Study on

“STUDY ON PERCEPTION OF INVESTORS TOWARDS

COMMODITY MARKET”

Submitted in Partial Fulfillment of the Requirements of

ALL INDIA MANAGEMENT ASSOCIATION
POST GRADUATION DIPLOMA IN MANAGEMENT

By

SWATI SMITI NANDA

REG. No: 420820511

Under the Guidance of

Dr. Ranganatham.G

Acharya Institute of Management &

Sciences
1st Cross, 1st Stage, Peenya Industrial Area
Bangalore – 560 058
 2008 - 2010

DECLARATION

I, Swati Smiti Nanda, here by declare that this dissertation titled, STUDY ON

PERCEPTION OF INVESTORS TOWARDS COMMODITY MARKET is based

on the original project study conducted by me under the guidance of Dr.

Ranganatham.G

This has not been submitted earlier for the award of any other degree /

diploma by Acharya Institute of Management and Sciences.

Place: Bangalore

Date: SWATI SMITI NANDA

2
 CERTIFICATE FROM THE GUIDE

Certified that this dissertation STUDY ON PERCEPTION OF INVESTORS

TOWARDS COMMODITY MARKET is based on an original project study

conducted by SWATI SMITI NANDA of IV Semester PGDM under my guidance.

This dissertation has not formed the basis for the award of any other degree / diploma by

Acharya Institute of Management and Science.

Place: Bangalore
Date: Dr. Ranganatham.G

3
LIST OF CONTENTS

PAGE
CHAPTERS CONTENTS NO.

1 INTRODUCTION
Introduction

2 RESEARCH METHODOLOGY
Statement of the Problem
Scope of the Study
Objective of the study
Literature Review
Research design
Population and sampling
technique
Sample design
Limitations of Study
Chapter Layout

3 INDUSTRY PROFILE

4 ANALYSIS AND INTERPRETATION

OF DATA

5 FINDINGS

CONCLUSIONS AND SUGGESTIONS

BIBLIOGRAPHY

4
 ACKNOWLEDGEMENT

I would like to thank Prof. Ms. Kiran Reddy, Principal, Acharya Institute of
Management and Sciences, Bangalore for giving me an opportunity to conduct this
study.
I would also like o express my sincere thanks to Dr. Ranganatham.G Faculty,MBA
Department, Acharya Institute of Management and Sciences, Bangalore for providing
necessary insight and guidance.
I would also like to express my sincere thanks to my parents who gave me the necessary
financial and moral support during the course of my project. Last but not the least; I am
grateful to my respondents who have provided me valuable information needed for the
successful completion of this project.

Place: Bangalore Swati Smiti Nanda

Date:

5
 CERTIFICATE

Certified that this dissertation titled STUDY ON PERCEPTION OF INVESTORS

TOWARDS COMMODITY MARKET is based on the study conducted by SWATI

SMITI NANDA of IV Semester PGDM under the guidance of. Dr.

Ranganatham.G.

This dissertation is based on the original project study undergone and has not formed the

basis for the award of any other degree/diploma by Bangalore University or any other

University.

Dr M. Ranganathan Ms. Kiran Reddy

Professor - PGDM Principal

Place: Bangalore Place: Bangalore

Date: Date:

6
CHAPTER-1 INTRODUCTION

7
1.1 GENERAL INTRODUCTION
Commodity markets are markets where raw or primary products are exchanged. These
raw commodities are traded on regulated commodities exchanges, in which they are
bought and sold in standardized contracts.
The modern commodity markets have their roots in the trading of agricultural products.
While wheat and corn, cattle and pigs, were widely traded using standard instruments in
the 19th century in the United States, other basic foodstuffs such as soybeans and wheat
were only added quite recently in most markets. For a commodity market to be
established there must be very broad consensus on the variations in the product that
make it acceptable for one purpose or another.
The economic impact of the development of commodity markets is hard to over-
estimate. Through the 19th century "the exchanges became effective spokesmen for, and
innovators of, improvements in transportation, warehousing, and financing, which paved
the way to expanded interstate and international trade."

1.2 History of commodity markets

The history of organized commodity derivatives in India goes back to the nineteenth
century when the Cotton Trade Association started futures trading in 1875, barely about
a decade after the commodity derivatives started in Chicago. Over time the derivatives
market developed in several other commodities in India. Following cotton, derivatives
trading started in oilseeds in Bombay (1900), raw jute and jute goods in Calcutta (1912),
wheat in Hapur (1913) and in Bullion in Bombay (1920). However, many feared that
derivatives fuelled unnecessary speculation in essential commodities, and were
detrimental to the healthy functioning of the markets for the underlying commodities,
and hence to the farmers. With a view to restricting speculative activity in cotton market,
the Government of Bombay prohibited options business in cotton in 1939. Later in 1943,
forward trading was prohibited in oilseeds and some other commodities including food-
grains, spices, vegetable oils, sugar and cloth. After Independence, the Parliament
passed Forward Contracts (Regulation) Act, 1952 which regulated forward contracts in

8
commodities all over India. The Act applies to goods, which are defined as any movable
property other than security, currency and actionable claims. The Act prohibited options
trading in goods along with cash settlements of forward trades, rendering a crushing
blow to the commodity derivatives market. Under the Act, only those
associations/exchanges, which are granted recognition by the Government, are allowed
to organize forward trading in regulated commodities. The Act envisages three-tier
regulation: (i) The Exchange which organizes forward trading in commodities can
regulate trading on a day-to-day basis; (ii) the Forward Markets commission provides
regulatory oversight under the powers delegated to it by the central Government, and
(iii) the Central Government - Department of Consumer Affairs, Ministry of Consumer
Affairs, Food and Public Distribution - is the ultimate regulatory authority. The already
shaken commodity derivatives market got a crushing blow when in 1960s, following
several years of severe draughts that forced many farmers to default on forward
contracts (and even caused some suicides), forward trading was banned in many
commodities considered primary or essential. As a result, commodities derivative
markets dismantled and went underground where to some extent they continued as OTC
contracts at negligible volumes. Much later, in 1970s and 1980s the Government relaxed
forward trading rules for some commodities, but the market could never regain the lost
volumes.

1.2 REQUIREMENT OF COMMODITY DERIVATIVES

What are 'Commodities'?

Commodities, in simple words, are goods that are unbranded and traded commonly.
Gold, silver, rubber, pepper, jute, wheat, sugar, cotton etc., are some of the common
commodities.

What is a 'Commodity market'?

A commodity market (just like the equity market) facilitates trading in various
commodities. It may be a spot market or a derivatives market. In a spot market,
commodities are bought and sold for immediate delivery, whereas in a derivatives

9
market, various financial instruments based on commodities are traded. These financial
instruments such as 'futures' are traded in exchanges like Multi Commodity Exchange
(MCX) and National Commodity Derivatives Exchange (NCDEX).

India is among the top-5 producers of most of the commodities, in addition to being a
major consumer of bullion and energy products. Agriculture contributes about 22% to
the GDP of the Indian economy. It employees around 57% of the labour force on a total
of 163 million hectares of land. Agriculture sector is an important factor in achieving a
GDP growth of 8-10%. All this indicates that India can be promoted as a major hub for
trading of commodity derivatives. It is unfortunate that the policies of FMC during the
most of 1950s to 1980s suppressed the very markets it was supposed to encourage and
nurture to grow with times. It was a mistake other emerging economies of the world
would want to avoid. However, it is not in India alone that derivatives were suspected of
creating too much speculation that would be to the detriment of the healthy growth of
the markets and the farmers. Such suspicions might normally arise due to a
misunderstanding of the characteristics and role of derivative product.
It is important to understand why commodity derivatives are required and the role they
can play in risk management. It is common knowledge that prices of commodities,
metals, shares and currencies fluctuate over time. The possibility of adverse price
changes in future creates risk for businesses.
Derivatives are used to reduce or eliminate price risk arising from unforeseen price
changes. A derivative is a financial contract whose price depends on, or is derived from,
the price of another asset.
Two important derivatives are futures and options.
Commodity Futures Contracts: A futures contract is an agreement for buying or selling
a commodity for a predetermined delivery price at a specific future time. Futures are
standardized contracts that are traded on organized futures exchanges that ensure
performance of the contracts and thus remove the default risk. The commodity futures
have existed since the Chicago Board of Trade (CBOT) was established in 1848 to bring
farmers and merchants together. The major function of futures markets is to transfer
price risk from hedgers to speculators. For example, suppose a farmer is expecting his

10
crop of wheat to be ready in two months time, but is worried that the price of wheat may
decline in this period. In order to minimize his risk, he can enter into a futures contract
to sell his crop in two months’ time at a price determined now. This way he is able to
hedge his risk arising from a possible adverse change in the price of his Commodity.
Commodity Options contracts: Like futures, options are also financial instruments used
for hedging and speculation. The commodity option holder has the right, but not the
obligation, to buy (or sell) a specific quantity of a commodity at a specified price on or
before a specified date. Option contracts involve two parties – the seller of the option
writes the option in favour of the buyer (holder) who pays a certain premium to the
seller as a price for the option. There are two types of commodity options: a ‘call’ option
gives the holder a right to buy a commodity at an agreed price, while a ‘put’ option gives
the holder a right to sell a commodity at an agreed price on or before a specified date
(called expiry date).
The option holder will exercise the option only if it is beneficial to him; otherwise he
will let the option lapse. For example, suppose a farmer buys a put option to sell 100
Quintals of wheat at a price of $25 per quintal and pays a ‘premium’ of $0.5 per quintal
(or a total of $50). If the price of wheat declines to say $20 before expiry, the farmer will
exercise his option and sell his wheat at the agreed price of $25 per quintal. However, if
the market price of wheat increases to say $30 per quintal, it would be advantageous for
the farmer to sell it directly in the open market at the spot price, rather than exercise his
option to sell at $25 per quintal.

Derivative and future are basically of 3 types:

 swaps
 Forwards and Futures
 Options

11
 DERIVATIVES
DERIVATIVES

Options
Options Futures
Futures Swaps
Swaps Forwards
Forwards

Interest
Interest
Put
Put Call
Call Currency
Rate
Rate Currency

Commod
Commod
1.3 ity
ity Security
Security COMMODITY EXCHANGES
ACROSS THE WORLD
A commodities exchange is an exchange where various commodities and derivatives
products are traded. Most commodity markets across the world trade in agricultural
products and other raw materials (like wheat, barley, sugar, maize, cotton, cocoa, coffee,
milk products, pork bellies, oil, metals, etc.) and contracts based on them. These
contracts can include spot prices, forwards, futures and options on futures. Other
sophisticated products may include interest rates, environmental instruments, swaps, or
ocean freight contracts. Steel contracts started to be traded for the first time on the
London Metal Exchange in 2007.

Table 1 – Commodity Exchanges

12
 Exchange Abbreviation Location Product Types

Agricultural, Biofuels,
CME Group CME Chicago
Precious Metals

Chicago Climate
CCX Chicago Emissions
Exchange

New York Board of Trade NYBOT New York Agricultural, Biofuels

Energy, Agricultural,
New York Mercantile
NYMEX New York Industrial Metals, Precious
Exchange
Metals

Dubai Gold &

DGCX Dubai Precious Metals
Commodities Exchange

Multi Commodity Energy, Precious Metals,

MCX India
Exchange Metals, Agricultural

National Commodity and

NCDEX Mumbai All
Derivatives Exchange

Purpose:

Commodity market is a market where raw or primary products are exchanged. These
raw commodities are traded on regulated commodities exchanges, in which they are
13
bought and sold as standardized contracts. The modern commodity market have their
roots in the trading of agricultural products. While wheat and corn, cattle and pigs, were
widely traded using standard instruments in 19th century in the United States, other
basic foodstuff such as soybeans and wheat were only added quality recently in most
market. For a commodity market to be established there must be very broad consensus
on the variations in the product that make it acceptable for one purpose or another.
The economic impact of the development of commodity market is hard to over-estimate.
Through the 19th century “the exchanges became effective transportation, warehousing
and financing, which paved the way to expanded interstate and international trade.”

AIM
To analyze and understand the perception of investors towards Commodity market.

Objectives of the study

• To understand and analyze the commodity markets.

• To know the perception of investor about commodity market.

• To study the trend of commodity market.

• To know in depth the online trading system and challenges entailed.

Key Question
• Are you aware of commodity market?

• Why are you not investing in commodities sources?

• Is there any brokerage issue that results in non-trading in commodities?

Hypothesis of the study:

Hypothesis 1
H0: Trading in commodity lead to growth in inflation
H1: Trading in commodity will not lead to growth in inflation

14
Hypothesis 2
Ho: Investment in commodities is beneficial for the retail investor.
H1: Investment in commodities is not beneficial for the retail investor.

Research Methodology

Stage 1: Literature Research

A comprehensive review of relevant literature including computer assistance search will

be undertaken in order to develop an understanding of concept and previous work
related to Commodity market and its opportunities.
Stage 2: Research Design

The type of research followed would be descriptive and analytical.

15
 CHAPTER-2
RESEARCH METHODOLOGY

16
 RESEARCH METHODOLOGY
4.1 INTRODUCTION
Commodity market is the latest market introduced in India and people are not yet aware
of commodity trading very much. In the international market the investment required for
the commodity market is huge and brokers should follow such steps so that they could
generate decent profits for their clients. But the problem is that these brokers are least
bothered about the profit generation of the clients and they are just concerned about their
brokerage and make maximum profit. Thus these brokers do not advice their clients in a
proper way and are likely to lose their clients and even these clients lose their faith on
brokers as well as commodity market.

4.2 STATEMENT OF RESEARCH PROBLEM.

As the investment required in commodity market is huge, people are hesitant to invest in
commodity market .Inadequacy in guidance provided by brokers’ may not facilitate
proper generation of profits for the clients. This may also contribute to the slackness in
investment in this sector especially when clients are also not well trained about the
market fluctuations. Clients are not advised properly regarding the generation of profit in
the international market and also in Indian market.

4.3 STATEMENT OF RESEARCH OBJECTIVE

The study conducted on this problem with reference to customers has the following
objectives
1. to make the people well aware of commodity market at both the international as
well as Indian market.
2. To address the problem/issues which are acting as an obstracle
2. To ascertain the awareness levels of people with respect to commodities markets.
3. To identify the problems/issues which are acting as an obstacle to trading.
4.4 STATEMENT OF RESEARCH DESIGN AND METHODOLOGY
The study is based on survey technique. The study consists of analysis about customer’s
awareness of and satisfaction regarding the rate of return earned in the commodities

17
market. For the purpose of the study, 100 customers were picked up at random and their
views solicited on different parameters. The methodology adopted includes
• Questionnaire
• Discussions with the concerned respondents to supplement the questionnaire
4.5- SOURCES OF DATA :

PRIMARY DATA:
Primary data is collected through:
• Telephone conversations.
• Questionnaire

SECONDARY DATA
Secondary data is collected from:
• Journals
• Magazines
• Internet
Sample Size: 100 customers of Bangalore city
Sampling Method: Convenient random sampling

Stage4: Measurement Procedure

The data collected through questionnaire will be represented in tabular and graphical
form with the help of appropriate statistical tools.

Stage 5: Sampling
Sampling Plan: Sampling is nothing but a small portion of population to show the
quality of the whole. Sampling can be classified into three sections as mentioned below.
Sampling Type: The study type is analytical, quantitative and historical.
Sampling Size : It refers to the total number of people including in the sample plan. In
this project, sample size is 100 customers in Bangalore.
Sampling Unit : Sampling unit refers to the sample target. In this project, the sample
units are the investors who invest in Commodity market.

18
4.5- SCOPE OF STUDY
The research that is being conducted by me will be useful in the following respect-
1-This will help the company, how to make people aware about derivatives &
commodity market by imparting best education.
2-This will help the company to know the customer’s preferences and channelize it
towards derivatives & commodities.
3-This will help the company to frame effective Marketing Strategy.

4.6- LIMITATIONS OF THE STUDY

Personal Bias
People may have personal bias towards particular investment option so they may not
give correct information and due to which conclusion may be derived.
Time Limit:
The time duration of the research is short and that is why the information is not fully
covered.
Area:
The area was limited to Bangalore city only, so we can not know the degree of the
literacy of commodity market and forex market outside the city limit.
Sample Size:
The last limitation is Sample size i.e. 100 only; due to which we may not get the proper
results.
Formulation of hypothisis:
• Trading in commodities lead to growth in inflation.
• Investment in commodities is beneficial for the retail investor.
Methodology:
As already stated above it is a descriptive and analytical research,therefore following
will be include in my methodology.
• Detail study on commodity.
• Analyyzing the trend of commodity market and its effect on economy.

19
 • Studying the effect of economic factors and government policies on commodity
market.
• Various factors of commodities that are influencing the economy.

Analysis of data:
Table2. Instruments in which people are trading.
Instruments Nos. Percentage(%)
Equity 46 46
Derivatves 19 19
Commodities 35 35

Interpretation:
From the data I have collected it shows that more people like to trade in equities then
in commodies .

20
 Table2. Preference for investment Derivatives and commodity
Instruments No. Percentage
Bullion 13 13
Spices 5 5
Oil 28 28
Fiber 3 3
Metal 31 31
F&O 20 20

Interpreation:
In derivatives & commodities more people like to invest in metal and oil .

Table3. Factors which people takes into consideration while taking the decision to
trade in Derivatives & Commodities.
Factors Percentage(%) Rank
Independently 18 1
Broker/Agent’s advice 11 4
News Channel 9 6

21
News Paper 8 8
Internet 10 5
Advice of Friends 13 3
Advice of CA/Tax 9 7
Consultants
Well-knownStock Broking 15 2
Houses
Business Magazines 7 9

Table4. Are you satisfied with trading in commodity market?

Option Percentage(%)
Very Satisfied 20
Satisfied 34
Neutral 18
Not satisfied 26
Very Dissatsfied 2
Total 100
Interpreation:
As per the data collected 34 percent of people are satisfied with trading in
commodities.And 20 percent of people are very satisfied while trading in
commodities.And only 2 percent people are dissatisfied with trading in commodities.

Table5. Belief of people about volatility of commodity market

Option Percentage(%)
Strongly Agree 62
Strongly Disagree 38
Total 100

22
Interpreation:
From the data I collected 62 percent people are strongly agree that commodity
market is volatile and 38 percent of people believe that commodity market is not
volatile.
Table6. If yes ,Rank the following product,the most volatile in a market
Commodity Rank
Bullion 1
Spices 3
Oil 2
Fiber 6
Metal 4
F&O 5

Interpreation:
When I asked investor rank the above product as per their volatility they rank Bullion as
1 then oil then spices then metal etc. As per perception of the investor Bullion is the
most volatile product in the market.

Table7. Factors affect the volatility of the commodity market

23
Option Percentage(%)
GDP growth rate 9
Economy Global Trend 15
Agricultural Production 28
Inflation Rate 10
Seasonal Variation 38
Total 100

Interpreation:
There are certain factors which affect the volatility of the commodity market. From the
above factors seasonal variation is the one factor which affect the volatility of the
commodity market most. Agricultural Production is the second factor which also effect
the volatility of the commodity market. There are other factors which effect the volatility
are GDP growth rate, Inflation Rate etc.

Table8. Part of saving people invest in commodity market

Option Percentage(%) Frequency
Less than 25% 49 49
25%to50% 31 31
50%to75% 17 17

24
Above 75% 3 3
Total 100 100

Interpreation:
When I asked people that what part of their income they spent in commodity market
then only 3 percent of sample population invest above 75 percent of their saving in
commodity market.17 percent of sample population invest 50-75 percent of their saving
in commodity market.31 percent of sample population like to invest 25-50 of their
saving in commodity market.49 percent of sample population like to invest less than 25
percent of their saving in commodity market. So from this we can conclude than more
number of people spent very less amount of their saving in commodity market.

Table9. On an average people expect return from commodity market

Option Percentage(%)
10%to15% 6
15%to20% 16
20%to30% 26
More than 30% 52
25
Total 100

Interpreation:
From the survey I conducted I found that 52 percent of people expect more than 30
percent in return from commodity market and 26 percent of sample population expect 20
to 30 percent return from commodity market and 16 percent of sample population expect
15-20 percent return from commodity market and 6 percent of people expect 10-15
percent of return from commodity market. So more number of people expect a good
number of return from commodity market.

Table10. Satisfaction of people with their return?

Option Percentage (%)
Very Satisfied 44
Very Satisfied 18
Dissatisfied 16
Very Dissatisfied 10
Neutral 12
Total 100

26
Interpreation:
As per data collected 44 percent of people are satisfied with their return and 10 percent
of people are very dissatisfied with their return.18 percent of people are very satisfied
with their return and 16 percent of people are dissatisfied with their return.

27
SUMMARY OF FINDINGS
The Indian public has a lot of potential which still remain untapped. The attitude of
people is changing towards various investment opportunities and keeping pace with
changing times their risk appetite has also increased. Majority of population is still not
aware about the international commodity market and is apprehensive about the
investment. Their fear is related to loss of capital invested. People have burnt hands by
trading in Indian commodity market, and they fear it would happen in international
markets as well. The reasons for loss of investment were lack of knowledge and foul
game plan of the brokers.
• People need to be made aware of commodity market-both the Indian and
international commodity market.

28
• People who were scared to invest in commodity market can be or convinced and
made to trade in the commodity market and also use technical and fundamental
analysis when proper training is given.
• People can be converted to invest in the international market when advices are
given regarding the market landings.And also when the clients are given daily
updates,they start to trade regularly.This generates revenue for the organization.

29
 CHAPTER-3
INDUSTRY PROFILE

30
A. ORIGIN AND DEVELOPMENT OF THE INDUSTRY
Commodity money and commodity markets in a crude early form are believed to have
originated in Sumer where small baked clay tokens in the shape of sheep or goats were
used in trade. Sealed in clay vessels with a certain number of such tokens, with that
number written on the outside, they represented a promise to deliver that number. This
made them a form of commodity money - more than an "I.O.U." but less than a
guarantee by a nation-state or bank. However, they were also known to contain promises
of time and date of delivery - this made them like a modern futures contract. Regardless
of the details, it was only possible to verify the number of tokens inside by shaking the
vessel or by breaking it, at which point the number or terms written on the outside
became subject to doubt. Eventually the tokens disappeared, but the contracts remained
on flat tablets. This represented the first system of commodity accounting.
However, the Commodity status of living things is always subject to doubt - it was hard
to validate the health or existence of sheep or goats. Excuses for non-delivery were not
unknown, and there are recovered Sumerian letters that complain of sickly goats, sheep
that had already been fleeced, etc.
If a seller's reputation was good, individual "backers" or "bankers" could decide to take
the risk of "clearing" a trade. The observation that trust is always required between
market participants later led to credit money. But until relatively modern times,
communication and credit were primitive.
Classical civilizations built complex global markets trading gold or silver for spices,
cloth, wood and weapons, most of which had standards of quality and timeliness.
Considering the many hazards of climate, piracy, theft and abuse of military fiat by
rulers of kingdoms along the trade routes, it was a major focus of these civilizations to
keep markets open and trading in these scarce commodities. Reputation and clearing
became central concerns, and the states which could handle them most effectively

31
became very powerful empires, trusted by many peoples to manage and mediate trade
and commerce.
Indian economy is based on agriculture product and agriculture product’s trading market
is a commodity market. surprisingly has an under developed commodity markets. For
years, trade in commodities such as agricultural products and precious metals are
conducted in unorganized and regional markets or mandis, with little transparency in
operations.
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 stocks. For instance, jewelers can hedge his inventory against perceived
short-term downturn in gold prices by going short in the futures markets.
The Government of India reversed restrictions on future trading in as many as 120
commodities, including agricultural commodities like oilseeds, edible oil, cotton etc and
metals such as nickel, tin zinc, gold, silver etc. It followed Forward Market Commission
(FMC) allowing four entities to operate nationwide online exchanges for futures trading
in commodity.

B. GROWTH AND PRESENT STATUS OF THE INDUSTRY

Many exchanges are there in the country or out side of the company for commodities
future trading.

There are some 21 commodity exchanges in India and world wide various exchange are
playing a role like CME, NYMEX, CBOT, LME, COMEX etc. However most of them
are regional, offline (non screen-based) and commodity specific, hence these are almost
inoperative. Significantly the
government has recently allowed four national level multi-commodity exchanges to
trade in all permitted commodities.

 New York Mercantile Exchange (USA) main exchange of the world. It is a main
market of the world where all global economy affect by it.

32
 Chicago mercantile exchange (CME) main trade does in this exchange are of
Euro Currency, British Pound, Japanese Yen, Dollar, Swiss Frank etc generally
this all currency are trade in CME.

 Chicago Board of Trade (CBOT) Soybeans, Wheat etc are trade in this exchange.

 National Multi Commodity Exchange of India Ltd, Ahmedabad (NMCE)--

www.nmce.com. This is presently working on-line and trading in many active
commodities like castor seed/oil, rapeseed and mustard seed/oil, aluminum,
soybean/oil, pepper, gold, silver etc.

 National Board of Trade, Indore (N-BOT). This is also presently working but not
completely on-line, screen-based. In this exchange maximum trades are carried
out in soy oil.

 National Commodity and Derivative Exchange, Mumbai (NCDEX). ICICI

BANK, National Stock Exchange (NSE), Life Insurance Corporation and
NABARD are promoting the exchange. It is more or less on the lines of the NSE
of the capital market.

 Multi Commodity Exchange of India Ltd, Mumbai (MCX). The exchange is

promoted mainly by professionals and supported by Financial Technology (FT).
The exchange has started operations from November 10 and has offered gold,
silver and castor seed in the first phase of trading facility.

33
 STRUCTURE OF COMMODITY MARKET

Ministry of
Consumer Affairs

FMC(Forward
MarketCommission)

Commodity Exchange

National Exchanges Regional Exchange

20
Reasonal
NCDEX MCX NMCE NBOT Stock
Exchange

34
Commodity Exchange
As commerce and industry have matured, each craft developed a vocabulary that
uniquely describes its products, technology, and business practices. Often, these words
seem incomprehensible to the layman. The terms that are central to the New York
Mercantile Exchange can at times seem formidable, especially those pertaining to our
industry, futures and options, as well as those of our principal customers, energy and
metals producers, vendors, and consumers.

The New York Mercantile Exchange, Inc., offers trading in futures and options on crude
oil, heating oil, unleaded gasoline, natural gas, electricity, gold, silver, copper,
aluminum, platinum, and the Euro Top 100® index; futures on the FTSE Euro top 300®
index; and options on propane, palladium; and the heating oil/crude oil and gasoline/
crude oil price differential.

In the lingo of the institution, “sweet crude” is not the exclamation of an oil driller who
has just brought in a successful well, wet barrels are different from paper barrels, mogas
is something most people use everyday, hallmark is not a brand of greeting card, a lease
does not involve real estate, fine weight is not the result of a diet program, and contango
is not a dance step.

This short lexicon is not meant to be a comprehensive dictionary; its aim is to foster a
better understanding of our business by the trading community, our customers, and the
public at large.

The Exchange’s public information office makes information available 24 hours a day
through phone systems which put you in touch with vital Exchange information faster

35
than ever. Important information, such as prices and trading volume are available
through the NYMEX Division Fastfacts line with updates provided every five minutes

by the Exchange’s mainframe computer. New information is available within 30 minutes

of real-time. Information pertaining to Exchange holidays, delayed openings, and
closings is also available. The COMEX Division Information Line offers essential data
including volume, open interest, daily highs and lows, settlement prices warehouse
stocks, current day delivery notices, and new additions to strike prices. Recorded data is
updates daily.

MARKET SHARE OF COMMODITY EXCHANGES IN INDIA

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NCDEX (NATIONAL COMMODITIES AND DERIVATIVES EXCHANGE)

NCDEX started working on 15th December, 2003. This exchange provides facilities to
their trading and clearing member at different 130 centers for contract.
In commodity market the main participants are speculators, hedgers and arbitragers.

FACILITIES PROVIDED BY NCDEX

 NCDEX has developed facility for checking of commodity and also provides a
wear house facility
 By collaborating with industrial partners, industrial companies, news agencies,
banks and developers of kiosk network NCDEX is able to provide current rates
and contracts rate.
 To prepare guidelines related to special products of securitization NCDEX works
with bank.
 To avail farmers from risk of fluctuation in prices NCDEX provides special
services for agricultural.
 NCDEX is working with tax officer to make clear different types of sales and
service.

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 taxes.

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MCX(MULTI COMMODITY EXCHANGE)
‘MULTI COMMODITY EXCHANGE’ of India limited is a new order exchange with
a mandate for setting up a nationwide, online multi-commodity marketplace, offering
unlimited growth opportunities to commodities market participants. As a true neutral
market, MCX has taken several initiatives for users In a new generation commodities
futures market in the process, become the country’s premier exchange.

MCX, an independent and a de-mutualized exchange since inception, is all set up to

introduce a state of the art, online digital exchange for commodities futures trading in
the country and has accordingly initiated several steps to translate this vision into reality.

Multi Commodity Exchange is said to be the most prominent commodity exchange in

the country, and claimed 84% of the total commodity market share in the year 2008.
Awarded with an ISO 9001:2000 accreditation for the quality standards maintained by it,
MCX has partnered with ten renowned commodity exchanges of the world, including
Tokyo Commodity Exchange, London Metal Exchange, Chicago Climate Exchange,
New York Board of Trade, Bursa Malaysia Derivatives and New York Mercantile
Exchange.

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CHART-2

40
MarketWatch:

The market watch window is used to view the market details for a particular or group of
contracts and for a particular instrument type. This window displays the following
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details: Symbol, Expiry, price quotation unit, buy qty, buy price, sell price, sell qty, last
traded price, D.P.R, volume (in 000’s), value (in lac),% change, average trade price,
high, low, open, close & open interest.

New York Mercantile Exchange (NYMEX)

The New York Mercantile Exchange (NYMEX) is the world's largest physical
commodity futures exchange, located in New York City. Its two principal divisions are
the New York Mercantile Exchange and Commodity Exchange, Inc (COMEX) which
were once separate but are now merged. The parent company of the New York
Mercantile Exchange, Inc., NYMEX Holdings, Inc. became listed on the New York
Stock Exchange on November 17, 2006, under the ticker symbol NMX. Less than two
years later, on August 22, 2008, NYMEX Holdings was formally acquired by CME
Group (symbol: CME) and the NMX symbol was de-listed.

The New York Mercantile Exchange handles billions of dollars worth of energy
products, metals, and other commodities being bought and sold on the trading floor and
the overnight electronic trading computer systems. The prices quoted for transactions on
the exchange are the basis for prices that people pay for various commodities throughout
the world.

The floor of the NYMEX is regulated by the Commodity Futures Trading Commission,
an independent agency of the United States government. Each individual company that
trades on the exchange must send its own independent brokers. Therefore, a few
employees on the floor of the exchange represent a big corporation and the exchange
employees only record the transactions and have nothing to do with the actual trade. The

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NYMEX is one of the few exchanges in the world to maintain the open outcry system,
where traders employ shouting and complex hand gestures on the physical trading floor.

ONLINE TRADING

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In order to provide efficiency, liquidity and transparency, online trading systems are
introduced, where a member can punch into the computer quantities of commodities and
the prices at which he likes to transact and the transaction is executed as soon as it finds
a matching sale or buy order from a counter party. Online trading systems electronically
matches orders on a strict price/time priority and hence cuts down on time, cost and risk
of error, as well as on fraud resulting in improved operational efficiency. It allows faster
incorporation of price sensitive information into prevailing prices, thus increasing the
informational efficiency of markets. It enables market participants, irrespective of their
geographical locations, to trade with one another simultaneously, improving the depth
and liquidity of the market. It provides full anonymity by accepting orders, big or small,
from members without revealing their identity, thus providing equal access to
everybody. It also provides a perfect audit trail, which helps to resolve disputes by
logging in the trade execution process in entirety. Today India can boast that almost
100% trading take place through electronic order matching.

Initially technology was used to carry the trading platform from the trading hall of
commodity & stock exchanges to the premises of brokers, but now the facility is
extended further to the PCs at the residence of investors through the Internet and to
handheld devices through WAP for convenience of mobile investors.
The exchanges have main computer which is connected through Very Small
Aperture Terminal (VSAT) installed at there office. The main computer runs on a fault
tolerant STRATUS mainframe computer at the Exchanges. Brokers have terminals
installed at their premises which are connected through VSATs/leased lines/modems. An
investor informs a broker to place an order on his behalf.

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45
IT’S MERITS TO CLIENTS
Clients have following advantages of online trading system:
1) Clients are able to track market watch. Client can see the movement in the markets.
2) Clients can place an online order for buying or selling the commodity, for
modification of the order, for cancellation of the order.
3) Client can view the order status in online trading system. He or she can check it out
whether an order is pending or executed.
4) Users can view the auction activities for the current trading day.
5) Users can view Multiple Index Broadcast and Graph screen. This screen displays
information of various commodities like gold, silver, crude oil, copper, foreign
exchange etc.
6) Clients can avail online back up facility. On Line Backup is a facility that the user can
invoke to take a backup of all order and trade related information for the user. The
information available is for the current day only.
7) Clients can analyze index inquiry. Index Inquiry gives information on Previous Close,
Open, High, Low and Current Index values of all the listed commodities.

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TRADING PLATFORM

47
DIFFERENT TRADING PRODUCTS

PRODUCT

48
Agro
Products

Cashew Castor Seed

Chana Chilli
Coffee - Coffee -
Arabica Robusta
Common
Common
Parboiled
Raw Rice
Rice
Crude Cotton Seed
Palm Oil Oilcake
Expeller Grade A
Mustard Parboiled
Oil Rice
Grade A Groundnut
Raw Rice (in shell)

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Groundnu
t Expeller Guar gum
Oil
Guar
Gur
Seeds
Jute sacking
Jeera
bags
Indian
Lemon
Parboiled
Tur
Rice
Indian Indian 28
Raw Rice mm Cotton
Indian 31
Maharashtr
mm
a Lal Tur
Cotton
Masoor Medium
Grain Staple
Bold Cotton
Mulberry
Mentha
Green
Oil
Cocoons
Mulberry Mustard
Raw Silk Seed
Pepper Raw Jute
Rapeseed-
RBD
Mustard
Palmolein
Seed
Refined
Rubber
Soy Oil
Sesame
Soyabean
Seeds
Sugar Yellow
Soybean
Meal
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Turmeric Urad
V-797
Wheat
Kapas
Yellow Yellow Red
Peas Maize
Base Metals
Electrolytic Copper Cathode

Mild Steel Ingots

Sponge Iron

Precious Metals
Gold

Silver

NCDEX Energy
Brent Crude Oil
Furnace Oil

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 CHAPTER-4
SUMMARY AND CONCLUSIONS

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OBSERVATION
 People need to be made aware of commodity market.
 Clients who are scared to invest in Commodity market can be convinced and
made to trade in the forex market, bullions and crude oil and also use technical
and fundamental analysis when proper training is given.
 Clients can be convinced to invest in the international market when advices are
given regarding the market landings. And also when the clients are given daily
updates, they start to trade regularly. This generates revenue for the organization.

5.2 CONCLUSIONS AND RECOMMENDATIONS

According to my observations and understanding I would like to highlight the following
points which may enable them to serve their clients better.
• The organization can direct extra efforts in its promotional activities as the
commodity market is a recent market in India and people are not much aware of
it.

• Since most of the people are investing in fixed return Instruments to reduce risk
and secure higher returns, they have to be educated of the benefits of trading
aggressively in the commodities market.

• People generally want to take trading decisions independently or under the

guidance of Friends or Well Known Stock Broking Houses. To specifically
target the customer segments to win their trust and confidence by using trained
executives to enhance their brand image.

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 ANNEXRURE – QUESTIONNAIRE

QUESTIONNAIRE

Name-
Age-
Gender-
Occupation-
1. In which instrument you would prefer to trade?
a) derivatives…………………

b) equities………………………

c) commodities…………………

2. Which are the preferred commodities you look for investment in Derivatives &
Commodity?
a) Bullion

b) Spices

c) Oil

d) Fiber

e) Metal

f) F&O

3. Which source of information influences your decision to trade in Derivatives &

Commodities?
a) Independently

54
 b) Broker

c) News Channel

d) News Paper

e) Internet

a) f. Advice of friends

b) g. Well known stock Broking Houses

c) h. Business Magazine

4. Are you satisfied with the trading in commodity market?

a) Very satisfied

b) Satisfied

c) Not satisfied

d) Very Dissatisfied

5. Do you believe that commodity market is volatile?

a) Strongly Agree

b) Strongly Disagree

6. If yes, Rank the following products, the most volatile in a market?

COMMODITY RANK
Bullion
Spices
Oil
Fiber
Metal
F&O

7. Which of the following factor affects the volatility of the commodity market?
a) GDP growth rate

b) Economy Global Trend

55
 c) Agricultural Production

d) Inflation Rate

e) Seasonal Variation

8. Are you satisfied with your return?

a) Satisfied

b) Very satisfied

c) Dissatisfied

d) Very Dissatisfied

e) Neutral

9. What part of your saving do you invest in Commodity Market? Less than 25%
a) 25%to50%

b) 50%to75%

c) Above75%

10. On an average what is the return you expect from Commodity Market?
a) 10%to15%

b) 15%to20%

c) 20%to30%

d) More than 30%

11. Your comment on future of commodity market?

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

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THANK YOU

57
BIBLIOGRAPHY

BOOKS:

TECHNICAL ANALYSIS BY MAGGI.

MARKET WIZARDS BY JACK SWAGGER.

LISTS OF WEBSITES:

WWW.EQUIS.COM

WWW.GOOGLE.COM

WWW.KERFORD.CO.UK

WWW.WIKIPEDIA.COM

WWW.INVESTOPEDIA.COM.

RELEVANT INFORMATION FROM OFFICE BROCHUERS/WEBSITES.

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