CHAPTER 1 - RESEARCH METHDOLOGY

Objective of the Study

To study the perception of investors of commodity market

Sub Objectives:

1. To study the growth of commodity markets

2. To find out the investment pattern of investors in commodity market on the basis of
income ,age, occupation, etc………

Research Design-Descriptive

Sample Design

In this study convenient random sampling method is used to

select the respondents. The sample size is 30 respondents.

Source of Data

The various sources of data are

1. Primary Sources, which includes questionnaire.
2. Secondary data which includes books internet etc.

Tools for Data Collection

The questionnaire is the tool used for data collection.

Analyses and Interpretation

The various tools for analysis used are graphs, charts, percentage growth, secondary
data.

Limitations and Constrains

 Constraint of time.
 Lack of resources
 Cost Constraint.
 Respondents are limited to Ahmedabad city.

1
 COMMODITY FUTURES- INVESTORS PERCEPTION

CHAPTER 2– INTODUCTION TO INDIAN

FINANCIAL SYSTEM
The Indian financial system consists of many institutions, instruments and
markets. Financial instruments range from the common coins, currency notes and
cheques, to the more exotic futures swaps of high finance.

The Indian financial system is broadly classified into 2 broad Groups:-

1. Organized Sector
2. Unorganized Sector

1. ORGANISED SECTOR
The organized sector consists of: -

i). Financial institutions

a) Regulatory
The regulatory institutions are the ones, which forms the
regulations, and control the Indian financial system. The Reserve
Bank of India is the regulatory body, which regulates, guides
controls and promotes the IFS.

b) Financial intermediaries
They are the intermediaries who intermediate between the
saver and investors. They lend money as well mobilizes savings;
their liabilities are towards ultimate savers, while their assets are
from the investors or borrowers.

They can be further classified into

• Banking: -
All banking institutions are intermediaries.
• Non-Banking: -
Some Non-Banking institutions also act as intermediaries,
and when they do so they are known as Non-Banking Financial
[Link], LIC, GIC & NABARD are some of the NBFC’s
in India.

c) Non intermediaries:-
Non-intermediaries institutions do the loan business but their
resources are not directly obtained from the saver.

N. R. INSTITUTE OF BUSINESS MANAGEMENT 2

 COMMODITY FUTURES- INVESTORS PERCEPTION

ii. Financial Markets

Financial Markets are the centers or arrangements that provide
facilities for buying & selling of financial claims and services.
Financial markets can be classified into: -

• Organized markets
These markets comprise of corporations, financial
institutions, individuals and governments who trade in these
markets either directly or indirectly through brokers on
organized exchanges or offices.

• Unorganized markets
The financial transactions, which take place outside the
well-established exchanges or without systematic and orderly
structure or arrangements constitutes the unorganized
markets. They generally refer to the markets in the villages.

N. R. INSTITUTE OF BUSINESS MANAGEMENT 3

 COMMODITY FUTURES- INVESTORS PERCEPTION

Chart showing the Indian Financial

System
The Indian Financial
System

Organized Un-Organized
sector Sector

Financial Financial
Financial Financial
Institutio Instrumen
Markets Services
ns ts

Money
Lenders

Non- Interm Land Lords

Regulato Pawn
Interme e
Others ry Brokers
Diaries Diaries

Traders

Indigenous
Bankers

Un-
Organized Primary Secondary
organized

Short Medium- Long-

Primary Secondary
-Term Term Term

N. R. INSTITUTE OF BUSINESS MANAGEMENT 4

 COMMODITY FUTURES- INVESTORS PERCEPTION

Capital Money
Market Market

iii. Financial instruments

Financial instruments constitute of securities, assets and

claims. Financial securities are classified as primary and secondary
securities.

The primary securities are issued by the companies directly to

the ultimate savers as ordinary shares and debentures.

While the secondary securities are issued by the financial

intermediaries to the ultimate savers as bank deposits, insurance
policies so and on.

iv. Financial services

The term financial service in a broad sense means “Mobilizing

and allocating savings”. Thus, it can also be offered as a process by
which funds are mobilized from a large number of savers and make
them available to all those who are in need of it, particularly to the
corporate customers.

2. THE UNORGANIZED SECTOR

The unorganized financial system comprises of relatively less

controlled money lenders, indigenous bankers, lending pawn
brokers, land lords, traders etc. This part of the financial system is
not directly controlled by RBI.
.
Legislations passed by the RBI Relating to Foreign
Investments

The Reserve Bank of India through its circular RBI/2004/39

[Link] series circular no 64/February 4 2004 has introduced a
special scheme The Liberalized Remittance scheme of USD
25,000 (per year) for Resident individuals.

The implications of this legislation:

Resident Indians can now freely invest in any overseas

transaction; this opens the entire gamut of the Indian Investment

N. R. INSTITUTE OF BUSINESS MANAGEMENT 5

 COMMODITY FUTURES- INVESTORS PERCEPTION

scenario to overseas instruments like forex markets, forex

derivatives, index futures, commodity future and options and all
other alternative investments. The legislation would eventually lead
to complete liberalization in the areas of overseas investments.

(2.1) - GUIDELINES BY THE RBI PERTAINING TO COMMODITY

FUTURE TRADING

The guidelines are: -

These guidelines cover the Indian entities that are exposed to
commodity price risk.

 Name and address of the organization

I. A brief description of the hedging strategy proposed:

 Description of business activity and nature of risk.

 Instruments proposed to be used for hedging.
 Exchanges and brokers through whom the risk is proposed
to be hedged and credit lines proposed to be available. The
name and address of the regulatory authority in the country
concerned may also be given.
 Size/average tenure of exposure/total turnover in a year
expected.

II. Copy of the risk management policy approved by the Board of

Directors covering:

 Risk identification
 Risk measurements
 Guidelines and procedures to be followed with respect to
revaluation/monitoring of positions.
 Names and designations of the officials authorized to
undertake transactions and limits.

N. R. INSTITUTE OF BUSINESS MANAGEMENT 6

 COMMODITY FUTURES- INVESTORS PERCEPTION

III. Any other relevant information

 The authorized dealers will forward the application to Reserve

Bank along with copy of the Memorandum on the risk
management policy placed before the Board of Directors with
specific reference to hedging of commodity price exposure. .

 i. All standard exchanges traded futures will be permitted.

ii. Tenure of exposure shall be limited to 6 months. Tenure

beyond 6 months would require Reserve Bank’s specific
approval.

iii. Corporate who wish to hedge commodity price exposure

shall have to ensure that there are no restrictions on
import/export of the commodity hedged under the Exim policy
in force.

 After grant of approval by Reserve Bank, the corporate

concerned should negotiate with off-shore exchange broker
subject, inter alia, to the following:-

 Brokers must be clearing members of the exchanges, with

good financial track record.
 Trading will only be in standard exchange- traded futures
contract/options .

N. R. INSTITUTE OF BUSINESS MANAGEMENT 7

 COMMODITY FUTURES- INVESTORS PERCEPTION

(2.2) - SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

SEBI was setup in April 12, 1988. To start with, SEBI was set up as a
non-statutory body.
It took 4 years for the government to bring about a separate
legislation in the name of securities and exchange board of India
Act, 1992, conferring statutory powers over practically all aspects of
capital market operations.

Objectives of SEBI

o To protect the interest of investors so that there is a steady flow of savings into
the capital market.
o To regulate the securities market and ensure fair practices by
the issuers of securities, so that they can raise resources at
minimum cost.
o To provide efficient services by brokers, merchant bankers and
the other intermediaries, so that they become competitive and
professional.

Functions of SEBI

N. R. INSTITUTE OF BUSINESS MANAGEMENT 8

 COMMODITY FUTURES- INVESTORS PERCEPTION

Sec 11 of the SEBI act specifies the functions as follows:-

o \Regulation of the stock exchange and self-regulatory
organizations.
o Registration and regulation of stock brokers, sub-brokers,
registrar to all issue, merchant bankers, underwriters, portfolio
managers and such other intermediaries who are associated
with securities market.
o Regulation and registration of the working of collective
investment schemes including Mutual funds.
o Prohibition of fraudulent and unfair trade practices relating to
security market.
o Prohibit insider trading in securities.
o Regulation substantial acquisitions of shares and take over of
companies.

SEBI guidelines for COMMODITY FUTURES TRADING

There are many regulatory authorities, which are monitoring

commodity futures trading, one of them is SEBI. The following
Report is one of the regulatory frameworks for the commodity
futures trading.

Report of the committee appointed by the SEBI on

participation by Securities Brokers in Commodity Futures
Markets under the chairmanship of Shri K.R. Ramamurthy
(February 5, 2003)

The following were the recommendations:-

I) Participation of Securities Brokers in Commodity

Futures Market

N. R. INSTITUTE OF BUSINESS MANAGEMENT 9

 COMMODITY FUTURES- INVESTORS PERCEPTION

o The committee was of the unanimous view that participation of

intermediaries like securities brokers in the commodity futures
market is welcome as it could inter-alia increase the number of
quality players, infuse healthy competition, boost trading
volumes in commodities and in turn provide impetus to the
overall growth
of the commodity market.

o Since the commodity market falls under the regulatory purview

\

of a separate regulatory authority viz., Forward Market

Commission, to ensure effective regulatory oversight by the
Forward Market Commission, and to avoid any possible
regulatory overlap, the pre-condition for such entry by
intending participating securities brokers in the commodity
futures market would be through a separate legal entity, either
subsidiary or otherwise. Such entity should conform from time
to time to the regulatory prescription of Forward Market
Commission, with reference to capital adequacy, net worth,
membership fee, margins, etc.

o The committee took note of the fact that the existing

provisions of the Securities Contracts (Regulation) Rules, 1957
forbid a person to be elected as a member of a recognized
stock exchange if he is engaged as principal or employee in
any business other than that of securities, except as a broker
or agent not involving any personal financial liability. The
Committee recommended that the above provisions in the
Securities Contract (Regulations) Rules be removed/amended
suitably to facilitate securities brokers
participation/engagement in commodity futures.

o An important felt need was the necessity to improve market

awareness of trading and contracts in commodities. The
committee therefore recommended the forward market
commission take appropriate initiatives in training the market
participants.

II) Risk containment measures

In the background of the Forward Market Commission’s

report on risk containment measures currently obtaining in
commodity markets and the committee’s recommendation to
permit security brokers’ participation in commodities markets
only through a separate legal entity, the committee considers
that ensuring strict compliance of the regulatory prescriptions

N. R. INSTITUTE OF BUSINESS MANAGEMENT 10

 COMMODITY FUTURES- INVESTORS PERCEPTION

like net worth, capital adequacy, margins, exposure norms,

etc., by the respective market regulators, and due oversight
would be an adequate safeguard to ensure that the risks are
not transmitted from one market to the other.

III) Utilization of existing infrastructure of stock exchanges

On the issue of convergence/integration of the securities

market and commodities market, that is, of allowing stock
exchanges to trade in commodity derivatives and vice versa,
the committee was of the view that in the current statutory
and regulatory framework and existence of two separate and
established regulators, the issue of integration of the two
markets would require detailed examination, particularly for
the purpose of defining clearly the scope of regulatory purview
and responsibility.

Also, given the concerns raised by a section of members

that such integration may lead to further fragmentation of
volumes and liquidity in the nascent commodity markets, the
committee was of the view that the issue of markets could be
taken up for consideration at a future date as the two markets
mature further.

SEBI SIGNS MOU WITH COMMODITY FUTURE TRADING

COMMISSION, UNITED STATES

N. R. INSTITUTE OF BUSINESS MANAGEMENT 11

 COMMODITY FUTURES- INVESTORS PERCEPTION

Securities and exchange Board of India (SEBI) signed a

memorandum of understanding (MOU) with United States Commodity Futures
Trading Commission (CFTC) in Washington on April 28, 2004. The MOU was signed
by Mr. G. N. Bajpal, Chairman, SEBI and Mr. James [Link], Chairman, CFTC.
The MOU aims to strengthen communication channels and establish a framework for
assistance and mutual cooperation between the two organizations.

The MOU marks the beginning of greater collaboration between

SEBI and CFTC to effectively regulate and develop futures markets,
in view of greater cross-border trade and cross-market linkages
brought about by the globalization of financial markets. The two
authorities mintend to consult periodically about matters of mutual
interest in order to promote cooperation and market integrity, and to
further the protection of futures and options market participants. In
furtherance of the objective of promoting the development of sound
futures and options regulatory mechanisms, the CFTC would also
provide technical assistance for development of futures markets in
India.

Regulatory framework in India

In India, the statutory, basis for regulating commodity futures’ trading is found
in the Forward Contracts (Regulation) Act, 1952, which (apart from being an enabling
enactment, laying down certain fundamental ground rules) created the permanent
regulatory body known as the mForwards Markets Commission. This commission
holds overall charge of the regulation of all forward contracts and carries out its
functions through recognized association.

CHAPTER 3 - LITERATURE REVIEW

N. R. INSTITUTE OF BUSINESS MANAGEMENT 12

 COMMODITY FUTURES- INVESTORS PERCEPTION

(3.1) - INTRODUCTION TO DERIVATIVES INDUSTRY

Derivatives

A derivative is a security or contract designed in such a way

that its price is derived from the price of an underlying asset. For
instance, the price of a gold futures contract for October maturity is
derived from the price of gold. Changes in the price of the
underlying asset affect the price of the derivative security in a
predictable way.

Evolution of derivatives

In the 17th century, in Japan, the rice was been grown

abundantly; later the trade in rice grew and evolved to the stage
where receipts for future delivery were traded with a high degree of
standardization. This led to forward trading.

In 1730, the market received official recognition from the

“Tokugawa Shogunate” (the ruling clan of shoguns or feudal lords).
The Dojima rice market can thus be regarded as the first futures
market, in the sense of an organized exchange withstandardized
trading terms.

The first futures markets in the Western hemisphere were

developed in the United States in Chicago. These markets had
started as spot markets and gradually evolved into futures trading.
This evolution occurred in stages. The first stage was the starting of
agreements to buy grain in the future at a pre-determined price with
the intension of actual delivery. Gradually these contracts became
transferable and over a period of time, particularly delivery of the
physical produce. Traders found that the agreements were easier to
buy and sell if they were standardized in terms of quality of grain,
market lot and place of delivery. This is how modern futures
contracts first came into being. The Chicago Board of Trade (CBOT)
which opened in 1848 is, to this day the largest futures market in
the world.

N. R. INSTITUTE OF BUSINESS MANAGEMENT 13

 COMMODITY FUTURES- INVESTORS PERCEPTION

Kinds of financial derivatives

1) Forwards
2) Futures
3) Options
4) Swaps

1) Forwards

A forward contract refers to an agreement between two

parties, to exchange an agreed quantity of an asset for cash at a
certain date in future at a predetermined price specified in that
agreement. The promised asset may be currency, commodity,
instrument etc,

In a forward contract, a user (holder) who promises to buy the

specified asset at an agreed price at a future date is said to be in the
‘long position’. On the other hand, the user who promises to sell at
an agreed price at a future date is said to be in ‘short position’.

2) Futures

A futures contract represents a contractual agreement to

purchase or sell a specified asset in the future for a specified price
that is determined today. The underlying asset could be foreign
currency, a stock index, a treasury bill or any commodity. The
specified price is known as the future price. Each contract also
specifies the delivery month, which may be nearby or more deferred
in time.

The undertaker in a future market can have two positions in

the contract: -

a) Long position is when the buyer of a futures contract agrees

to purchase the underlying asset.
b) Short position is when the seller agrees to sell the asset.

Futures contract represents an institutionalized, standardized

form of forward contracts. They are traded on an organized

N. R. INSTITUTE OF BUSINESS MANAGEMENT 14

 COMMODITY FUTURES- INVESTORS PERCEPTION

exchange, which is a physical place of trading floor where listed

contract are traded face to face.

A futures trade will result in a futures contract between 2

sides- someone going long at a negotiated price and someone going
short at that same price. Thus, if there were no transaction costs,
futures trading would represent a ‘Zero sum game’ what one side
wins, which exactly match what the other side loses.

Types of futures contracts

a) Agricultural futures contracts:

These contracts are traded in grains, oil, livestock, forest

products, textiles and foodstuff. Several different contracts and
months for delivery are available for different grades or types
of commodities in question. The contract months depend on
the seasonality and trading activity.

b) Metallurgical futures contract:

This category includes genuine metal and petroleum contracts.

Among the metals, contracts are traded in gold, silver,
platinum and copper. Of the petroleum products, only heating
oil, crude oil and gasoline is traded.

c) Interest rate futures contract:

These contracts are traded on treasury bills, notes, bonds, and

banks certification of deposit, as well as Eurodollar.

d) Foreign exchange futures contract:

These contracts are trade in the British Pound, the Canadian

Dollar, the Japanese Yen, the Swiss Franc and the Deutsche
Mark. Contracts are also listed on French Francs, Dutch
Guilders and the Mexican Peso, but these have met with only
limited success.

3) Options

N. R. INSTITUTE OF BUSINESS MANAGEMENT 15

 COMMODITY FUTURES- INVESTORS PERCEPTION

An option contract is a contract where it confers the buyer, the

right to either buy or to sell an underlying asset (stock, bond,
currency, and commodity) etc. at a predetermined price, on or
before a specified date in the future. The price so
predetermined is called the ‘Strike price’ or ‘Exercise price’.

Depending on the contract terms, an option may be

exercisable on any date during a specified period or it may be
exercisable only on the final or expiration date of the period
covered by the option contract.

 Option Premium

 In return for the guaranteeing the exercise of an

option at its strike price, the option seller or writer
charges a premium, which the buyer usually pays
upfront. Under favorable circumstances the buyer
may choose to exercise it.

 Alternatively, the buyer may be allowed to sell it. If

the option expires without being exercised, the
buyer receives no compensation for the premium
paid.

 Writer

 In an option contract, the seller is usually referred to

as “writer”, since he is said to write the contract.

 If an option can be excised on any date during its

lifetime it is called an American Option. However, if
it can be exercised only on its expiration date, it is
called an European Option.

 Option instruments

a. Call Option
A Call Option is one, which gives the option holder
the right to “buy” an underlying asset at a pre-
determined price.

b. Put Option
A put option is one, which gives the option holder
the right to “sell” an underlying asset at a pre-

N. R. INSTITUTE OF BUSINESS MANAGEMENT 16

 COMMODITY FUTURES- INVESTORS PERCEPTION

determined price on or before the specified date in the

future.

c. Double Option
A Double Option is one, which gives the Option
holder both the right to “buy” or “sell” underlying asset
at a pre-determined price on or before a specified date in
the future.

4) SWAPS

A SWAP transaction is one where two or more parties exchange

(swap) one pre-determined payment for another.

There are three main types of swaps:-

a) Interest Rate swap

An Interest Rate swap is an agreement between 2 parties

to exchange interest obligations or receipts in the same
currency on an agreed amount of notional principal for an
agreed period of time.

b) Currency swap

A currency swap is an agreement between two parties to

exchange payments or receipts in one currency for payment or
receipts of another.

c) Commodity swap

A commodity swap is an arrangement by which one party

(a commodity user/buyer) agrees to pay a fixed price for a
designated quantity of a commodity to the counter party
(commodity producer/seller), who in turn pays the first party a
price based on the prevailing market price (or an accepted
index thereof) for the same quantity.

N. R. INSTITUTE OF BUSINESS MANAGEMENT 17

 COMMODITY FUTURES- INVESTORS PERCEPTION

(3.2) - INTRODUCTION TO COMMODITY FUTURES

THE HISTORY OF TRADING

 Futures trading are a natural outgrowth of the problems of

maintaining a year-round supply of seasonal products like
agricultural crops. In Japan, merchant stored rice in
warehouses for future use. In order to raise cash, warehouse
holders sold receipts against the stored rice. These were
known as “rice tickets”. Eventually, such rice tickets became
accepted as a kind of general commercial currency. Rules
came into being to standardize the trading in rice tickets.

 In the United States, futures trading started in the grain

markets in the middle of the 19th century.

N. R. INSTITUTE OF BUSINESS MANAGEMENT 18

 COMMODITY FUTURES- INVESTORS PERCEPTION

 The Chicago Board of Trade was established in1848. In the

1870’s and 1880’s the New York coffee, cotton and produce
exchanges were born. Today there are ten commodity
exchanges in the United States. The largest are the Chicago
Board of Trade, the Chicago Mercantile Exchange, the New
York Mercantile\ Exchange, New York Commodity Exchange
and the New York Coffee, Sugar and Cocoa Exchange.

 Worldwide there are major futures trading exchanges in over

20 countries including Canada, England, France, Singapore,
Japan, Australia and New Zealand. The products traded range
form agricultural staples like Corn and Wheat to Red Beans and
Rubber.

What is a commodity?

Commodity includes all kinds of goods. FCRA defines “goods” as “every kind
of moveable property other than actionable claims, money and securities”.

Futures trading are organized in such goods or commodities as are permitted by

the central government. The national commodity exchanges have been recognized by
the central government for organizing trading in all permissible commodities which
include precious (gold & silver) and non-ferrous metals; cereals and pulses; oil seeds,
raw jute and jute goods; sugar; potatoes and onions; coffee and tea; rubber and spices,
etc.

Commodity Futures Trading

The commodity futures trading, consists of a futures contract,
which is a legally binding agreement providing for the delivery of the
underlying asset or financial entities at specific date in the future.

Like all future contracts, commodity futures are agreements to

buy or sell something at a later date and at a price that has been
fixed earlier by the buyer and seller.
So, for example, a cotton farmer may agree to sell his output to a
textiles company many months before the crop is ready for actual
harvesting.

N. R. INSTITUTE OF BUSINESS MANAGEMENT 19

 COMMODITY FUTURES- INVESTORS PERCEPTION

This allows him to lock into a fixed price and protect his
earnings from a steep drop in cotton prices in the future. The textiles
company, on the other hand, has protected itself against a possible
sharp rise in cotton prices.

The complicating factor is quality. Commodity futures contracts

have to specify the quality of goods being traded. The commodity
exchanges guarantee that the buyers and sellers will stick to the
terms of the agreement.

When one buys or sells a futures contract, he is actually entering

into a contractual obligation which can be met in one of 2 ways.

First, is by making or taking delivery of the commodity. This is

the exception, not the rule however, as less than 2% of all the
futures contracts are met by actual delivery. The other way to meet
one’s obligation, the method which everyone most likely will use, is
by “offset”.

Very simply, offset is making the opposite or offsetting sale or

purchase of the same number of contracts sold, sometimes prior to
the expiration of the date of the contract. This can be easily done
because futures contracts are standardized.

Investor’s choice

The futures market in commodities offers both cash and

delivery- based settlement. Investors can choose between the two. If
the buyer chooses to take delivery of the commodity, a transferable
receipt from the warehouse where goods are stored is issued in
favour of the buyer. On producing this receipt, the buyer can claim
the commodity from the warehouse.

All open contracts not intended for delivery are cash settled.
While speculators and arbitrageurs generally prefer cash settlement,
commodity stockist and wholesalers go for delivery. The options to
square of the deal or to take delivery can be changed before the last
date of contract expiry. In the case of delivery- based trades, the
margin rises to 20-25% of the contract value and the seller is
required to pay sales tax on the transaction.

What makes commodity trading attractive?

• A good low-risk portfolio diversifier

N. R. INSTITUTE OF BUSINESS MANAGEMENT 20

 COMMODITY FUTURES- INVESTORS PERCEPTION

• A highly liquid asset class, acting as a counterweight to

stocks, bonds and real estate
• Less volatile, compared with, say, equities
• Investors can leverage their investments and multiply
potential earnings
• Upfront margin requirement low
• Better risk- adjusted returns
• A good hedge against any downturn in equities or bonds as
there is little correlation with equity and bond markets
• High correlation with changes in inflation
• No securities transaction tax levied.

Why commodities preferred to stocks?

• Prices predictable to their cyclical and seasonal patterns

• Less risk
• Small margin requirement
• Lesser investment requirement
• No insider trading
• Entry and exit guaranteed at any point of time
• Cash settlement according to Mark to Market Position
• Relatively small commission charges
• Higher returns

The commodity market is a market where forwards, futures

and options contracts are traded on commodities. Commodity
markets have registered a remarkable growth in recent years. The
stage is now set for banks to trade in commodity futures. This could
help producers of agricultural products bankers and other
participants of the commodity markets. Banks have started
acknowledging the commodity derivatives market. In this context
the Punjab National Bank and the Corporation Bank have sanctioned
loans worth Rs 50 crore to commodity futures traders over the past
six months. However, the loans are not given to pure speculators. A
precondition for the loans is that the futures contract must result in
the delivery of the commodity.

N. R. INSTITUTE OF BUSINESS MANAGEMENT 21

 COMMODITY FUTURES- INVESTORS PERCEPTION

OPERATIONAL DEFINITIONS

 Short selling
Selling first is known better as ‘shorting’ or ‘short selling’.
In futures trading, since one is taking a future delivery, its
just as easy to sell first and then buy later. To offset the
obligation to deliver, all one needs to do is to buy back
the Contract prior to the expiration of the Contract.

 Margin
A margin refers to a good faith deposit made by the
person who wants to buy or sell a Contract in a futures
exchange. It is a small percentage of the value of the
underling commodity represented by the Contract,
generally in the neighborhood of 2 to 10%.

 Leverage
Leverage is the ability to buy or sell $100,000 of a
commodity with a $5000 security deposit, so that small
price changes can result in huge profits or losses.

 Maintenance margin
Maintenance margin is the amount which must be
maintained in ones account as long as the position is
active.

 Margin call
If the equity balance in the account falls bellow the
maintenance margin level, due to adverse market
movement, the account holder will be issued a margin
call.

 Tick
A tick refers to the minimum price fluctuation, is a
function of how the prices are quoted and set by the
exchange.

 Float
Float refers to the concept, when an investor who has
taken a position, but does not want to liquidate his
position at close of the market.

 Limit up/down

N. R. INSTITUTE OF BUSINESS MANAGEMENT 22

 COMMODITY FUTURES- INVESTORS PERCEPTION

It refers to the maximum amount that the market can

move above or below the previous day’s close in a single
trading session. If the price moves up it is known as ‘limit
up’, when the price moves down its is known as ‘limit
down’.

The Role of the exchange in futures Trading

1) Price discovery

As sellers offer to sell and buyers offer to buy in the pit,

they provide immediate information regarding the price of the
futures contract.
The price is usually given as “Bid -Ask”.

E.g.: - Price for corn might be $2.40 bid, $2.42 ask, meaning a
buyer is willing to pay $2.40 a bushel, but the seller wants
$2.42 a bushel.

2) Risk Transfer

In a futures transaction, risk is inherent part of doing

business. The exchange provides a setting where risk can be
transferred from the hedgers to the speculators.

3) Liquidity

If risk is to be transferred efficiently, there must be a

large group of individuals ready to buy or sell. When a hedger
wants to sell futures contracts to protect his business position,
he needs to know whether he can effect the transaction
quickly. The futures exchange brings together a large number
of speculators, thus making quick transaction possible.

4) Standardization

The exchange writes the specifications for each contract,

setting standards of grading, measurement methods of
transfer, and times of delivery. By standardizing the contracts
in this manner, the exchange opens the futures market to
almost anyone willing to hedge risk. In the pits, then, the
auction process is facilitated because only the price must be
negotiated.

N. R. INSTITUTE OF BUSINESS MANAGEMENT 23

 COMMODITY FUTURES- INVESTORS PERCEPTION

Functions of futures markets

The futures market serves the needs of individuals and groups

who may be active traders or passive traders, risk averse or profit
makers. The above broadly classifies the functions of the futures
markets: -

1) Price Discovery
2) Speculation
3) Hedging

1) Price discovery

“Futures prices might be treated as a consensus forecast by

the market regarding trading future price for certain
commodities”. This classifies that futures market help market
watchers to “discover” prices for the future.

The price of certain commodity depends on the following factors:-

a) The need for information about future spot prices

Individuals and groups in society need information not
only for generating wealth but also for planning of future
investment and consumption.
E.g.- A furniture manufacturer, making plywood furniture
for printing his catalogue for next years needs to estimate
price in advance. This task is different as the cost of plywood
varies greatly, depending largely on the health of the
construction industry. But the problem can be solved by using
prices from the plywood futures market.

b) Accuracy
The accuracy of the futures market is not too good but it
is certainly better than the alternative.

2) Speculation

Speculation is a spill over of futures trading that can provide

comparatively less risk adverse investors with the ability to
enhance their percentage returns. Speculators are categorized
by the length of time they plan to hold a position.

The traditional classification includes: -

N. R. INSTITUTE OF BUSINESS MANAGEMENT 24

 COMMODITY FUTURES- INVESTORS PERCEPTION

o Scalpers
They have the shortest holding horizons,
typically closing a position within a few minutes of
initiation. They attempt to profit on short-term
pressures to buy and sell by “reading” other traders
and transacting in the futures pits. Thus, scalpers
have to be exchange members. They offer a
valuable market service because their frequent
trading enhances market liquidity.

o Day Traders:-
They hold a futures position for a few hours,
but never longer than one trading session. Thus,
they open and close to futures position within the
same trading day.

3) Hedging
While engaging in a futures contract in order to reduce
risk in the spot position, hedging is undertaken. Therefore the
future trader is said to establish a hedge.

The 3 basic types of hedge are:

a) Long hedge/ Anticipatory hedge

An investor protects against adverse price

movements of an asset that will be purchased in future,
i.e. the spot asset is not currently owned, but is
scheduled to be purchased or otherwise held at a later
date.

b) Short hedge
An investor already owns a spot asset and engages
in a trade or sell it’s associated futures contract.

c) Cross hedge
In actual hedging positions, the hedgers needs do
not perfectly match with the institutional futures. They
may differ in
-Time span covered
-The amount of commodity
-The particular characteristics of the particular goods

Thus, when a trader writes a futures contract on another

underlying asset, he is said to establish a cross hedge.

N. R. INSTITUTE OF BUSINESS MANAGEMENT 25

 COMMODITY FUTURES- INVESTORS PERCEPTION

The regulators and regulations

 The first level of regulation is the exchange.

 The exchange does not take positions in the market. Instead, it has the
responsibility to ensure that the market is fair and orderly.

 It does this by setting and enforcing rules regarding margin deposits, trading
procedures, delivery procedures and membership qualifications.

 Each exchange consists of a clearinghouse.

 The clearinghouse ensures all trades are matched and

recorded and all margins are collected and maintained.

 It also is in charge of ensuring deliveries take place in an

orderly and fair manner.

(3.2)(a) THE COMMODITY FUTURES ‘MODUS OPERANDI’

The ‘modus operandi’ of commodity futures includes the

method of working which is being followed. It also includes the
factors and concepts, which affect the smooth functioning of the
markets, are discussed.

Modus Operandi

The Price
Different Delivery
Exchang Determinati
Types Of Month
e on
Orders

N. R. INSTITUTE OF BUSINESS MANAGEMENT 26

 COMMODITY FUTURES- INVESTORS PERCEPTION

Differen
Commodi Brokers Different
t Types Margin
ty Future and Types Of
of
Is a Two Commissio Participants
Future
Way n In Market
Position
Market
s

Types of Futures Positions

The different types of futures contract position are: -

 Open position

The trader exploits a view on the economic or technical factors affecting

a market by taking a position in a single contract, usually the most liquid
or ‘front month’ contract.

 Spreads

Spread is the term used when, a client buys one contract

while simultaneously sell another. They are: -

 Intra market spreads

The trader exploits a view on the relative pricing of
2 futures contracts of the same contract type by
buying one futures contract for a specific expiry
date and simultaneously selling another contract
with a different expiry date. .
E.g. buying silver and selling gold.

 Inter market spreads

The trader exploits a view on the relative pricing of 2 futures
contracts of different contract types by buying a future contract in
one market and simultaneously selling a futures contract, usually
of the same maturity, in a different futures market.

Commodity futures is a 2 way market

N. R. INSTITUTE OF BUSINESS MANAGEMENT 27

 COMMODITY FUTURES- INVESTORS PERCEPTION

Buying a contract at a lower price and selling at a higher price, and booking
profits, this concept is well understood and widely accepted. In commodity futures
trading, one can also sell first and buy later. This concept is known as ‘short selling’.

A buyer of a futures contract is obligated to take delivery of a particular

commodity or sell back the contract prior to the expiration of the contract. The latter is
done by everyone usually. The purpose of shorting is to profit from a fall in prices. If
one believes that the price of commodity is going down, due to oversupply and poor
demand, he should go short.

Brokers and commissions

Commission is the broker’s fees for his services.

Commissions are of 2 types,

1 Discounter
Discounter type of commission is the commission where the broker
charges his fees only for trading activities.

2 Full service.
Full service commission is the commission charged to a broker, for
advising the client regarding when to buy/sell and also providing useful
analysis.

Participants

 Hedgers

In a commodity market, hedging is done by a miller,

processor, stockiest of goods, or the cultivator of the
commodity. Sometimes exporters, who have agreed to sell at a
particular price, need to be a hedger in a futures and options
market. All these persons are exposed to unfavorable price
movements and they would like to hedge their cash positions.

 Speculators

Speculator does not have any position on which they

enter in futures options market. They only have a particular
view about the future price of a particular commodity. They
consider various fundamental factors like demand and supply,

N. R. INSTITUTE OF BUSINESS MANAGEMENT 28

 COMMODITY FUTURES- INVESTORS PERCEPTION

market positions, open interests, economic fundamentals

internal events, rainfall, crop predictions, government policies
etc. and also considering the technical analysis, they are either
bullish about the future process or have a bearish outlook.

In the first scenario, they buy futures and wait for rise in
price and sell or unwind their position the moment they earn
expected profit. If their view changes after taking a long
position after taking into consideration the latest
developments, they unwind the transaction by selling futures
and limiting the losses. Speculators are very essential in all
markets. They provide market to the much desired volume and
liquidity; these in turn reduce the cost of transactions. They
provide hedgers an opportunity to manage their risk by
assuming their risk.

 Arbitrageur

He is basically risk averse. He enters in to those contracts

where he can earn risk less profits. When markets are
imperfect, buying in one market and simultaneous selling in
another market gives risk less profit. It may be possible
between two physical markets, same for 2 different periods or
2 different contracts.

Intermediate Participants

 Brokers

A broker is a member of any one of the futures exchange,

one gets commodity or financial futures exchange, one gets
the right to transact with other members of the same
exchange. All persons hedging their transaction exposures or
speculation on price movement cannot be members of a
futures exchange. Non-member has to deal in futures
exchange, through a member only. This provides the member
the role of a “broker”.

Margin

N. R. INSTITUTE OF BUSINESS MANAGEMENT 29

 COMMODITY FUTURES- INVESTORS PERCEPTION

Margin is money deposited in the brokerage account, which serves to guarantee

the performance of the clients’ side of the contract. This is generally in the
neighborhood of 2-10%

When the client enters a position, he would have deposited,

the margin in his account, but the brokerage house is required to
post the margin with a central exchange arm called the ‘clearing
house’. The clearing house is a non-profit entity, which in effect is in
charge of debiting this money to the accounts of winners daily.

Exchange Information
There are many exchanges in the world but among them some are very big and old.

1) CHICAGO MERCANTILE EXCHANGE

Chicago Mercantile Exchange inc® (CME) is the largest futures exchange in

the United States and is the largest futures clearing house in the world for the trading
of the future and options on futures contracts.

As a marketplace for global risk management, the exchange brings together

buyers and sellers of derivatives products, which trade on the trading floors, on the
GLOBEX®ELECTRONIC TRADING platform and through privately negotiated
transactions. It was founded as a non profit corporation in 1898, later CME became
the first publicily traded U.S. financial exchange in December 2002 when the Class A
shares of its parent company, Chicago Mercantile Exchange Holdings Inc., began
trading on the New York Stock Exchange under the ticker symbol CME.

2) CHICAGO BOARD OF TRADE

The Chicago Board of Trade (CBOT), established in 1848, is one

of the leading futures and options on futures exchange. More than
3,600 CBOT members trade 50 different futures and options
products at the exchange through open auction and electronically. In
its early history, the CBOT traded only agricultural commodities such
as corn, wheat, oats and soybeans.

Futures contracts at the exchange evolved over the years to

include non-storable agricultural commodities and non-agricultural
products like gold and silver. For more than 150 years, the primary
method of trading at the CBOT was open auction, which involved
traders meeting face-to -face in trading pits to buy and sell futures
contracts. But to better meet the needs of a growing global

N. R. INSTITUTE OF BUSINESS MANAGEMENT 30

 COMMODITY FUTURES- INVESTORS PERCEPTION

economy, the CBOT successfully launched its first electronic trading

system in 1994.

3) THE NEW YORK MERCANTILE EXCHANGE

The NYMEX is the world’s largest physical commodity futures

exchange and the pre-eminent trading forum for energy and
precious metals. Transactions executed in the exchange avoid the
risk of counter party default because the exchange clearing house
acts as the counter party to every trade.

The above mentioned exchanges are of foreign country.

Main Indian commodity exchanges are:

- The National Commodity and Derivative Exchange

(NCDEX).
- The Multi Commodity Exchange of India (MCX)
- The National Multi Commodity Exchange of India (NMCE)
- The National Board of Trading in Derivatives (NBOT)

Different Types of Order

There are different types of orders that a client can give to his broker, they are: -

Types Of Orders

Stop Limit
Market Order Limit Order Stop Order
Order

Market order

N. R. INSTITUTE OF BUSINESS MANAGEMENT 31

 COMMODITY FUTURES- INVESTORS PERCEPTION

This is an order to buy or sell at the prevailing price. By definition, when a

commodity is bought or sold at the market, the floor broker has an order to fill
immediately “at the best price”, but in reality it is “the next price”

Limit order

With a limit order, the floor broker is prevented from paying more than the
limit on a sell order.

Stop order

Stop order or “stops” are used in 2 ways. The most common is

to cut loss on a trade, which is not working in ones favour. A stop is
an order, which becomes market order to buy or sell at the
prevailing price only if and after the market touches the stop price. A
‘sell stop’ is placed under the market and a ‘buy stop’ above the
market.

Stops can also be used to initiate positions. They are used by

momentum traders who want to enter market moving in a certain
direction.

E.g. a trader believes that, if gold prices trade above the

psychologically significant’ $400 mark, it will move higher. He places
a key stop at a $401. And also can place a sell stop at $396.

Stop limit order

It is an order where a client can place a stop order at a

particular level with a limit beyond which the market would not be
‘chased’

Sell on stop @2637, limit 35’

An order of this nature will not force the market away from the limit;
but is in danger of not getting filled at all.

Delivery months

Every futures contract has standardized months, which are authorized by the
exchange for trading. E.g. wheat is traded for delivery in March, May, July,
September, and December.

Price Determination

N. R. INSTITUTE OF BUSINESS MANAGEMENT 32

 COMMODITY FUTURES- INVESTORS PERCEPTION

The price is determined by demand and supply, or in other words

buyers and sellers. If the buyers are more aggressive then the prices
go up. If the sellers are larger the prices go down.

The bid and the offer

The only part of a contract that is negotiated in the pit is the

price. Everything else is standardized.

Therefore, the trader in the bid needs to communicate only 3 things

1. Whether he wishes to buy or sell
2. The number of contracts he wishes to buy or sell
3. The price

The exchange ‘open outcry’ and the clearing house

It is understood that the exchange does not set the prices of

the traded commodities. The prices are determined in an open and
continuous auction on the exchange floor by the members who are
either acting on behalf of the customers, the companies, they work
for or themselves. The process of the auction, which has been
around for over 100 years, is called an “open outcry”.

People are not only willing to buy, but also to sell, and they all
can be doing this simultaneously. Every floor trader has his own
auctioneer, the democratic feature of an open outcry is that only the
best bid and offer are allowed to come forward at any point in time,
if a trader is willing to pay the highest price offered, he yells it out,
and by law all lower bids are silenced, by exchange rules, no one
can bid under a higher bid, and no one can offer to sell higher than
someone else’s lower offer.

Difference between a floor broker and the broker with whom one can
place order

A floor broker is buying or selling futures on the floor either solely for
himself or filling orders for his customers who are the Brokerage
Houses.

A broker off the floor is licensed by the future government to

execute the orders on behalf of the public.

The pit

N. R. INSTITUTE OF BUSINESS MANAGEMENT 33

 COMMODITY FUTURES- INVESTORS PERCEPTION

A pit is the heart of the open outcry market system. It is the

place where the various bid and sell offers are made by floor
brokers, and floor traders on behalf of their clients.

How price reach the Quote Board?

At the exchange, a pit observer, who is an employee of the

exchange, stands in the pit with a walkie-talkie. Each time the price
changes; the observer radios the info to the exchange operator, who
enters the info to the exchange quote entry system.

The price immediately appears on the quote board and is

simultaneously broadcasted on the exchange ticker to the public.

On the quote board, the most recent price appears at the

bottom of a column process, with the next previous price above that
and the 5 precious prices above that. As a trade is made the other
prices move up, with the bottom, and the other prices move up, with
the top price dropping off. The quote board also gives the previous
days settlement price and the high-low of the days trading. And the
net difference between the last price and the previous days
settlement price.

Analysis

• Commodity futures market is a 2 way market

• There are various parameters that are standardized such as
delivery months, the exchange, margins, leverage, brokerage
and commissions.
• One could take any one of the future positions out of the
available ones
• There are many types of orders, which a client can give to his
broker.
• The price is determined in a standardized manner

Interpretation

N. R. INSTITUTE OF BUSINESS MANAGEMENT 34

 COMMODITY FUTURES- INVESTORS PERCEPTION

From the above analysis, it can be seen that, the commodity

futures ‘modus operandi’ or operating procedure is very well defined
at every level, and also standardized.
Thus there is very little scope for manipulation. Thus, it is an
efficient derivative ‘modus operandi’.

(3.2)(b) - Risk Associated With Commodity Futures Trading

There are various risks in commodity futures trading, they are:-

Types of Risk

Operational Liquidity
Market Risk
Risk Risk

Operational risk

The risk that, errors (or fraud) may occur in carrying out
operations, in placing orders, making payments or accounting for
them.

Market risk

It is the risk of adverse changes in the market price of a

commodity future.

Liquidity risk

Although commodity futures markets are liquid mostly, in few

adverse situations, a person who has a position in the market, may
not be able to liquidate his position. For E.g.. a futures price has
increased or decreased by the maximum allowable daily limit and

N. R. INSTITUTE OF BUSINESS MANAGEMENT 35

 COMMODITY FUTURES- INVESTORS PERCEPTION

there is no one presently willing to buy the futures contract you

want to sell, or sell the futures contract you want to buy.

The Various Risk Management Techniques Used in Commodity Futures

Trading

Considering the risks discussed previously, various risk

management techniques are used in order to minimize the losses.

There are mainly 3 techniques, they are

1. Averaging
2. Switching
3. Locking

Averaging

Averaging is a technique used when there is an existing

position, and the price moves adversely. And then at that particular
price, enter into a similar new position. Then take the average of
these 2 prices. And when the price moves to that price liquidate the
position.

Example:
1. Silver bought 1 lot@ 580 cents, expecting price to go up,
with cut loss @ 577 cents
Price goes to 574 cents,
Buy another new lot @ 574 cents
Now, the average price is 577 cents.
When the price comes to 577 cents, then liquidate both the
lots and thus
Profit = 3 cents
Loss = -3cents
-----------
Net profit 0
-----------
2 .Sold soybean 1 lot @780 cents
Sold soybean 1 lot @790 cents
Sold soybean 1 lot@800 cents
Now, average price is 790 cents, when price comes to 790
cents, liquidate all 3 lots, thus making no profit no loss.

Switching

N. R. INSTITUTE OF BUSINESS MANAGEMENT 36

 COMMODITY FUTURES- INVESTORS PERCEPTION

Switching is yet another risk management technique, when,

there is an existing position, and the prices move adversely and
gives all indication that it will go in the same direction for still some
while. Then we have to liquidate the first position and enter a new
and opposite position at the same price.

Example:
Bought silver 1 lot @580 cents
Cut loss@ 578 cents
Price reaches @800 cents
Then sold 2 lots of silver @ 577 cents, one lot will be
liquidating the first lot, and then the second one will
be a new position.
Now when price goes to 570 cents, liquidate the second lot,
and book the profits.
Profit = 7 cents
Loss = (-) 3 cents
-----------
Net profit (+) 4 cents
-----------
Locking

Locking is yet another risk management technique, where,

when there is an existing position, and the prices move adversely
and give an indication that it will move in that direction, but it will
come back to its original position. Here two processes are involved
‘locking and ‘unlocking’.

It is the process where there is an existing position, and the

price moves adversely, we ‘lock’ by entering into a new opposite
position. And then when the second price reaches a point where it
will bounce back, we ‘unlock’ by liquidating the second position and
book profits, and then finally when the pr ice reaches somewhere
near the first position, liquidate the position, whereby we can
minimize the loss.

Example:-

Bought silver 1 lot @ 600 cents----(1)

Price falls to 590 cents
Sold silver 1 lot @ 590 cents----(2)
Price goes to 580 cents; where it is expected to bounce back,
liquidate the second lot.
Bought silver 1 lot @ 580 cents, liquidation (2)

N. R. INSTITUTE OF BUSINESS MANAGEMENT 37

 COMMODITY FUTURES- INVESTORS PERCEPTION

Price comes to 597 cents, then liquidate the (1) lot

Sold silver 1 lot @ 597 cents, liquidation (1)
Profit = 10 cents
Loss = (-) 3 cents
----------
Net profit (+) 7 cents
----------

Analysis

 There are different types of risks involved in commodity

futures trading.
 The most important one being, market risk.
 But to counter these price risks, various types of risk
management techniques are used in order to minimize
the risk.
 Among the risk management techniques, locking is the
most commonly used one.
 Manipulation of price of the commodity is not possible as,
these are global commodity prices, and in order to do so,
he has to pump in huge volumes of money, which is very
unlikely.

Interpretation

Although there exists various types of risks involved in trading

the various risk management technique can be effectively used in
order to minimize the loss due to adverse price movements.

Various analysis tools used to predict the price

movements in commodity futures trading

In order to predict the future price of a commodity, the various

analyses, tools are used. In order to make the daily or regular
predictions, two important analyses made are:

 Technical Analysis
 Fundamental Analysis

N. R. INSTITUTE OF BUSINESS MANAGEMENT 38

 COMMODITY FUTURES- INVESTORS PERCEPTION

TECHNICAL ANALYSIS

Technical analysis refers to the process of analyzing the market with the help of
technical tools, which includes charts, and henceforth makes future predictions of the
prices. The only important factor for analyzing the market is price action.

Bar Chart

A Bar Chart is one of the most widely used charts. The market
movement is reduced on a daily basis as a vertical line between the
high and low; the opening level being indicated as a ‘horizontal dash
to the left’, the closing level being indicated as a ‘horizontal dash to
the right’. As well as a daily record, similar charts can be drawn for
weekly or monthly price ranges. Although bar charts are the most
popular for technical analysts, their minor limitation is that they do
not show how the market acted during the trading day.

A line chart is the simplest chart, and generally drawn by the

non technical investor interested in getting quick visual impression
of the general movement of the market. Normally closing prices are
used and joined to form a line chart. They are not really adequate
for market movement interpretation, but can give a very good
indication as to what the market has been doing over a longer time
scale, up to 10 to 20 years.

Moving averages

Moving averages are used to iron out some of the more volatile
short-term movements, and can give better buy and sell signals,
than just by looking at a daily high-low-close pattern. For instance, a
20-day moving average refers to the average price, of the previous
20 days. In the above chart the red line is the 20-day average. The
green line is the 50-day average and the yellow line is the 100 day
average.

Gaps
A Gap is formed when one day’s trading movement does not
overlap the range of the previous day. This may be caused by the
market opening sharply highly or lower than the previous days close,
as a result of important overnight news. Strong movements in

N. R. INSTITUTE OF BUSINESS MANAGEMENT 39

 COMMODITY FUTURES- INVESTORS PERCEPTION

overseas markets influencing our market or interest, or quite simply

because the market has started to develop a strong momentum of
its own.

Break away gap

This usually occurs soon after a new trend has been
established as large numbers of new trend has been established, as
large numbers of new investors suddenly want to join the action. It is
often regarded as a confirmation that a new trend is well
established.

FUNDAMENTAL ANALYSIS

Fundamental analysis is the study of supply and demand. The cause

and effect of price movement is explained by supply and demand. A
good fundamentalist will be able to forecast a major price move well
in advance of the technician.

E.g. if there is a drought in Brazil during the flowering phase of

soybean plant one can rationally explain why bean prices are rising.
There are various factors affecting the fundamentals of different
commodities.
They are

Fundamentals affecting Agriculture Commodities

a) Supply

The supply of a grain will depend on

i) Beginning stocks
This is what the government says, it will carryover from the
previous year

ii) Production
This is the crop estimate for the current year.

iii) Imports
This includes the commodities imported from different countries.

iv) Total supply

This is the beginning stocks+production+imports

b) Demand

N. R. INSTITUTE OF BUSINESS MANAGEMENT 40

 COMMODITY FUTURES- INVESTORS PERCEPTION

i) Crush
This is the domestic demand by the crushers who buy new soybeans.
And crush them into the products, meal and oil.
ii) Exports
This refers to the quantity of different commodities demanded by
foreign countries.

c) Ending carryover stocks

Total supply minus total demand= the carryover, ending stocks

d) Weather
Weather is the single most important factor, which affects the process of all
types of grains. If there is flood drought, it will shoot up the price, due to
increase in demand.

e) Seasonality
All other factors remaining equal, the grains and oil seeds do exhibit certain
seasonal tendencies.

Metals fundamentals

Metals include
• Precious metals
• Industrial metals

Precious metals
The precious metals include gold, silver, and platinum. Their fundamentals are

i) Silver
Since much of the new production of silver comes as a by-product of the
3 metals (copper, zinc, lead), if the price of the 3 is depressed and production is
curtailed, silver output will suffer as well. The reverse is also true.

ii) Platinum
The demand for platinum is somewhat dependent on the health of the
automotive, electrical, dental, medical, chemical, and petroleum industries
(where it is used as a catalyst.)

Industrial metals

These include copper, palladium. Their fundamentals are

i) Economic activity

N. R. INSTITUTE OF BUSINESS MANAGEMENT 41

 COMMODITY FUTURES- INVESTORS PERCEPTION

For any metal, industrialized demand is the key. If there is the threat of
an economic slow down, this will be reflected in lower prices.

ii) LME stocks

Everyday the London Metal Exchange releases its widely watched
stocks report, where, it lists the stocks in the exchange approved warehouses
for aluminum, copper, zinc, tin, lead.

iii) Mining strikes and production problems

iv) War
Copper in particular has been called the ‘war’ metal. Demand
traditionally soars for all the industry al metals in times of increased defense
spending.

v) Inflation
The industrial metals have been at times been called the ‘poor man’s
gold’ and will heat up in an inflationary environment.

Analysis

Predictions in the commodity futures trading can be made through 2 tools i.e.
fundamental analysis and technical analysis. Fundamental analysis seeks to protect the
market by making use of the demand and supply factors. It helps to explain what the
general tendency in the market is. Technical analysis is the process of using all kinds
of tools and charts, in order to make predictions, it helps to explain exactly at which
point to enter a position or helps to explain at what point will be the trend reversal.

Interpretation

From the above analysis, it can be concluded that, by making use of both the
fundamental and technical analysis efficiently, and henceforth take a
favorable position in the market and thus benefit from the price
movements.

(3.3)(c)Growth of the commodity futures trading in India

 Investment in India has traditionally meant property, gold and

bank deposits. The more risks taking investors choose equity
trading. But commodity trading never forms a part of
conventional investment instruments. As a matter of fact,

N. R. INSTITUTE OF BUSINESS MANAGEMENT 42

 COMMODITY FUTURES- INVESTORS PERCEPTION

future trading in commodities was banned in India in mid

1960’s due to excessive speculation.

 Commodity trading is finding favor with Indian investors and is

been seen as a separate asset class with good growth
opportunities. For diversification of portfolio beyond shares,
fixed deposits and mutual funds, commodity trading offers a
good option for long term investors and arbitrageurs and
speculators, and, now, with daily global volumes in commodity
trading touching three times that of equities, trading in
commodities cannot be ignored by Indian investors.

 The strong upward movement in commodities, such as gold,

silver, copper, cotton and oilseeds, presents the right
opportunity to trade in commodities. Due to heavy fall down in
stock market people are finding the safe option to invest and
commodity future is providing them that direction.

 India has three national level multi commodity exchanges with

electronic trading and settlement systems.

o The National Commodity and Derivative Exchange

(NCDEX).
o The Multi Commodity Exchange of India (MCX)
o The National Multi Commodity Exchange of India (NMCE)
o The National Board of Trading in Derivatives (NBOT)

 India, which allowed futures trading in commodities in 2003, has one of the
fastest-growing commodity futures markets with a combined trade turnover of
40.66 trillion rupees in 2007/08.

 Indian commodity futures trade rose 29.74 percent to 43.93 trillion rupees
during the first ten and-a-half-months of financial year 2008/09, helped mainly
by the surging trade in bullion, official data showed.

 Turnover at Indian commodity bourses rose 39 percent to 31.54 trillion rupees

from April 1 to Nov. 15 from the year-ago period, data from regulator Forward
Markets Commission (FMC) showed.

 Turnover rose 3.5 percent to 2.33 trillion rupees in the fortnight ended Feb. 15,
2009, data from regulator Forward Markets Commission (FMC)
 Trade was most active in gold, silver, crude oil, copper and zinc in energy and
metals pack during the period, data showed.
 Futures trade in bullion jumped 75.89 percent to 24.45 trillion rupees,
accounting for more than half of the total trade from in April 1, 2008 - Feb. 15,

N. R. INSTITUTE OF BUSINESS MANAGEMENT 43

 COMMODITY FUTURES- INVESTORS PERCEPTION

2009 period. It rose 17.79 percent to 1.42 trillion rupees in the fortnight to Feb.
15.
 “India’s commodity futures trade is set to grow more than 40% to Rs57 trillion
in the year to March 2009, despite trading curbs on eight commodities,”said the
chairman of the Forward Markets Commission.

 India allowed futures trading in commodities in 2003 and the turnover at 22

Indian exchanges rose 10.58% from the year ago to Rs40.66 trillion in 2007-08.

 “Traders have switched from the banned items to other related commodities
and bourses have successfully launched a few new commodities to fill the
void,” analysts said.

CHAPTER 4 - ANALYSYS AND

INERPRETATION

N. R. INSTITUTE OF BUSINESS MANAGEMENT 44

 COMMODITY FUTURES- INVESTORS PERCEPTION

QUESTIONERE ANALYSES

In this section the data obtained through the questionnaire from the
investors in commodity futures is analyzed

SECTION A:

Sex profile
Sex No of Respondents
Percentage
Male 23
80%
Female 6
20%

ColumnChart ShowingSex ProfileOf

TheRespondents
100%
80%
60%
40%
gn
taP
e
rc

20%
0%
Male Female

Sex
Male Female

Findings

From the above table and chart, it can be seen that 80% of the
respondents were male, and 20% were female.

Interpretation
It can be concluded that mainly males invest in commodity futures.

Age Profile

N. R. INSTITUTE OF BUSINESS MANAGEMENT 45

 COMMODITY FUTURES- INVESTORS PERCEPTION

Age Group No. of Percentag

Respondents e
20-30 years 13 43%
30-40 years 9 30%
40-50 years 5 17%
50 years and 3 10%
above

Findings

From the above table and chart, it can be seen that 43% of the
respondents were in the age group of 20-30 years, 30% were in the
age group of 30-40 years, and 17% were in the age group of 40-50
years and 10% in the age group of 50 years and above.

Interpretation
It can be concluded that mainly the young people have
invested commodity futures.

N. R. INSTITUTE OF BUSINESS MANAGEMENT 46

 COMMODITY FUTURES- INVESTORS PERCEPTION

Education profile:

Educational No. of Percentage

Qualification Respondents

Higher 3 10%
Secondary
Graduate 15 50%
Post Graduate 12 40%

Findings

From the above table and chart, it can be seen that 50% of the
respondents were graduates, 40% were post graduates and only 10
percent were studied up to higher secondary.

Interpretation
It can be concluded that mainly the young graduates have
invested commodity futures. But in real market this doesn’t stand
true.

N. R. INSTITUTE OF BUSINESS MANAGEMENT 47

 COMMODITY FUTURES- INVESTORS PERCEPTION

Occupation Profile
Occupation No. of Percentage
Respondents
Government 1 3%
Employee
Private Sector 9 30%
Employee
Self-Employee 5 17%
Businessmen 10 33%
Commodity 5 17%
Futures
Advisor

Others 0 0%

N. R. INSTITUTE OF BUSINESS MANAGEMENT 48

 COMMODITY FUTURES- INVESTORS PERCEPTION

Findings

From the above table and chart, it can be seen that 3% of the
respondents were government employees, 30% were private sector
employee, 17% were Self-Employed and 33% were businessmen,
17% were Commodity futures advisors.

Interpretation
It can be concluded that mainly businessmen and private
sector employees invest in commodities.

Income Profile

Income Group No. of Percentage

Respondents
Below Rs. 4 11 37%
Lakh
Rs. 4 – 10 Lakh 18 60%
Rs. 10 – 25 1 3%
Lakh
Above Rs. 25 0 0%
Lakh

N. R. INSTITUTE OF BUSINESS MANAGEMENT 49

 COMMODITY FUTURES- INVESTORS PERCEPTION

Findings

From the above table and chart, it can be seen that 37% of the respondents were
in the income group of below Rs. 4 lakh, 60% were in the income group of Rs. 4-10
lakh, and 3% were in the income group of Rs. 10-25 lakh.

Interpretation

It can be concluded that most of the people who have invested

commodity futures are in the income group of Rs.4-10 lakh.

SECTION B

1) Have you invested in commodity futures?

Particulars No. Of Percentage

Respondents
Yes 20 67%

No 10 33%

N. R. INSTITUTE OF BUSINESS MANAGEMENT 50

 COMMODITY FUTURES- INVESTORS PERCEPTION

ColumnChart ShowingThe Percentageof

RespondentswhohaveInvestedInComodityFuture
80%
70%
60%
50%
40%
30%
gn
taP
e
rc

20%
10%
0%
Yes No
Particular

Yes No

Findings
From the above table and chart, it can be seen that 67% of the respondents have
invested in commodity futures, and 33% have not invested in commodity futures

Interpretation
It can be concluded that most of the respondents have
invested in commodity futures.

2) Have you invested in any other securities?

Particulars No. Of Percentage

Respondents
Yes 21 70%

No 9 30%

N. R. INSTITUTE OF BUSINESS MANAGEMENT 51

 COMMODITY FUTURES- INVESTORS PERCEPTION

Findings

From the above table and chart, it can be seen that 70% of the
respondents have invested in other securities, and 30% have not
invested in any other security.

Interpretation

It can be concluded that most of the respondents have

invested in other securities also.

3) Which are the investments you have made (excluding commodity

futures)?

Particulars No. of Percentage

Respondents
Shares 9 30%
Mutual Funds 10 33%
Bonds 3 10%

N. R. INSTITUTE OF BUSINESS MANAGEMENT 52

 COMMODITY FUTURES- INVESTORS PERCEPTION

Bank Deposits 2 7%
Real Estate 3 10%
Jewellery 1 3%
Insurance 2 7%

Findings

It can be seen that, out of the respondents who have invested

in other securities, 30% of them have invested in shares, 33%
Mutual funds, 10% in Bonds, 7% have invested in bank deposits.
10% in real estate, 3% have invested in jewellery and the rest 7%
have invested in insurance.

Interpretation

It can be concluded that other than commodity futures, most of

the respondents have invested in shares and mutual funds.

4) What is your Experience in your previous Investment (excluding

commodity futures)?

Particulars No. Of Percentage

Respondents
Good 15 50%

Bad 9 30%

N. R. INSTITUTE OF BUSINESS MANAGEMENT 53

 COMMODITY FUTURES- INVESTORS PERCEPTION

Reasonable 6 20%

Findings

It can be seen that 50% of the respondents had a good experience in their
previous investment, 30% had a reasonable experience in their previous investment
and 20% had a bad experience in their previous investment.

Interpretation
It can be concluded that most of the respondents had a good
experience in their previous investment.

5) How often do you trade in Commodity futures?

N. R. INSTITUTE OF BUSINESS MANAGEMENT 54

 COMMODITY FUTURES- INVESTORS PERCEPTION

Particulars No. Of Percentage

Respondents
Everyday 6 20%

Once a Week 6 20%

Only when there 18 60%

is a good Price

Findings

N. R. INSTITUTE OF BUSINESS MANAGEMENT 55

 COMMODITY FUTURES- INVESTORS PERCEPTION

It can be seen that out of the investors in commodity futures, 20% of them trade
everyday, 20% of them traded once a week and 60% traded only when there is good
price.

Interpretation

It can be concluded that most of the investors trade in

commodity futures only when there is a good price.

6) What is your objective for trading in commodity futures?

Particulars No. Of Percentage

Respondents
Less Risky 10 33%
Investment
Diversification of 12 40%
Portfolio
Very Good 6 20%
Returns
Others 2 7%

N. R. INSTITUTE OF BUSINESS MANAGEMENT 56

 COMMODITY FUTURES- INVESTORS PERCEPTION

Findings
It can be seen that out of the investors in commodity futures, 33% of them have
invested with the objective a less risky investment, 40% of them invested with the
objective of diversifying hid portfolio and 20% of them due to the expectation of very
good returns and 7% have invested due to other reasons.

Interpretation
It can be concluded that most of the investors in commodity futures,
have invested with the objective of diversifying their portfolio and to
reduce risk .

7) What is the amount you have invested in commodity futures?

N. R. INSTITUTE OF BUSINESS MANAGEMENT 57

 COMMODITY FUTURES- INVESTORS PERCEPTION

Amount(Rupees) No. Of Percentage

Respondents
Rs. 2 lakh 8 27%

Rs. 2-3 lakh 15 50%

Rs. 3-5 lakh 6 20%

Above Rs.5lakh 1 3%

Findings

It can be seen that out of the investors, 27% of them had

invested Rs. 2 lakhs, 50% of them had invested between Rs. 2-3
lakhs, 20% had invested between Rs. 3-5 lakhs and 3% had invested
above Rs. 5 lakhs.

N. R. INSTITUTE OF BUSINESS MANAGEMENT 58

 COMMODITY FUTURES- INVESTORS PERCEPTION

Interpretation

It can be concluded that most of the investors had invested

between Rs. 2-3 lakhs in ,commodity futures.

8) What type of trade do you prefer the most?

Particulars No. Of Percentage

Respondents
Short Term 15 50%
Positions
Medium term 9 30%

Long term 6 20%

positions

N. R. INSTITUTE OF BUSINESS MANAGEMENT 59

 COMMODITY FUTURES- INVESTORS PERCEPTION

Findings

It can be seen that out of the investors in commodity futures,

50% of them prefer short-term positions, 30% of them preferred
medium term positions and 20% preferred long-term positions.

Interpretation

It can be concluded that most of the investors trading in

commodity futures prefer short-term positions.

9) Which commodities have you traded in, the most?

Commodity No. Of Percentag

Respondents e

Coffee 9 30%

Cotton 5 17%

Wheat 6 20%
Soybean 4 13%
Silver 3 10%
N. R. INSTITUTE OF Copper
BUSINESS MANAGEMENT3 10% 60
 COMMODITY FUTURES- INVESTORS PERCEPTION

Findings
It can be seen that out of the investors in commodity futures, 30% of them have
traded mostly in coffee, 17% of them traded in cotton, 20% in wheat, 13% in soybean
and 10% each in copper and silver, .

Interpretation
It can be concluded that the mostly traded commodity is
coffee, followed by wheat and cotton. Copper is the least traded
commodity.

10) Do you, as a client use Fundamental/Technical Analysis while

giving an order?

Particulars No. Of Percentage

Respondents
Yes 20 67%

No 10 33%

N. R. INSTITUTE OF BUSINESS MANAGEMENT 61

 COMMODITY FUTURES- INVESTORS PERCEPTION

Findings

From the above table and chart, it can be seen that 76% of the investors use
Fundamental/technical Analysis while giving an order to trade in commodity futures,
and 24% do not any analysis tools.

Interpretation
It can be concluded that most of the investors use Fundamental/
Technical Analysis when giving an order while trading in commodity
futures.

11) Which commodity do you think is the most volatile?

N. R. INSTITUTE OF BUSINESS MANAGEMENT 62

 COMMODITY FUTURES- INVESTORS PERCEPTION

Commodity No. Of Percentage

Respondents
Coffee 6 20%

Silver 9 30%

Soybean 14 47%
Copper 1 3%

Findings

It can be seen that 47% of the investors feel that soybean is

the most volatile commodity, 30% feel silver is the most volatile,
20% feel Coffee is the most volatile while 3% feel that copper is the
most volatile commodity.

N. R. INSTITUTE OF BUSINESS MANAGEMENT 63

 COMMODITY FUTURES- INVESTORS PERCEPTION

Interpretation
It can be concluded that soybean is the most volatile
commodity.

12) What percentage of savings have you invested in commodity futures?

Particulars No. Of Respondents Percentage

0-10% 3 10%

10-20% 9 30%

20-30% 12 40%
30-50% 3 10%
50% and above 3 10%

N. R. INSTITUTE OF BUSINESS MANAGEMENT 64

 COMMODITY FUTURES- INVESTORS PERCEPTION

Findings

It can be seen that, 40% of the investors have invested

between 20-30% of their savings in commodity futures, 30% of them
have invested between 10-20% of their savings and total 20% of
them have invested above 30% of their saving in commodity
futures.

Interpretation
It can be concluded that most of the investors have invested
between 20-30% of their savings in commodity futures.

13) How did you get to know about commodity futures trading?

Particulars No. Of Percentage

Respondents
Friends 9 30%

Media 15 50%

Self-Research 6 20%
Others 0 0%

N. R. INSTITUTE OF BUSINESS MANAGEMENT 65

 COMMODITY FUTURES- INVESTORS PERCEPTION

Columnchart showingthemeansthrough
whichtheinvestorsgot toknowabout
commodityfutures
60%
50%
40%
30%
20%
10%
0%
Friends Media Self-Research Others

Friends Media Self-Research Others

Findings

It can be seen that, 50% of the investors got to know about

commodity futures through different media, 30% got to know
through their friends and family and 20% of the investors got to
know through self-research.

Interpretations

It can be concluded that most of the investors got to know

about commodity futures through Media.

14) What do think about the felicitation fee charged by your company?

N. R. INSTITUTE OF BUSINESS MANAGEMENT 66

 COMMODITY FUTURES- INVESTORS PERCEPTION

Particulars No. Of Percentage

Respondents
Very High 4 13%

High 11 37%

Reasonable 15 50%
Low 0 0%

Findings
It can be seen that, 50% of the investors feel that the facility
fee charged by their company is reasonable, 37% of them feel that
the facility fee charged by their company is high and 13% of the
investors feel that it is very high.

Interpretations

N. R. INSTITUTE OF BUSINESS MANAGEMENT 67

 COMMODITY FUTURES- INVESTORS PERCEPTION

It can be concluded that most of the investors feel that the facility
fee charged by their company is reasonable. But there are people
who are not satisfied with fees also.

15) Do you think there is future in commodity future trading, in the present
economy?

Particulars No. Of Percentage

Respondents
Yes 22 73%

No 5 17%

Can’t say 3 10%

Findings

It can be seen that, 73% of the investors feel that there is

future in commodity futures trading in the present economy, 17% of
them feel that there is no future in commodity futures, 10% of the
investors were unable to come to a conclusion.

N. R. INSTITUTE OF BUSINESS MANAGEMENT 68

 COMMODITY FUTURES- INVESTORS PERCEPTION

Interpretations
It can be concluded that most of the investors feel that there is
future in commodity future trading in the present economy.

16) What do you think of the return derived from commodity futures?

Particulars No. Of Percentage

Respondents
Good 18 60%

Reasonable 8 27%

Bad 4 13%

Findings

N. R. INSTITUTE OF BUSINESS MANAGEMENT 69

 COMMODITY FUTURES- INVESTORS PERCEPTION

It can be seen that, 60% of the investors feel that they got good returns from
commodity futures trading, 27% of them feel that they got reasonable returns
commodity futures, 13% of the investors felt they got bad returns from commodity
futures.

Interpretations
It can be concluded that most of the investors got good returns from commodity
futures.

17) Have you invested in any other derivative instrument?

Particulars No. Of Percentage

Respondents
Yes 14 47%

No 16 53%

ColumnChart showingwhether theinvestors

haveinvestedinanyotherderivative
instrument
54%

52%

50%

48%

46%

44%
Yes No

Yes No

Findings

It can be seen that 53% of the investors have not invested in

any other derivative instrument and 47% of the investors have
invested in any other derivative instrument.

Interpretation

N. R. INSTITUTE OF BUSINESS MANAGEMENT 70

 COMMODITY FUTURES- INVESTORS PERCEPTION

It can be concluded that most of the investors have not

invested in any other derivative instrument but people also invest in
other derivatives to diversify their portfolio.

18) Do you think commodity future is a good investment opportunity?

Particulars No. Of Percentage

Respondents
Yes 21 70%

No 9 30%

Findings

From the above table and chart, it can be seen that 70% of the investors feel
that commodity futures is a good investment opportunity, and 30% investors feel that
commodity futures is not a good investment opportunity

N. R. INSTITUTE OF BUSINESS MANAGEMENT 71

 COMMODITY FUTURES- INVESTORS PERCEPTION

Interpretation
It can be concluded that most of the investors feel that
commodity futures is a “good investment opportunity”

19) Which type of trader you are?

Particulars No. Of Percentage

Respondents
Hedgers 13 43%

Speculator 6 20%

Arbitrager 11 37%

Findings
From the above table and chart, it can be seen that most of respondents are
hedger and arbitrager

N. R. INSTITUTE OF BUSINESS MANAGEMENT 72

 COMMODITY FUTURES- INVESTORS PERCEPTION

Interpretation
It can be concluded that most of the respondents are hedgers

20) In which commodities you would like to invest in future and why?

Particulars No. Of Percentage

Respondents
Wheat 15 50%

Cotton 9 30%

Gold 6 20%

Findings
From the above table and chart, it can be seen that 50% of the respondents want
to invest in wheat and 30% want to invest in cotton commodity futures

N. R. INSTITUTE OF BUSINESS MANAGEMENT 73

 COMMODITY FUTURES- INVESTORS PERCEPTION

Interpretation
It can be concluded that most of the respondents want to
invest in wheat commodity futures.

21) factors you take into consider while invest in commodities?

Particulars No. Of Percentage

Respondents
Global 10 33%
economy

Availability 14 47%

others 06 20%

Findings

N. R. INSTITUTE OF BUSINESS MANAGEMENT 74

 COMMODITY FUTURES- INVESTORS PERCEPTION

From the above table and chart, it can be seen that 33% of the respondents
consider global economy as a factor before investing commodity future 20% consider
in
Other factors in commodity futures.

Interpretation
It can be concluded that most of the respondents consider
availability of commodities in commodity futures

22) factors to be taken care while investing commodity market comparing

to equity market factors you take into consider while invest in
commodities?

Particulars No. Of Percentage

Respondents
market 16 54%

liquidity 10 33%

Lot size 04 13%

Findings

N. R. INSTITUTE OF BUSINESS MANAGEMENT 75

 COMMODITY FUTURES- INVESTORS PERCEPTION

From the above table and chart, it can be seen that 54% of the respondents
consider market as a factor 10% consider lot size
Interpretation
It can be concluded that most of the respondents consider
market comparing others.

23) Which kind of settlement you do ?

Particulars No. Of Percentage

Respondents
Physical 18 60%

Cash 12 40%

Findings
From the above table and chart, it can be seen that 60% of the respondents
settle transaction through physical and others through cash.
Interpretation

N. R. INSTITUTE OF BUSINESS MANAGEMENT 76

 COMMODITY FUTURES- INVESTORS PERCEPTION

It can be concluded that most of the respondents settle

transaction through physical settlement .

CHAPTER 5 - FINDINGS
From the analysis made in the previous chapter the following
findings can be derived:

 There is awareness of commodity market in the eyes of

investors.
 Investors consider factor like global economy, availability of
commodity and others things during investing in
commodity and earn money by doing technical and
fundamental analysis from their brokers.

 Person between age of 20-40 years are more active player in

the commodity trading and 10-30 % of their income are
invested in market. Most of them believe that return derived
from commodity are good and reasonable.

 There has been seen that most of private sector employees

and business person invests in commodity market. Media and
friends are powerful communicating networks for expansion.

 It has been that, respondents are investing their income in

diversified portfolio and less risky assets and 50% of
respondent takes short position in the market.

 It has been seen that about 67% investor are doing

fundamental technical analyses.

 There has been seen that coffee, wheat and cotton are more
dealing commodity and investor believe that commodity

N. R. INSTITUTE OF BUSINESS MANAGEMENT 77

 COMMODITY FUTURES- INVESTORS PERCEPTION

market have good opportunist market in future and most of

investor invest when there is favorable price in market.

 Respondent also invest in share and mutual fund etc. other

then commodity market to diversified their investment risk and
most of investor have mix experience (good and bad) in
commodity market and respondent view that coffee, silver and
soybean are most volatile commodity.

 The commodity futures markets are experiencing a good

growth in the recent past.

 This can be emphasized by the fact that the trading volume of

most commodities is increasing.

CHAPTER 6 - CONCLUSION

Now a days investor become more careful in investment with

considering the factor like global economy, availability of commodity
etc..

In the trading system people consider above factor for investment

so we can conclude that investor are more moving towards the
exchange traded market

The trading system also includes trading and intermediary

participants, who ensure the correct price discovery. Thus, the
trading system is one of the factors, which reduce the risk in
commodity futures.

In the commodity market various risk are involved but here with the
help of the fundamental and technical analysis they are reducing
their risk.

It can be concluded that one can use commodity futures for the
hedging purposes rather than for the speculative

N. R. INSTITUTE OF BUSINESS MANAGEMENT 78

 COMMODITY FUTURES- INVESTORS PERCEPTION

This can be emphasized by the fact that there has been an

increasing trend in the volume traded in most of the commodities.
Thus, commodity futures are a growing market.

from all the above conclusions of it can be concluded, “commodity

futures can be used as a risk reduction and a sound investment
instrument”

CHAPTER 7 – RECOMENDATATIONS

 Since commodity futures are a new concept, more awareness

must be created by marketing this investment instrument
appropriately.

 If the minimum investment is reduced, this might induce more

people to invest in commodity future.

 As commodity market are growing so one should trade in

exchange traded market rather than the OTC market

N. R. INSTITUTE OF BUSINESS MANAGEMENT 79

 COMMODITY FUTURES- INVESTORS PERCEPTION

 As commodity market growing so all groups of people must

be asked to invest in commodity futures.

 one should take better position with the help of fundamental

and technical analysis

 It is not a necessity that one must be very educated to invest

in commodity futures. So, it is recommended that those who
are not so well educated also can invest in commodity futures.

 It is recommended that now a days investor should invest in

agriculture commodity because within the few days few of
agriculture commodity are coming up with huge quantity.

CHAPTER 8 – BIBLIOGRAPHY

Books

 Future, option and other derivatives

Author
-John C Hull 4th
 Futures & Option
Author

N. R. INSTITUTE OF BUSINESS MANAGEMENT 80

 COMMODITY FUTURES- INVESTORS PERCEPTION

-N.D.
Vohra
-Bagri B.R.
nd
2

Websites

[Link]
[Link]
[Link]

CHAPTER 9 – APPENDICES/ANNEXURES
Questionnaire to know the views of investors
NOTE: This is the clarification that the information, which is provided by you, is used
only for research’s perspective and not for any other purpose. In addition, it is assured
that your identity would not be disclosed to any one at any cost

PART – A

N. R. INSTITUTE OF BUSINESS MANAGEMENT 81

 COMMODITY FUTURES- INVESTORS PERCEPTION

1) Name:

2) Sex:

Male Female

3) Age:

20-30 Years 30-40 years

40-50 years Above 50 years

4) Education:

Higher secondary Graduation

Post-graduation

5) Occupation:

Government employee Self-employee

Commodity futures analyst Private sector employee

Businessman Others ____________

6) Income:

Below 4 lakh 4,00,001 – 10,00,000

10,00,001 – 25,00,000 Above 25,00,000

PART – B

1) Have you invested in commodity futures?

Yes No

2) Have you invested in any other security?

Yes No

N. R. INSTITUTE OF BUSINESS MANAGEMENT 82

 COMMODITY FUTURES- INVESTORS PERCEPTION

3) Which are the investments you have made (excluding commodity futures)?

Shares Bonds

Mutual funds Bank deposits

Real estate Jewelry

Others ___________

4) What is your experience in your previous investment (excluding commodity

futures)?

Good Reasonable Bad

5) How often do you trade in commodity futures?

Everyday Once a week

Trade only when there is a good price

6) What is your objective when trading in commodity futures?

Less risky investment Diversification of portfolio

Very good returns Others ______________

7) What is the amount you have invested in commodity futures?

2,00,000 2,00,001-3,00,000

3,00,001-5,00,000 5,00,000 and above

8) What type of trade do you prefer the most?

N. R. INSTITUTE OF BUSINESS MANAGEMENT 83

 COMMODITY FUTURES- INVESTORS PERCEPTION

Short Term Position Medium Term Position

Long Term Position

9) Which commodities have you traded in the most?

a. _________________
b. _________________
c. __________________

10) Do you, as a client use fundamental/technical analysis when giving an order?

Yes No

11) Which commodity do you think is the most volatile?

_________________________

12) What percentage of savings have you invested in commodity futures?

0-10% 10-20%

20-30% 30-50%

50% and above

13) How did you get to know about commodity futures trading?

Friends/family Self-research

Media Others ______________

14) What do think about the felicitation fee charged by your company?

Very high High

N. R. INSTITUTE OF BUSINESS MANAGEMENT 84

 COMMODITY FUTURES- INVESTORS PERCEPTION

Reasonable Low

15) What do you think about the margin requirement charged by your company?

Very high High

Reasonable Low

16) Do you think there is future in commodity future trading, in the present economy?

Yes No Can’t say

17) What do you think of the return derived from commodity futures?

Good Reasonable Bad

18) Do you think commodity future is a good investment opportunity?

Yes No

19) which type of trader you are?

Hedger speculator arbitrager

20) In which commodities you would like to invest in future and why?

__________________________________________

21)factors you take into consider while invest in commodities?

__________________________________________

22)factors to be taken care while investing commodity market comparing to equity

market?

_______________________________________

N. R. INSTITUTE OF BUSINESS MANAGEMENT 85

 COMMODITY FUTURES- INVESTORS PERCEPTION

23) Which kind of settlement you do ?

Physical cash

N. R. INSTITUTE OF BUSINESS MANAGEMENT 86