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EAST WEST CORRIDOR

A STUDY ON COMMODITY TRADING AN INDIAN PERSPECTIVE AT


EAST WEST CORRIDOR

FRANCHISEE OF RELIANCE MONEY COMMODITY LTD.

A Project Report submitted in partial fulfilment of the requirements For the awards of the degree of
MASTER OF BUSINESS ADMINISTRATION

SUBMITTED BY RAHESH N. KAKADIYA Under the guidance of Ms. Iram Ada Khan Submitted To:

SIGMA INSTITUTE OF MANAGEMENT STUDIES, VADODARA. (July-2011) SIGMA INSTITUTE OF MANAGEMENT STUDIES
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DECLARATION
I Rahesh Kakadiya hereby declare that this project report entitled COMMODITY TRADING AN INDIAN PERSPECTIVE. under the guidance of Ms. Iram Ada Khan submitted in partial fulfilment of SIGMA INSTITUTE OF MANAGEMENT STUDIES, VADODARA is my original work Financial Project carried out during 1st JUN, 2011 to 10th JULY 2011.

I will not use this project report in future to use a submission to any other university or institution or any publisher without written permission of my guide.

I also promise not to allow/permit any other person to Copy / publish any part / full material of this report in any form.

If I am found/caught as defaulter of above declaration, I Know that my present or future submission may become in valid and/or I may not be permitted to appear in the college or institute wherever I am studying.

Place: VADODARA Date: / / 2011

Signature___________ RAHESH KAKADIYA

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PREFACE
In the world, changing is the essence of time. Visiting an industrial unit is a golden opportunity for the student of knows actual work of industry. The aim of these programmed is to develop not only theoretical knowledge but also to give and improve practical studies in every student, which is help all to him in every field in his future. Here, I have prepared the project report on EAST WEST CORRIDORE FEANCHISEE OF RELIANCE MONEY COMMODITY LTD., during the time 01/06/2011 to 12/07/2011 in this time. In this MBA, practical study is a compulsory for every student to procure adequate knowledge in this field. I have completed my project report on A STUDY ON COMMODITY TRADING AN INDIAN PERSPECTIVE AT EAST WEST CORRIDORE FEANCHISEE OF RELIANCE MONEY COMMODITY LTD.With tried my best with a great zeal & Gaiety.

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I am thankful to the coordinator of Institute of SIGMA INSTITUTE OF MANAGEMENT STUDIES for giving an opportunity to come on this stage to complete for the project.

I am also thankful to Ms. Iram Ada Khan for constant support and encouragement as well as the valuable guidance and direction he had provided to me during the preparation of entire my project report.

I find my project very useful and educative, it was very good experience for me in the project, to me and discuss with the valuable information of COMMODITY TRADING AN INDIAN PERSPECTIVE. I thank for them for being so helpful in my project. With great pleasure I express my deep sense of gratitude to Ms. Kavita (Manager of Commodity market) for his Guidance and support throughout my work.

I am also thankful to my friends who supported me during the project work. Above all I express my hearty thanks to God Almighty, without his grace nothing would have been possible.

RAHESH KAKADIYA M.B.A (FINANCE)

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Part A. Introduction: -Industry profile -Company profile B. C. Literature Review Research Methodology: -Research Problem -Objective of the Study

Topic

Page No. 6

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-Sample Design, Research design, Data collection tools, etc.

-Benefits of the Study -Limitations of study D. E. F. G. H. I Analysis of data Findings Recommendations Conclusions Bibliography Annexure

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EXECUTIVE SUMMERY
India, a commodity based economy where two-third of the one billion population depends on agricultural commodities, surprisingly has an under developed commodity market. Unlike the physical market, futures markets trades in commodity are largely used as risk management (hedging) mechanism on either physical commodity itself or open positions in commodity stock. For instance, a jeweller can hedge his inventory against perceived short-term downturn in gold prices by going short in the future markets. The article aims at know how of the commodities market and how the commodities traded on the exchange. The idea is to understand the importance of commodity derivatives and learn about the market from Indian point of view. In fact it was one of the most vibrant markets till early 70s. Its development and growth was shunted due to numerous restrictions earlier. Now, with most of these restrictions being removed, there is tremendous potential for growth of this market in the country.

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INDUSTRY PROFILE

COMMODITY TRADING AN INVESTORS PERSPECTIVE:


Points to be considered by investors in terms of investing in commodities market: Follow the trends. This is probably some of the hardest advice for a trader to follow because the personality of the typical futures trader is not "one of the crowd." Futures traders (and futures brokers) are highly individualistic. Apply money management techniques to your trading. Trade with the trends, rather than trying to pick tops and bottoms Calculate the risk/reward ratio before putting a trade on, then guard against the risk of holding it too long Establish trading plans before the market opening to eliminate emotional reactions Follow the plan. Once a position is established and stops are selected, do not get out unless the stop is reached, or the fundamental reason for taking the position changes Use technical signals (charts) to maintain discipline the vast majority of traders are not emotionally equipped to stay disciplined without some technical tools. Use discipline to eliminate impulse trading Have a disciplined, detailed trading plan for each trade; i.e., entry, objective, exit, with no changes unless hard data changes. Disciplined money management means intelligent trading allocation and risk management. The overall objective is end-ofyear bottom line, not each individual trade Use a disciplined trade selection system...an organized, systematic process to eliminate impulse or emotional trading Trade with a plan not with hope, greed, or fear. Plan where you will get in the market, plan how much you will risk on the trade, and plan where you will take your profits. Learn to trade from the short side. Most people would rather own something (go long) than owe something (go short). Markets can (and should) also be traded frown the short side. Broker/client psychology must be in tune, or else the broker and client should part company early in the program. Client and broker should be in touch repeatedly, so

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when the time comes, both parties are mentally programmed to take the necessary action without delay Anyone who is inclined to speculate in futures should look at speculation as a business, and treat it as such. Do not regard it as a pure gamble, as so many people do. If speculation is a business, anyone in that business should learn and understand it to the best of his ability. Approach the markets with a reasonable time goal. When you open an account with a broker, don't just decide on the amount of money, decide on the length of time you should trade. This approach helps you conserve your equity, and helps avoid the Las Vegas approach of "Well, I'll trade till my stake runs out." Experience shows that many who have been at it over a long period of time end up making money. Always use stop orders, always...always... always.

Basics of Futures trading for an investor:


Trading commodity futures and options is not for everyone. It is a volatile, complex, and risky business. Before you invest any money in futures or options contracts, you should: Consider the financial experience, goals, and financial resources and know how much can afford to lose above and beyond your initial payment. Understand commodity futures and option contracts and obligations in entering into those contracts. Understand exposure to risk and other aspects of trading by thoroughly reviewing the risk disclosure documents broker is required to give you. The brochures will provide with general information about trading commodity futures and options. We encourage you to ask more questions and gather more information before you open an account. The also issues consumer advisories to alert the public to warning signs of possible fraudulent activity and offer precautions individuals should take before committing funds. We encourage you to review these advisories before you trade. Additionally, you may wish to visit the National Futures Association (NFA) Investor Services web site for more information and related publications.

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GOING LONG & SHORT: Going LONG & SHORTto make a profit on anything requires that something be bought and sold, and that you sell at a higher price than you buy. When trading a futures contract it doesnt matter if you initially sell or buy, as long as you do both before the contract comes due. If you were bearish you would sell, or another word would be go short. If you were bullish you would want to buy, or go long. "How to sell something that is not own, or why would one buy something which is not needed". The answer is simple. When trading futures, you never actually buy or sell anything tangible; you are just contracting to do so at a future date. You are merely taking a buying or selling position as a speculator, expecting to profit from rising or falling prices. You have no intention of making or taking delivery of the commodity you are trading, your only goal is to buy low and sell high, or vice-versa. Before the contract expires you will need to relieve your contractual obligation to take or make delivery by offsetting (also known as unwind, or liquidate) your initial position. Therefore, if you originally entered a short position, to exit you would buy, and if you had originally entered a long position, to exit you would sell.

Electronic form of commodity trading:


The move to electronic trading in the commodities markets, ongoing deregulation and the pressure to increase trading margins are all making it more important than ever for you to improve trading efficiencies. Now theres a unique trading solution that lets you execute across multiple execution Venues fully integrated within your desktop.

The Routing for Commodities technology facilitates an open and neutral order Routing hub hosted by energy traders and incorporating Tray ports trading technology.

It allows continued connection by traders to their existing trading pools* and easier future connection to other execution venues.

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Execute on the best price for each instrument and carry out trades across multiple marketplaces simultaneously. It all adds up to increased productivity and a competitive advantage so crucial in todays fast-paced energy markets. Trader for Commodities to meet your needs. With Order Routing for Commodities, youre able to: Trade more, at lower risk, increasing both company profits and individual bonuses Gain increased trading confidence from being able to instantly compare prices from your execution venues Increase trading volume without alerting the market and raising prices Reduce the number of trading screens and hardware providing for less distraction and maintenance on the desktop. Reduce error costs and resource demands and optimize reconciliation and settlement using the consolidated feed of deal ticket information from the multiple execution venues to your mid- and back-office systems.

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BRIEF VIEW ABOUT COMMODITIY MARKET


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. A Commodity includes all kinds of goods. FCRA defines "goods" as "every kind of movable property other than actionable claims, money and securities". Futures' trading is organized in such goods or commodities as are permitted by the Central Government. At present, all goods and products of agricultural (including plantation), mineral and fossil origin are allowed for futures trading under the auspices of the commodity exchanges recognized under the FCRA.

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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. DIFFERENT TYPES OF COMMODITIES TRADE: 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: Precious Metals: Gold, Silver, Platinum etc Other Metals: Nickel, Aluminium, Copper etc Agro-Based Commodities: Wheat, Corn, Cotton, Oils, Oilseeds. Soft Commodities: Coffee, Cocoa, Sugar etc Live-Stock: Live Cattle, Pork Bellies etc Energy: Crude Oil, Natural Gas, Gasoline etc 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 Multi Commodity Exchange (MCX) located at Mumbai. National Commodity and Derivatives Exchange Ltd (NCDEX) located at Mumbai. National Board of Trade (NBOT) located at Indore. National Multi Commodity Exchange

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(NMCE) located at Ahmedabad.

COMMODITY EXCHANGES IN INDIA


In India there are 25 recognized future exchanges, of which there are three national level multi-commodity exchanges. After a gap of almost three decades, Government of India has allowed forward transactions in commodities through Online Commodity Exchanges, a modification of traditional business known as Adhat and Vayda Vyapar to facilitate better risk coverage and delivery of commodities. The three exchanges are:

National Commodity & Derivatives Exchange Limited (NCDEX) Multi Commodity Exchange of India Limited (MCX) National Multi-Commodity Exchange of India Limited (NMCEIL) All the exchanges have been set up under overall control of Forward Market

Commission (FMC) of Government of India

National Commodity & Derivatives Exchange Limited (NCDEX)

National Commodity & Derivatives Exchange Limited (NCDEX) located in Mumbai is a public limited company incorporated on April 23, 2003 under the Companies Act, 1956 and had commenced its operations on December 15, 2003.This is the only commodity exchange in the country promoted by national level institutions. It is promoted by ICICI Bank Limited, Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development (NABARD) and National Stock Exchange of India Limited (NSE). It is a professionally managed online multi commodity exchange. NCDEX is regulated by Forward Market Commission and is subjected to various laws of the land like the Companies Act, Stamp Act, Contracts Act, Forward Commission (Regulation) Act and various other legislations. CRISIL has assigned a CCR AA rating to the National Commodity & Derivatives Exchange Limited (NCDEX). This is the first credit rating assigned to an Indian exchange. The CCR AA indicates high degree of strength with regard to honouring debt obligations. However, it is not a rating of a debt instrument of NCDEX.

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NCDEX is one of Indias three online multi-commodity exchanges, and has a strong position in the Indian agricultural (agri) commodities segment, with a share of more than 80 per cent in the trading of most agri-commodities. Agri-commodities contribute about 90 per cent of NCDEXs turnover. To bring in greater diversity, the exchange is focusing on precious metals trading, and also plans to introduce trading in other metals and energy products.NCDEX offers futures contracts on 51 commodities. The daily average turnover during 2005-06 was Rs. 34.51 billion. Multi Commodity Exchange of India Limited (MCX)

Headquartered in Mumbai Multi Commodity Exchange of India Limited (MCX), is an independent and de-mutulised exchange with a permanent recognition from Government of India. Key shareholders of MCX are Financial Technologies (India) Ltd., State Bank of India, Union Bank of India, Corporation Bank, Bank of India and Canara Bank. MCX facilitates online trading, clearing and settlement operations for commodity futures markets across the country.MCX started offering trade in November 2003 and has built strategic alliances with Bombay Bullion Association, Bombay Metal Exchange, Solvent Extractors Association of India, Pulses Importers Association and Shetkari Sanghatana.

National Multi-Commodity Exchange of India Limited (NMCEIL)

National Multi Commodity Exchange of India Limited (NMCEIL) is the first de-mutualised, Electronic Multi-Commodity Exchange in India. On 25th July, 2001, it was granted approval by the Government to organise trading in the edible oil complex. It has operationalised from November 26, 2002. It is being supported by Central Warehousing Corporation Ltd., Gujarat State Agricultural Marketing Board and Neptune Overseas Limited. It got its recognition in October 2002. Commodity exchange in India plays an important role where the prices of any commodity are not fixed, in an organised way. Earlier only the buyer of produce and its seller in the market judged upon the prices. Others never had a say. Today, commodity exchanges are purely speculative in nature. Before discovering the price, they reach to the producers, end-users, and even the retail investors, at a grassroots level. It brings a price transparency and risk management in the vital market.

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A big difference between a typical auction, where a single auctioneer announces the bids and the Exchange is that people are not only competing to buy but also to sell. By Exchange rules and by law, no one can bid under a higher bid, and no one can offer to sell higher than someone elses lower offer. That keeps the market as efficient as possible, and keeps the traders on their toes to make sure no one gets the purchase or sale before they do.

FUTURES CONTRACT OF COMMODITY TRADING:


A futures contract is a type of "forward contract". FCRA defines forward contract as "a contract for the delivery of goods and which not a ready delivery contract is". Under the Act, a ready delivery contract is one, which provides for the delivery of goods and the payment of price there fore, either immediately or within such period not exceeding 11 days after the date of the contract, subject to such conditions as may be prescribed by the Central Government. A ready delivery contract is required by law to be fulfilled by giving and taking the physical delivery of goods. In market parlance, the ready delivery contracts are commonly known as "spot" or "cash" contracts. All contracts in commodities providing for delivery of goods and/or payment of price after 11 days from the date of the contract are "forward" contracts. Forward contracts are of two types "Specific Delivery Contracts" and "Futures Contracts". Specific delivery contracts provide for the actual delivery of specific quantities and types of goods during a specified future period, and

In which the names of both the buyer and the seller are mentioned. The term 'Futures contract' is nowhere defined in the FCRA. But the Act implies that it is a forward contract, which is not a specific delivery contract. However, being a forward contract, it is necessarily "a contract for the delivery of goods". A futures contract in which delivery is not intended is void (i.e., not enforceable by law), and is, therefore, not permitted for trading at any commodity exchange.

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THE SALIENT FEATURES OF A COMMODITY FUTURES CONTRACT:


A commodity futures contract is a tradable standardized contract, the terms of Which are set in advance by the commodity exchange organizing trading in it? The futures contract is for a specified variety of a commodity, known as the "basis", though quite a few other similar varieties, both inferior and superior, are allowed to be deliverable or tender able for delivery against the specified futures contract. The quality parameters of the "basis" and the permissible tender able varieties; the delivery months and schedules; the places of delivery; the "on" and "off" allowances for the quality differences and the transport costs; the tradable lots; the modes of price quotes; the procedures for regular periodical (mostly daily) clearings; the payment of prescribed clearing and margin monies; the transaction, clearing and other fees; the arbitration, survey and other dispute redressing methods; the manner of settlement of outstanding transactions after the last trading day, the penalties for non issuance or non-acceptance of deliveries, etc., are all predetermined by the rules and regulations of the commodity exchange. Consequently, the parties to the contract are required to negotiate only the quantity to be bought and sold, and the price. Everything else is prescribed by the Exchange. Because of the standardized nature of the futures contract, it can be traded with ease at a moment's notice.

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COMPANY PROFILE
East West Corridor was incorporated on November 10, 2003 & is mainly carrying on the broking business in the equity market. The company has acquired memberships of the two major stock exchanges of India viz. National Stock Exchange of India Ltd. (NSE) & Bombay Stock Exchange Ltd. (BSE). The company is also registered as a Depository Participant (DP) with Central Depository Services (I) Ltd. (CDSL). The companys registered office is situated at B/4-Ganga palace, Nr. Kotak house Ghod-dod road, Surat. The company commenced its BSE operations from October 4, 2004 & its NSE operations from 17th March 2005. Since incorporation the company has been consistently growing with the present client base of around 34000+ clients in Know Your Client (KYC) and 21000+ clients in Depository Participants (DP). The company has approximately 250 outlets to cater to the needs of the investors for their equity trading in the stock exchanges. East West Corridor has also started trading in Currency Derivative Segment with memberships in MCX Stock Exchange Ltd (MCX-SX) , National Stock Exchange of India (NSE) and Bombay Stock Exchange Limited (BSE) in the year 2008.

Reliance Money Commodities Ltd. Reliance Money Commodities Ltd. was incorporated on 1st June 2005 & is mainly carrying on the broking business in the commodity market with a client base of around 600 clients. The company has acquired memberships of the two major commodity exchanges of India viz. National Commodity & Derivatives Exchange Ltd. (NCDEX) & Multi-Commodity Exchange of India Ltd. (MCX) The Companys registered office is situated at B/4-Ganga palace, Nr. Kotak house, Ghod-dod road, Surat.

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To provide World Class Services and create Wealth for everyone.

Vision 2015:
To be the most preferred Organization providing all financial services across the country.

Value:
Integrity and Ethics Change People Development Customer Delight Security

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What is commodity? Commodity includes all kinds of goods. FCRA defines "goods" as "every kind of movable property other than actionable claims, money and securities". Futures' trading is organized in such goods or commodities as are permitted by the Central Government. At present, all goods and products of agricultural (including plantation), mineral and fossil origin are allowed for futures trading under the auspices of the commodity exchanges recognized under the FCRA. The national commodity exchanges have been recognized by the Central Government for organizing trading in all permissible commodities which include precious (gold & silver) and nonferrous metals; cereals and pulses; ginned and unginned cotton; oilseeds, oils and oilcakes; raw jute and jute goods; sugar and guar; potatoes and onions; coffee and tea; rubber and spices, energy etc.

Trend Analysis is the examination and evaluation of the relevant information to select the best course of action from among various alternatives.

Purpose:
Main purpose of this analysis is to aware with the historical scenario of the domestic and International Bullion Commodity Market. And Using this Information can be able to Predict the Future price, Demand, Supply of the Bullion Commodity in the World. It also consist History of Gold and Silver, Fundamental of Gold and Silver, Historical Prices of Gold and Silver in Domestic as well as in International Market which can help to predict the future trend of the market.

Features of Indian Gold Economy, Properties, Uses and Characteristics of Gold and Silver also help to aware with the bullion commodity. Gold and Silver Production all Over the World World Gold and Silver Demand and Supply Mine Production by Countries Gold and Silver Jewellery Demand in the World Official Gold Reserve in the World World Gold Holding Gold Mining Production Process Top 20 Silver Producing Country

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All Above Information helping to know the historical trend of the Bullion commodity Market all over the world. And It helps to Investor to predict the future trend of the Bullion Commodity Market.

Trend analysis is based on the idea that what has happened in the past gives traders an idea of what will happen in the future. There are three main types of trends: short-, intermediate- and long-term.

Trend analysis tries to predict a trend like a bull market run and ride that trend until data suggests a trend reversal (e.g. bull to bear market). Trend analysis is helpful because moving with trends, and not against them, will lead to profit for an investor. Outsourcing Trend Analysis to India Get the competitive advantage with Trend Analysis. Get significant insights into customers and markets to guide your company's marketing, investment, and administration objectives. "With the past, we can see trajectories into the future - both catastrophic and creative projections. John Ralston Saul.

Importance of Concept
Data analysis including Trend Analysis is essential for a firm's competitive intelligence program. The ability to accurately gauge customer response to changes in business and other environmental parameters is a powerful competitive advantage. Trend Analysis is essential to running an organization's value chains and in acquiring and consolidating corporate success. It allows business users to make analytical decisions about those business processes that maximize revenue from core customers. With the information explosion, an incredible amount of information is available to organizations. However, raw data by itself does not provide much

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information. It is the conversion of this raw data into significant facts, relationships, trends and patterns, that could otherwise go unobserved. This makes Trend Analysis an essential part of running an organization's value chains and in acquiring and consolidating corporate success. It allows business users to make analytical decisions about what direction the business should target its resources on and to focus on those business processes that maximize revenue from core customers. Trend Analysis Proper - Allows you to plot aggregated response data over time. This is especially valuable, if you are conducting a long running survey and would like to measure differences in perception and responses over time. Thus Trend Analysis provides an insight into the following: Changes and trends in customer needs and behavior, and shifts in the customers' perception of value. Trend in price change and cost drivers for the industry and/or specific segments Change and evolution of the industry in terms of new entrants, and competition, threat of substitutes and relationship with buyers and suppliers Upcoming business models and changing best practices of the industry and related emerging sectors In depth analysis of long term industry, domestic and global economic cycles and trends. What are the benefits of Trend Analysis? 1. Detailed Trend Analysis - to predict the threat of new entrants and allows management to develop competitive strategies thus enabling industry position as well as pursuit of leadership. 2. It provides security of strategic investments and protection of assets. 3. Enables crucial decisions on mergers and acquisitions as well as the ability to develop alliances and partner relationships.

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4. Trend Analysis data can be further used for various cost/benefit analyses. And can be extremely valuable as an early warning indicator of probable issues with product line and service level changes. 5. Trend Analysis enables a business to view strategies from a long-term perspective with respect to effective asset and investment deployment and can safeguard against costly errors in relationship management and strategic positioning.

The advantages of Trend Analysis


The ability to accurately gauge customer response to changes in business and other environmental parameters is a powerful competitive advantage. Furthermore O2I's trend analysis includes the process of studying data to gain insights into long-term trends such as failure patterns that can be applied to incident and problem management as well as capacity management. Internal and external users can apply Trend Analysis to determine weaknesses and strengths. This will enable internal users to enhance administration efficiency of the company when necessary and external users to form valuation models of the company based on how well the company is managed.

What if you could make your investment decision at the very first idication that a trend is beginning, before most everyone else? Here are 10 ideas to consider when investing. Risk Diversify Information moves the markets You can count on human behaviour Look everywhere Timing is everything. When does the news begin to have an impact on sector prices? All sectors are not created equal. Trend Pointers monitors the most intriguing sectors and those that are just emerging If you only could know one thing You need a trend partner. You cannot rely just on the financial experts- they are often wrong .

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I adapted my professional marketing and behavioural research expertise to a more personal need- effective investing advice The Evidence FUNDAMENTAL ANALYSIS Fundamental analysis of any commodity involves knowing following facts. Production and consumption. Import and export Distance between consuming centre to producing centre, Cost of transportation, Means of transportation Usual trade practice Cultivation period Impact of weather and technology on crop cultivation. Scope and potential of production and consumption for particular commodity Rivalry with other similar kind of commodity that may in turn may be near substitute for it. Value chain of the commodity and influence of stakeholders at different levels in value chain. Taxation, such as sales tax, import tax, export tax, custom duty, octroi Import and export regulations, Inflation, Foreign currency exchange rate, Government interference, Presence of organized institutions, Groups and their influence on trading community pertaining to particular commodity.

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TECHNICAL ANALYSIS Technical analysis involves using quasi-statistical techniques and formal statistics to identify the trend and pattern of time series data. Usually price data is put on chart and inference is made out based on some principles that are called indicators. Technical analyst uses following information for charting purpose. Open, High, Low and Closing price Open Interest Volume Few indicators are listed below that a technical analyst often usage in his analysis. Trend lines Support and Resistance Moving Average Divergence RSI Oscillators MACD Fibonacci Retracement Elliot wave pattern Candlestick chart pattern There are mainly three types of chart, which is popular amongst analyst. Candlestick Bar Chart Line Chart

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TRADING, CLEARING AND SETTLEMENT IN COMMODITES TRADING Every market transaction consists of three components namely trading, clearing & settlement. However, there is not much difference in trading, clearing & settlement system of commodities exchanges who offer online trading facilities viz NMCE, NCDEX & MCX. In India, maximum volume of trading transaction happens at NCDEX & MCX. This section gives brief idea about how transition happen at MCX platform.

MCX (Multy Commodity Exchange)


MCX is an independent and de-mutulised multi commodity exchange. It was inaugurated on November 10, 2003 by Mr. Mukesh Ambani, Chairman and Managing Director, Reliance Industries Ltd., and has permanent recognition from the Government of India for facilitating online trading, clearing and settlement operations for commodity futures markets across the country.

Headquartered in the financial capital of India, Mumbai, MCX is led by an expert management team with deep domain knowledge of the commodity futures markets. The integration of dedicated resources, robust technology and scalable infrastructure, has helped MCX record many firsts since its inception.

Being a nation-wide commodity exchange having a robust infrastructure, offering multiple commodities for trading with wide reach and penetration, MCX is well placed to tap the vast potential poised by the commodities market. MCX offers a wide spectrum of opportunities to a large cross section of participants including Producers/ Processors, Traders, Corporate, Regional Trading Centers, Importers, Exporters, Cooperatives and Industry Associations amongst others.

VISION AND MISSION OF MCX

The vision of MCX is to revolutionize the Indian commodity markets by empowering the market participants through innovative product offerings and business rules so that the benefits of futures markets can be fully realized. Offering 'unparalleled efficiencies', 'unlimited growth' and 'infinite opportunities' to all the market participants.

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At MCX we believe that performance excellence and affordability would be the key drivers in promoting and popularizing Commodities Futures trading in the country. Exchanges in the new economy will be driven by strong service availability backed by superior technology and MCX is well poised to emerge as the "Exchange of Choice" for the commodity futures trading community.

PRODUCTS TRADED ON MCX

Commodities

Gold, Gold HNI, Gold M, I-Gold, Silver, Silver HNI, Silver M

Castor Oil, Castor Seeds, Coconut Cake, Coconut Oil, Cottonseed, Crude Palm Oil, Groundnut Oil,

Kapasia Khalli (Cottonseed Oilcake),

Mustard /Rapeseed Oil,

Mustard Seed (Sirsa), RBD Palmolein, Refined Soy Oil, Refined Sunflower Oil, Rice Bran Refined Oil, Sesame Seed, Soymeal, Soy Seeds

Cardamom, Jeera, Pepper, Red Chilli

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

Cotton Cotton

Long Medium

Staple

, Staple,

Cotton Short Staple, Cotton Yarn, Kapas

Chana, Masur, Tur, Urad, Yellow Peas,

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Basmati Rice, Maize, Rice, Sarbati Rice,

Wheat

Brent Crude Oil, Crude Oil,Furnace Oil Middle East Sour Crude Oil

Arecanut, Cashew Kernel, Rubber

High

Density

Polyethylene

(HDPE),

Polypropylene (PP), PVC

Guar Seed, Guargum, Gurchaku, Mentha Oil, Potato, Sugar M-30, Sugar S-30,

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EAST WEST CORRIDOR RESEARCH METHODOLOGY

RESEARCH PROBLEM The research begins with the identification of research problem To check the penetration level of commodity derivatives among the respondents. Hence the study begins with Exploratory study of commodity market. To know the answer of what is commodity market? What commodity Derivative is? Why to trade/ how to trade on commodity market? Who are its participants? etc. At the end of the exploratory study, Formal studies begin. Making the base of these studies, research design, research instrument and involvement of precious procedure and data source specifications were made.

OBJECTIVE OF THE STUDY


1. To know the views and attitude of the traders already trading in commodities. 2. To analyse the needs of the traders from the brokers so that brokers can efficiently maintain and increase their client base for commodities. 3. To find out the economic and financial aspects about the commodity market. 4. To understand the concept of derivatives and how financial derivatives are different from commodity derivatives. 5. To find out the expectation of the people from the investment solution provided. 6. The risk taking ability of the traders in the commodities segment can be found out.

SAMPLE DESIGN

The major participants of commodity derivative research were from Surat city and especially the traders from the various textile markets in the city.

A sample size of 100 was taken, as the number of traders for commodities in Surat city is less as compared to other investment avenues.

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RESEARCH DESIGN

The sampling method used was Simple Random Probability Sampling. Snowball Sampling was also used, as the number of respondents who traded in commodities was very less. Through the Casual and Exploratory study of commodity derivative a Questionnaire was designed. Communicational (personal interview) Approach was adopted for gathering the data and important information. After this a systematic arrangement of data was made for analysis. The analysis was done using different charts and findings from them.

DATA COLLECTION

The data collection was done in two phases. The first phase consisted of collecting the Secondary data from reference books and other web sites so as to get information about the commodity derivatives. In the second phase the primary data was collected through survey. The questionnaire was used to gather data.

QUESTIONNAIRE DESIGN

A structured Questionnaire was used for the survey. Both Rating and Ranking type of questions were used in framing the questionnaire.

DATA ANALYSIS As the data was collected from the survey with the help of the questionnaires, it was later analysed and tabulated to make various comparisons. The data was then feed into the excel sheets to form the charts and tables for easy graphical comparisons and understanding of the data.

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BENEFITS OF THE STUDY


1. To study the commodity futures and trading in commodity. 2. We can know the penetration level of the commodity trading in Surat city especially in the textile market. 3. The investment pattern and the behaviour of the traders can be known and the different options the trader considers while investing. 4. The most preferred exchange among the traders can be analysed. 5. The information on what kind of the service traders expect from the brokers can be found out so that our firm Strategic Stockbrokers maybe benefited from it and can work on what kind of services maybe provided to their clients.

LIMITATIONS OF THE STUDY

Sample size of study is only 60 which is not enough for proper study of the whole population. The data given by the respondents may be incorrect or not as accurate as the real fact, which maybe due to the inherent fear of the respondents. People trading in commodity future were less which was the major limitation of this study

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Q1. Do you invest in Capital Market? Yes No

OBJECTIVE
To know the general response of the respondent if he/she is interested in investing in Capital Market.

Yes 75

No 25

25% Yes No 75%

INTERPRETATION:
The overall response of the respondents was quite cooperative with a few exceptions saying that told their main investment was only in their respective business.

Q2. In which of these products do you invest? Bank Deposit Mutual Fund Govt. Bonds Equity Insurance Commodity Derivatives Postal Savings Jewelry

Others ____________________

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The question is framed to know the different investment options that people usually use.

Instruments Bank Deposit Equity Derivatives Mutual Fund Insurance Postal Savings Govt. Bonds Commodity Jewellery Others

No. Of Respondent 20 5 13 7 5 14 6 25 3 2 (Business)

3 2 20 25 5

Bank depsite Equity Derivative Mutual fund insurance postel savings

6 14 7

13

Govt.bond commodity jwellaery others

INTERPRETATION:
The above graph shows the general tendency of the investors, which is more towards the bank deposits wherein 20 people have invested. The bank deposits have continued to be the most favourite of the instruments considered for investment. The bank deposit is followed by insurance with around 5 people who are investing in various insurance schemes. The equity segment has a 5 respondents investing in the cash market and so on...........

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Q3. Have you invested in commodity market? Yes No

OBJECTIVE
The crux of this research starts from this question where it is analysed if an investor invests specifically in the commodity market.

Yes 60

No 40

40% Yes No 60%

INTERPRETATION:
From among the total number of respondents the number of people investing in commodity derivative was 60 whereas the rest of the respondents either did not invest in derivatives or just invested in the futures and options available in shares.

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Q4. Which Exchange do you prefer for trading in commodity? International NYMEX LME DubaiGold Others _______ National MCX NCDEX

OBJECTIVE
From among the various exchanges available to find the most preferred exchange among the respondents.

National International 0 MCX 56 NCDEX 44

44% 56%

MCX NCDEX

INTERPRETATION:
The above table shows that the Mutlti-Commodity Exchange (MCX) has a comparatively higher preference over National Multi-Commodity & Derivatives Exchange (NCDEX). Unfortunately no respondents were met who traded in the various international exchanges.

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Q5. In commodity have you invested in any of the following? Metals Agricultural Products Energy

OBJECTIVE
The main three classifications into which the products at the exchange are divided into and the segment in which a commodity trader would like to trade in.

Metals 40

Agricultural Products 35

Energy 25

25% 40% Metals Agricultural Products Energy

35%

INTERPRETATION:
From the above table we can say that the traders prefer the metal products to agriculture and energy. This preference can be due to the lack of basic knowledge in the agro products.

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Q6. Since when are you investing in commodities? 0 - 6 months 6 months 1 year 1 year and above

OBJECTIVE
The time frame since when the respondents are investing in the commodities market is analysed over here.

0-6 months 7

6 months 1 year 13

1 year and above 40

11%

22%

0-6 months 6 months 1 year 1 year and above

67%

INTERPRETATION:
The commodity market, which was started from year 2003, has gained pretty much momentum in few years. A large number of respondents are those who trade in the commodities segment for the past one year and above.

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Q8. On what volume do you usually trade per day? 0 5 lakhs 50 lakhs 1 crore 5 lakhs 50 lakhs 1 crore and above

OBJECTIVE
To find the amount till which the respondents trade per day in the commodity market.

0-5 lakhs 4

5 50 lakhs 40

50 lakhs 1 crore 9

1 crore and above 7

11%

7%

15%

0-5 lakhs 5 50 lakhs 50 lakhs 1 crore 1 crore and above 67%

INTERPRETATION:
The margin amount of a commodity is only needed to be paid during the trade due to which the traders can get an exposure of huge amount to trade in. Generally a golds volume per lot size may reach upto 9 lakh rupees, and if multiple trade is done for the commodity gold or other such precious metals the total volume per day may go up to huge amounts. Even for other commodities the average volume can go high if multiple trade is done.

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Q9. Which strategy do you usually use for trade? Intraday Long-term Hedging Calendar Spread

Commodity Spread

OBJECTIVE
This is to analyse the traders tendency towards the various strategies available and the ones used by them generally.

LongIntraday 40 Term 25 Hedging 15

Commodity Spread 12

Calendar Spread 8

7% 9% Intraday 13% 44% Long-term Hedging Commodity Spread Calendar Spread 27%

INTERPRETATION:
The majority of the respondents prefer intraday transactions followed by the long-term transactions and hedging. The respondents are less interested towards the various other options available like the two spreads i.e. the commodity spread and the calendar spread.

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Q10. On which basis do you usually formulate your strategy? Fundamental Technical

OBJECTIVE
This is to analyse the traders approach towards trading, whether they use the fundamental techniques to formulate their strategies or the technical methods.

Fundamental 54

Technical 13

24% Fundamental Technical 76%

INTERPRETATION:
The respondents trading in the commodities segment are seen to be investing in here based on the fundamental views more than the technical views. The use of various charts like the candlestick charts and other such means is very low.

Q11. Do you use Stop-loss mechanism?

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Yes No

OBJECTIVE
The risk taking capacity of the traders can be analysed over here by checking if the respondents take a precautionary measure as soon as they take a position.

Yes 38

No 22

37% Yes No 63%

INTERPRETATION:
Here it is visible that the respondents are too cautious towards their investments in commodities segment. They take a stop-loss when they take a position whether short or long. This helps them to square off their position in case the amount of their commodities goes beyond a limit set by them.

Q12. What kind of services do you expect from your broker?

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Information Low Transaction Cost Efficient Follow-up Trading through years/Trust Efficient Response to Queries Advisory Buy/Sell Brand Name Convenience of Online Service All services under one roof

OBJECTIVE
To find out the products or services that is demanded by the respondents from their brokers.

Information Advisory Buy/Sell Low Transaction Cost Brand Name Efficient Follow-up Convenience of Online Service Trading through years/Trust All services under one roof Efficient Response to Queries

10 21 25 12 7 10 3 5 7

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Information 7% 5% 3% 10% 10% Advisory Buy/Sell Low Transaction Cost 21% Brand Name Efficient Follow-up 7% Convenience of Online Service 12% 25% All services under one roof Trading through years/Trust

INTERPRETATION:
The general expectation of the traders from their brokers is that the transaction cost be as minimal as possible. The low transaction cost attribute has gained the maximum preference, which is followed by the advisory to buy/sell.

The convenience of having online service is also preferred by a fair amount of respondents and then the brand name and the efficient response to queries.

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Q13. On whom do you depend to make decisions in commodity investments? Broker Own-Self Others__________________

OBJECTIVE
The question analysis the ratio between the brokers and the trader on the decision making part.

Broker 26

Own-Self 34

43% Broker Own-Self 57%

INTERPRETATION:
Here we can see that majority of the respondents make the decisions for trading on their own. This can be due to the fact that we have seen above wherein a large number of respondents have been trading in the commodity segment from more than a year.

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Q14. The market is open for nearly 13.5 hours, do you think this is preferable? Yes No

OBJECTIVE
The market which is open for nearly 13.5 hours may not be feasible for many and for this reason this question tries to find out the number of people who think that it is preferable to have it open for so long.

Yes 37

No 23

38% yes no 62%

INTERPRETATION:
The market which is open for a more than half a day is feasible for a majority of people as they think that they can get opportunity for squaring off their transactions during the day itself as the positions are updated to the closing value of the day, which may prove to cause a loss on the whole transaction.

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FINDINGS
The research that was done by me on the penetration level of the traders in the commodities segment reflects the following results. The investments made in different avenues is as follows Instruments Bank Deposit Equity Derivatives Mutual Fund Insurance Postal Savings Govt. Bonds Commodity Jewellery Others No. Of Respondent 20 5 13 7 5 14 6 25 3 2 (Business)

Most of the traders do invest in bank fixed deposits, which is then followed by equity, derivatives and insurance. The number of investors in commodity segment is quite less as compared to other investment avenues. From among the total number of respondents the number of people investing in commodity derivative was 60 whereas the rest of the respondents either did not invest in derivatives or just invested in the futures and options available in shares. Traders prefer metals and energy products most and most of the trades are done on Multi-Commodity Exchange. There are traders who are investing in commodities segment from more than 1 year and also people do trade on a average volume as high as 50 lakhs and above.

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People use both fundamental and technical analysis to make their trading decisions with most of traders trading in either intraday or long-term rather than the spreads. The market, which is open for 13.5 hours, is felt as feasible for majority of the respondents as the Indian market pretty much goes parallel with the international markets.

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EAST WEST CORRIDOR RECOMMENDATION


After studying about commodities trading and making survey on investment pattern in capital market and commodities, following recommendations are suggested in context to stock broking house and commodities broking house.

It is suggested to commodities broking house to take some steps like: The stockbrokers should focus on giving their customers right kind of advice while in the initial stages of the investor in the commodity segment so that he may get the full knowledge and gain maximum returns.

Once the investor is confident enough and has enough experience in this trade he can be concentrated towards higher investments.

On the brokers hand it would be better if they convince their clients to use the stop loss mechanism and to diversify their investment in the various commodities so that they can prevent the clients from incurring a high loss and thus loosing trust on the commodities market.

On the traders part they mostly use the fundamental techniques on the same hand the broker should focus on the technical statistics also so that they can convince and match with the traders view and hence make wise decisions.

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CONCLUSION
The majority of the respondents have invested their savings in diversified investment options like the bank fixed deposit, insurance, equity etc. The commodities segment is rapidly gaining grounds in Surat city but still has not reached its full potential as many people still consider it as a risky investment option. The majority of the respondents prefer the Multi-Commodity Exchange as most of trade is done in bullion products. As only agro products are traded on NCDEX it is not so widely preferred by the traders. The risk taking ability among the respondents is high so as to gain maximum returns.

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BIBLIOGRAPHY
REFERENCE BOOKS: NCFM Module on Commodity Trading NCFM Module on Derivatives Business Research Methods, Donald R. Copper & Pamela S. Schindler

WEBSITES: www.mcxindia.com www.ncdexindia.com www.tradersedgeindia.com/stop_loss.htm www.ask4fno.com www.commoditytrader.com

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ANNEXURE

QUESTIONNAIRE
Q1. Do you invest in Capital Market? Yes No

Q2. In which of these products do you invest? Bank Deposit Postal Savings Jewelry Equity Govt. Bonds Derivative Mutual Fund

Real Estate Insurance

Others ____________________

Q3. Have you invested in commodity market? Yes No

Q4. Which Exchange do you prefer for trading in commodity? International NYMEX LME Dubai Gold Others _______ Q5. In commodity have you invested in any of the following? Metals Agricultural Products Energy National MCX NCDEX

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Q6. Which factor do you consider as important while investing? (Rank them) [ ] Max Return [ ] Product Knowledge [ ] Safety [ ] Diversification [ ] Liquidity [ ] Tax Benefi

Q7. Since when are you investing in commodities? 0 - 6 months 6 months 1 year 1 year and above

Q8. On what volume do you usually trade per day? 0 5 lakh 50 lakhs 1 crore 5 lakh 50 lakhs 1 crore and above

Q9. Which strategy do you usually use for trade? Intraday Long-term Hedging Calendar Spread

Commodity Spread

Q10. On which basis do you usually formulate your strategy? Fundamental Technical

Q11. Do you use Stop-loss mechanism? Yes No

Q12. What kind of services do you expect from your broker? Information Low Transaction Cost Efficient Follow-up Trading through years/Trust Efficient Response to Queries Advisory Buy/Sell Brand Name Convenience of Online Service All services under one roof

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Q13. On whom do you depend to make decisions in commodity investments? Broker Own-Self Others________________

Q14. The market is open for nearly 13.5 hours, do you think this is preferable? Yes No

Name: -

......................................................................................................

Address: -

....................................................................................................... .......................................................................................................

Phone No: - .................................

Mobile No: - .......................................

Occupation: -..............................

Thank You

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