: - A broker who is permitted to accept the orders to buy

and sale futures contracts for the consumers.

Futures Funds: - Usually limited partnerships for investors who prefer to participate inthe futures market by buying shares in a fund managed by professional traders or

commodity trading advisors.

Futures Market:-It facilitates buying and selling of standardized contractual agreements

(for future delivery) of underlying asset as the specific commodity and not the physical

commodity itself. The formulation of futures contract is very specific regarding the

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quality of the commodity, the quantity to be delivered and date for delivery. However it

does not involve immediate transfer of ownership of commodity, unless resulting in

delivery. Thus, in futures markets, commodities can be bought or sold irrespective of

whether one has possession of the underlying commodity or not. The futures market trade

in futures contracts primarily for the purpose of risk management that is hedging on

commodity stocks or forward buyers and sellers. Most of these contracts are squared off

before maturity and rarely end in deliveries.

Hedging: - Means taking a position in futures market that is opposite to position in the

physical market with the objective of reducing or limiting risk associated with price.

In the money: - In call options when strike price is below the price of underlying futures.

In put options, when the strike price is above the underlying futures. In-the-money

options are the most expensive options because the premium includes intrinsic value. Index Futures: - Futures contracts based on indexes such as the S & P 500 or Value Line

Index. These are the cash settlement contracts.

Investment Commodities: - An investment commodity is generally held for investment

purpose. e.g. Gold, Silver.

Limit: - The maximum daily price change above or below the price close in a specific

futures market. Trading limits may be changed during periods of unusually high market

activity. Limit order: - An order given to a broker by a customer who has some restrictions upon

its execution, such as price or time.

Liquidation: - A transaction made in reducing or closing out a long or short position, but

more often used by the trade to mean a reduction or closing out of long position.

Margin: - Cash or equivalent posted as guarantee of fulfillment of a futures contract (not

a down payment).

Margin call: - Demand for additional funds or equivalent because of adverse price

movement or some other contingency.

Market to Market: - The practice of crediting or debating a traders account based on

daily closing prices of the futures contracts he is long or short.

Market order: - An order for immediate execution at the best available price.

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Nearby: - The futures contract closest to expiration.

Net position: - The difference between the open contracts long and the open contracts

short held in any commodity by any individual or group.

Offer: - An offer indicating willingness to sell at a given price (opposite of bid).

On opening: - A term used to specify execution of an order during the opening.

Open contracts: - Contracts which have been brought or sold without the transaction

having been completed by subsequent sale, repurchase or actual delivery or receipt of

commodity.

Open interest: - The number of open contracts. It refers to unliquidated purchases or

sales and never to their combined total.

Option: - It gives right but not the obligation to the option owner, to buy an underlying

asset at specific price at specific time in the future.

Out-of-the money: - Option calls with the strike prices above the price of the underlying

futures, and puts with strike prices below the price of the underlying futures.

Over the counter: - It is alternative trading platform, linked to network of dealers who

do not physically meet but instead communicates through a network of phones &

computers.

Premium: - The amount by which a given futures contracts price or commoditys

quality exceeds that of another contract or commodity (opposite of discount). In options,

the price of a call or put, which the buyer initially pays to the option writer (seller).

Price limit: - The maximum fluctuation in price of futures contract permitted during one

trading session, as fixed by the rules of a contract market.

Purchase and sales statement: - A statement sent by FMC to a customer when his

futures option has been reduced or closed out (also called P and S)

Put: - In options the buyer of a put has the right to continue a short position in an

underlying futures contract at the strike price until the option expires; the seller (writer)

of the put obligates himself to take a long position in the futures at the strike price if the

buyer exercises his put.

Range: - The difference between high and low price of the futures contract during a

given period.

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Ratio hedging: - Hedging a cash position with futures on a less or more than one-for-one

basis.

Settlement price: - The official daily closing price of futures contract, set by the

exchange for the purpose of setting margins accounts.

Short: - (1) The selling of an option futures contract. (2) A trader whose net position in

the futures market shows an excess of open sales over open purchases.

Speculator: - Speculator is an additional buyer of the commodities whenever it seems

that market prices are lower than they should be.

Spot Markets:-Here commodities are physically brought or sold on a negotiated basis.

Spot price: - The price at which the spot or cash commodity is selling on the cash or spot

market.

Spread: - Spread is the difference in prices of two futures contracts.

Striking price: - In options, the price at which a futures position will be established if the

buyer exercises (also called strike or exercise price).

Commodity Market Religare

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