Project Report on commodity market

Commodity Market on Gold, Silver, Copper in India
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A STUDY ON COMMODITY MARKET AT SHAREKHAN
FINANCIAL SERVICES LIMITED
HYDERABAD
Paramkusa
(14M108)
(Finance & Business Analytics)
Project Report
Submitted
To
Dhruva College of Management
(Approved by AICTE, Ministry of HRD, Govt. of India)
N H: 44, Medchal, Hyderabad-501 401
Telangana State, India
Ph: 040 - 30162000
In partial fulfillment of PGDM Program (2015)

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ACKNOWLEDGEMENT
 I am thankful to my company guide, Mr.G.V.L.Narayana, from share Khan
for not only providing me valuable guidance and support for project but also
providing me the required support with his extra ordinary knowledge of
various commodities.
 I express my sincere gratitude to Dr. S Pratap Reddy - Chairman, DHRUVA
COLLEGE of MANAGEMENT for his valuable guidance and to my faculty
guide, Mr. KH. Gokul Krishnan for his encouragement, support and
valuable guidance throughout the project duration. In spite of being fraught
with unending engagements in college, he kept me motivating to try best at all
times. He provided me with his constant support and guidance in preparing
this report.
 I would also like to express my gratitude to my parents who constantly
elucidated upon my repetitive queries and helped me by providing me with
valuable data.

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Table of contents
1 Title Page…………………………………………………………………………………………………………………
2. Declaration………………………………………………………………………………………………………………2
3 .Certificates……………………………………………………………………………………………………………….
4 Acknowledgements ............................................................................................... 3
5. Index .................................................................................................................... 4
6. Introduction ....................................................................................................13-39
7. Exicutive summery………………………………………………………………………………………………….. 5
8. Literature Review…………………………………………………………………10-11
9. Objectives of the study......................................................................................... 12
10. Methodology...................................................................................................40-41
11 Analysis&Findings……………………………………………………………………………………………43-48
112 Bibliography………………………………………………………………………………………………………49

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1. Executive summary
Introduction:-
Any product which exists naturally and serves as an input for the secondary market
can be described as a commodity. They can be classified as agricultural products like
cotton, wheat, pepper etc. or non-agricultural products like crude oil, gold, and copper
and so on.
Agricultural products are prone to spoilage and their availability is dependent on
weather condition; their market is more volatile. Non-agricultural products etc like
oil, copper are useful in industries (for producing derived or secondary products) and
are generally preferred by investors.
For a product to be classified as a commodity it should have a commercial value; all
commodities are not traded in the commodities market. Commodities are fungible
which means they are same irrespective of who produces it and are processed further
into other products.
“The Present Study on Commodity market” compares and price movement of
the market.
3 commodities like Gold, Silver, Copper, Collected the prices from MCX,
NCDEX.
Commodities purely depend on demand and supply, but it’s observed that gold
depends on US dollar, Silver depends on Gold, and Copper depends on Demand.
US Dollar increase gold price increase, US dollar decrease price of the gold is
decrease.
Gold increase 1 tics silver decrease 11 tics, Gold decrease 1 tics Silver increase
10 tis.
Copper purely depends demand and supply.
Conclusion :-

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Investment in Gold is better for earn higher returns than Silver, Copper.
2. INTRODUCTION:
Share Khan Limited
The strong market was found to be souring to new heights day by day, and then
coming down all of a sudden in such scenario the investors are pretty much confused
as to where to put their money. The menace movement market creates a lot of
confusion among the investors and many investors end up losing their hard earned
money. In such a scenario many broking firms have emerged that claim to guide the
investors about their stocks. These broking firms have their own research department
which continuously monitors the stocks and updating the investors. Once of the
largest broking firm of the country is Share Khan limited. Share Khan limited is one
of the leading retail stock broking houses of SSKI group which is running successful
since 1922 in the country. It stretches to the Mumbai based SSKI group which has
over 8 decades of experience in the stock broking business. The association with
SSKI concluded after recent changes in the share holding pattern of the company.
Share khan offers its customers a wide range of equity related services including trade
execution on BSE NSE Derivatives, depository services, online trading, investment
advice etc.
The firm has been the pioneer in online trading in India. Its online training and
investment site www.sharekhan.com was launched on February 2000 and is the
second most visited broking site in India. It has the largest number of share shops in
the country. The company website gives access to superior content and transaction
facility to retail customer across the country. Known for its Jargon free investor
friendly language and high quality research the site the site has a large number of
customers. The content rich and research oriented portal has stood out among its
contemporizes because of its straight fast dedication to offer its customers the best of
breed technology and superior market information. The objective has been to let
customers make informed decision and to simplify the process of investing stocks.

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On April 17 2002 Share Khan launched Speed Trade, net based executable
application that emulates the broker terminals along with host of other information
relevant to the day traders. This was for the first time that a net based trading station
of this caliber was offered to the traders. In the last six months speed trade has
become a de facto standard for the Day Trading Community over the net.
Name of the Company: Share khan ltd.
Year of Establishment: 2000
Headquarter: Share khan SSKI A-206 Phoenix House Mills Compound Lower
Parel Mumbai Maharashtra, INDIA-400013
Nature of business:Service provider
Services:Equity Broking, PMS, Financial Product Distribution
Number of Employees:Over 3500
Customers:More than 9.5 million
Website:www.sharekhan.com
Slogan:You’re Guide to The Financial Jungle
CUSTOMER PROFILES CATERED TO:
VISION: To be the best retail brokering Brand in the retail business of stock
market.
MISSION: To educate and empower the individual investor to make better
investment decisions through QUALITY ADVICE, INNOVATIVE PRODUCTS
and SUPERIOR SERVICE

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THE SERVICE DELIVERY MODEL BLENDING TRADITION
AND TECHNOLOGY:
The service delivery model of Share khan Limited is a combination of tradition and
technology.
The various services on offer are
 Share Shops
 Online Trading – a choice of three trading interfaces
 Trade Tiger for Active Traders
 Web based Classic interface for investors
 Web based applet –fast trade for investors
 Dial-n-trade
SHAREKHAN’S MANAGEMENT TEAM SHAREHOLDING
PATTERN
ADVANTAGE OF SHAREKHAN LIMITED
The advantages of choosing Share khan Limited as a brokerage firm are as follows:
EXPERIENCE& ACCOLADES
Share khan Limited is of the most customer friendly brands since inception. It is
amongst the top5 retail brokers in India. SSKI has more than eight decades of trust
and credibility in the Indian Stock market. In the Asia Money broker's poll SSKI won
the 'India's Best Broking House for 2004' award.

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TECHNOLOGY
It provides its customers with superior trading platforms, multi-channel access for
customers and real time delivery of quality service and research. With its online
trading account one can buy and sell shares in an instant from any PC with an internet
connection. One can get access to its powerful online trading tools that will help him
take complete control over his investment in shares.
REACH & ACCESSIBILITY
It has a growing retail network across 1041 franchisees and 159 branches in 400
cities. Share khan provides ADVICE, EDUCATION, TOOLS AND EXECUTION
services for investors.
These services are at the right time can translate into direct profits; one can get access
to a wide range of information on Share khan Limited’s content-rich portal. One can
also get a useful set of knowledge-based tools that will empower him to take informed
decisions. Accessible through its centers across the country over the internet (through
the website www.sharekhan.com) as well as over the Voice Tool.
KNOWLEDGE
In a business where the right information
CONVENIENCE
One can call its Dial-N-Trade number to get investment advice and execute his
transactions. Share khan ltd. has a dedicated call-centre to provide this service via a
Toll Free Numbers from anywhere in India.
CUSTOMER SERVICE
Share khan limited’s customer service team will assist one for any help that one may
require relating to transactions, billing, demat and other queries. Its customer service
can be contacted via a toll-free number, email or live chat on www.sharekhan.com.

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INVESTMENT ADVICE
Share khan has dedicated research teams of more than 30 people for fundamental and
technical researches. Its analysts constantly track the pulse of the market and provide
timely investment advice to its clients in the form of daily research emails, online
chat, printed reports and SMS on their mobile phone.
3. LITERATURE REVIEW
Relationship between fluctuations in gold prices and the U.S. dollar posited in the
popular press during 2007-used a bivariate structural Garch model to test for a causal
relationship between volatility changes of the dollar and gold for the period October
13, 2004 through March 5, 2010. In their study August 9,2007 was designated the
beginning of the Financial crisis period which they call “financial turmoil" in global
financial markets. For the late 2007 and early 2010 interval covered by their study
they found a significant positive relationship and positive correlation both before and
during the post 2007 turmoil period. Interestingly the movements of gold during the
crisis period were much more stable than those of the U.S. dollar.
Finds that the volatility of gold returns exhibits a symmetric reaction to
positive and negative gold returns. The asymmetric nature of this reaction allows for
its characterization as abnormal or inverted when compared to its parallel in equity
markets. Furthermore, because this asymmetric reaction is ten times larger for gold
than for any other commodity,
Came to similar conclusions claiming that gold is an attractive investment in
terms of diversification only in specific periods of equity turmoil. Hiller et al.(2006)
studied the role of gold and commodities on equity markets. They discovered that in
the period1976-2004 gold had a small negative correlation with S&P 500 index. They
found that portfolios which had 5% to 10% in gold performed better than portfolios
without gold.

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Silver:-
reported that the silver market was not efficient in the weak form. ,
found that futures market for gold and silver were weak form efficient and that
investors cannot earn abnormal profits.
examined the long run trend in prices of gold and silver futures contracts
listed on the Tokyo Commodity Exchange. Using daily closing prices from 1992 to
1998 along with cointegration analysis, the results indicated that the long run stable
relationship between gold and silver future prices had disappeared. Furthermore,
investors are urged to treat each market independently for price discovery.
investigated price discovery on nearby future prices of various
commodities. Using the daily nearby contract of prices from 1969 to 1999 obtained
from the Chicago Board of Trade (CBT), the researchers find the existence of a strong
bidirectional causality in future prices. Other studies have examined how the addition
of commodities can lead to a well-diversified portfolio.
examined the return properties of 142 daily commodity futures from January
1965 to February 2005 using a multivariate analysis framework. They found that
commodity futures are roughly uncorrelated with stocks and bonds. However,
commodity returns were positively correlated with unexpected inflation. Still,
differing commodities within the sample offered hedges and the researchers
concluded that a well-balanced commodity portfolio offered diversification.
observed similar findings and concluded that a well-diversified portfolio of
commodity futures, bonds and equities offered investors risk reduction. The premise
behind these studies seeks to determine what role volatility plays in determining
commodity prices and the role volatility plays in determining effective portfolio
diversification strategies. This study will add to existing literature by understanding
the price volatility associated with silver spot market.
Source:
3.1Business Today, dated June 24, 2012, vide
http://businesstoday.intoday.in/story/nine-common-myths-about-investing-in-
market/1/185128.html.
5.1 Source: International Research Journal of Finance and Economics, ISSN 1450-
2887 Issue 2 (2006), © EuroJournals Publishing, Inc. 2006,
http://www.eurojournals.com/finance.htm
6.1 Source: Munich Personal RePEc, vide: http://mpra.ub.uni-muenchen.de/29290/
7.1 Source: Analytique, Vol. VII, No. 2, Apr-June, 2011, the Quarterly Journal of the
Bombay Chamber of Commerce & Industry Trust for Economic and Management
Studies.

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References:-
Bessler, David A. and Covey, Ted (August 1991) Cointegration: some results on U.S.
cattle prices, The Journal of Futures Markets 11(4) 461–74
Choudhry, T. (1997), Short-run Deviations and Volatility in Spot and Futures Stock
Returns: Evidence from Australia, Hong-Kong and Japan, The Journal of Futures
Markets 17 (6), 689-705.
Cox, Charles C. (December 1976) Futures trading and market information, Journal of
Political Economy 84(6) 1215–37
Dickey, David A. and Fuller, Wayne A. (July 1981) Likelihood ratio statistics for
autoregressive time series with a unit root, Econometrica 49(4) 1057–72 .
Aggarwal and Sundararaghavan (1987) Johansen’s (1991)
Adrangi et al. (2006) Kat and Oomen (2007)
Erb and Harvey (2006) Solt and Swanson (1981).
Moreover, Ciner (2001)

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OBJECTIVE OF THE STUDY
 To under stand the commodity prices move goes up and goes down.
 To analyze of role and performance in price movement of commodities.
 The objective of this report is to give a clear idea about the commodity
markets and commodities trading on “Gold, Silver, Copper” in India to the
readers
 The differences between financial derivatives and the commodity derivatives
are discussed so clearly that the reader can understand easily. Similarities and
differences between major commodity exchanges are listed in a table format
so that the reader can easily distinguish between them.

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List of Tables
Table 1.1 RegisteredCommodity Exchanges in India
Table 1.2 Commodities Traded over the Exchanges
Table 3.1 Contract Specification for e-series products
Table 3.2 The market timings for trading on the online platform of the Exchange
(NSEL) are as under
Table 3.3 Difference & Similarities between MCX and NCDEX
Table 3.4 Contract Specification (MCX)
Table 3.5 Contract Specification (NCDEX)

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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.
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.
History of Commodity Trading
Commodity futures’ trading has been first recorded in the 17th century in Japan. The
futures’ trading was basically done with the seasonal agricultural products so as to
ensure their continuous supply all the year around. Japanese merchants used to store
rice in the warehouses for their future use and used to sell receipts against such stored
rice. These receipts were called as ‘rice tickets ‘which then eventually became the
basis for their commercial currency. The rules which were established during this
time for trading these rice tickets are similar to the rules set for American futures
trading. In the United States, the commodity futures trading first started in the middle
of the 19th century with the help of the Chicago Board Of Trade set up in the year
1848.Gradually then about 10 commodity exchanges were set up with a wide variety
of agricultural products being traded.
Commodity derivative market first started in India in cotton in the 1875 and in the
oilseeds in 1900 at Bombay. Forward trading in raw jute and jute goods started at
Calcutta in the year 1912. But however, within few years of their establishment, the
forwards trading in these commodities was banned in the year 1960. Recently, in the
year 2003, such ban on trading was lifted and the trading in commodity futures was
started. Permission was given to establish online multi-commodity exchange in order
to facilitate trading. The long period of prohibition of forward trading in major
commodities like cotton and oilseeds complex has an enduring impact on the
development of the commodity derivative markets in India and the futures market in
commodities find themselves left far behind the derivative markets in the developed
countries, which have been functioning uninterruptedly. Thus, today the challenge

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before the commodity markets is to make up for the loss of growth and development
during the three decades of government policies, which had the effect of restricting
the growth of the derivative markets.
Evolution of the Commodity Marketin India
Derivatives as a tool for managing risk first originated in the commodities markets.
They were then found useful as a hedging tool in financial markets as well. In India,
trading in commodity futures has been in existence from the nineteenth century with
organised trading in cotton through the establishment of Cotton Trade Association in
1875. Over a period of time, other commodities were permitted to be traded in futures
exchanges. Regulatory constraints in 1960s resulted in virtual dismantling of the
commodities future markets. It is only in the last decade that commodity future
exchanges have been actively encouraged. However, the markets have been thin with
poor liquidity and have not grown to any significant level.
Bombay Cotton Trade Association Ltd., set up in 1875, was the first organised
futures market. Bombay Cotton Exchange Ltd. was established in 1893 following the
widespread discontent amongst leading cotton mill owners and merchants over
functioning of Bombay Cotton Trade Association. The Futures trading in oilseeds
started in 1900 with the establishment of the Gujarati Vyapari Mandali, which carried
on futures trading in groundnut, castor seed and cotton. Futures’ trading in wheat was
existent at several places in Punjab and Uttar Pradesh. But the most notable futures
exchange for wheat was chamber of commerce at Hapur set up in 1913. Futures
trading in bullion began in Mumbai in 1920. Calcutta Hessian Exchange Ltd. was
established in 1919 for futures trading in rawjute and jute goods. But organised
futures trading in raw jute began only in 1927 with the establishment of East Indian
Jute Association Ltd. These two associations amalgamated in 1945 to form the East
India Jute & Hessian Ltd. to conduct organised trading in both Raw Jute and Jute
goods. Forward Contracts (Regulation) Act was enacted in 1952 and the Forwards
Markets Commission (FMC) was established in 1953 under the Ministry of Consumer
Affairs and Public Distribution.
• The majority of the committee recommended that futures trading be introduced in the

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following commodities:
1. Basmati Rice
2. Cotton
3. Raw jute and jute goods
4. Groundnut, rapeseed/mustard seed, cottonseed, sesame seed, sunflower seed,
safflower seed, copra and soybean, and oils and oilcakes of all of them.
5. Rice bran oil
6. Castor oil and its oilcake
7. Linseed
8. Silver
9. Onions
The liberalized policy being followed by the government of India and the gradual
withdrawal of the procurement and distribution channel necessitated setting in place a
market mechanism to perform the economic functions of price discovery and risk
management.
The national agriculture policy announced in July 2000 and the announcements in
the budget speech for 2002-2003 were indicative of the government’s resolve to put in
place a mechanism of futures trade/market. As a follow up, the government issued
notifications on 1.4.2003 permitting futures trading in the commodities, with the issue
of these notifications futures trading is not prohibited in any commodity. Options’
Different Segments in Commodities Market
The commodities market exits in two distinct forms namely
Over the Counter (OTC) market
The Exchange based market

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Also, there exists the spot and the derivatives segment. The spot markets are
essentially over the counter markets previously and the participation is restricted to
people who are involved with that commodity say the farmer, processor, wholesaler
etc. But, now-a-days exchange-based spot market has come into existence. National
Spot Exchange provides spot trading of commodities. Derivative trading takes place
through exchange-based markets with standardized contracts, settlements etc.
Commodity Exchanges in India
Commodity exchanges are places which trade in particular commodities, neglecting
the trade of securities, stock index futures and options etc. Exchanges are the
centralized places which provide a platform for both the buyers and the sellers to
meet, set quality standards and establish the rules of businesses. Commodity
exchanges in India plays an important role as it offers a tool for efficient risk
management and price transparency.
In India, there are about 25 recognized regional exchanges of which five are national
level multi-commodity exchanges. These five national level multi-commodity
exchanges are,
 National Board of Trade
 National Commodity and Derivative Exchange Limited( NCDEX)
 Multi-Commodity Exchange Of India( MCX)
 National Multi-Commodity Exchange Of India Limited ( NMCEIL)
 National Spot Exchange Limited(NSEL)
All the above exchanges have been set up under the overall control of Forward
Market Commission of Government of India.
National Commodity & Derivative Exchange Limited (NCDEX)
National Commodity & Derivative 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 the national level institutions. It is

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promoted by Life Insurance Corporation of India (LIC), National Bank for
Agriculture and Rural Development (NABARD) and National Stock Exchange
(NSE). Other shareholders are Canara Bank, Punjab National Bank (PNB), CRISIL
Limited, Indian Farmers Fertiliser Cooperative Limited (IFFCO), Goldman Sachs,
Intercontinental Exchange (ICE), Shree Renuka Sugars Limited and Jaypee Capital
Services Limited.
It is a professionally managed online multi- commodity exchange. NCDEX is
regulated by Forward Market Commission and is subject to various law of land like
the Companies Act, Stamp Act, Contracts Act, Forward Commission (Regulation)
Act and various other legislations.
The Exchange, as on May 21, 2009 when Wheat Contracts were re-launched on the
Exchange platform, offered contracts in 59 commodities - comprising 39 agricultural
commodities, 5 base metals, 6 precious metals, 4 energy, 3 polymers, 1 ferrous metal,
and CER. The top 5 commodities, in terms of volume traded at the Exchange, were
Rape/Mustard Seed, Gaur Seed, Soyabean Seeds, Turmeric and Jeera.
Multi Commodity Exchange of India Limited (MCX)
Multi Commodity Exchange is headquartered in Mumbai and is an independent, de-
mutualised exchange with the permanent recognition from Government of India. Key
Shareholders of MCX are Financial Technologies (India) Ltd., State Bank of India
and its associates, National Bank for Agricultural and rural Development (NABARD),
National Stock Exchange of India Ltd (NSE), Fid Fund (Mauritius) Ltd. - an affiliate
of Fidelity International, Union Bank of India, Corporation Bank, Bank of India,
Canara Bank, HDFC Bank, SBI Life Insurance Co. Ltd., ICICI ventures, IL&FS,
Merrill Lynch and New York Stock Exchange. MCX facilitates online trading,
clearing and settlement operations for commodity futures market across the
country.MCX started offering trade in November 2003 and has several strategic
alliances with leading exchanges across the globe. It has built strategic alliances with
Bombay Bullion Association, Bombay Metal Exchange, Solvent Extractors’
Association of India, Pulse Importers Association and Shetkari Sanghatana.

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It is regulated by the Forward Markets Commission. MCX is India's No. 1 commodity
exchange with 83% market share. The exchange's main competitor is National
Commodity & Derivatives Exchange Ltd. Globally; MCX ranks no. 1 in silver, no. 2
in natural gas, no. 3 in crude oil and gold in futures trading. The highest traded item is
gold.
Now reaches out to about 800 cities and towns in India with the help of about 126,000
trading terminals. MCX COMDEX is India's first and only composite commodity
futures price index.
National Multi-Commodity Exchange of India Limited (NMCEIL)
National Multi-Commodity Exchange of India Limited (NMCEIL) is the first de-
mutualized, electronic Multi-commodity Exchange in India. It is one and only one
Commodity exchange in the world to obtain the prestigious ISO 9001:2000
certification awarded by the British Standard Institutions (BSI). NMCE not only
revived futures trade electronically in the commodities in India after a gap of 41
years, but also integrated the centuries old commodity market with the latest
technology. It is backed by compulsory delivery based settlement to ensure
transparent and fair trade practices. NMCE offers electronic platform for future
trading in plantation, spices, food grains, non-ferrous metals, oil seeds and their
derivatives.
On 25th July, 2001, it was granted approval by the government to organize trading in
the edible oil complex. It has been operationalised from November 26, 2002.
It is promoted by Central Warehousing Corporation (CWC), Punjab National Bank
(PNB), National Agricultural Cooperative Marketing Federation of India (NAFED),
Gujarat Agro-Industries Corporation Limited (GAICL), Gujarat State Agricultural
Marketing Board (GSAMB), Neptune Overseas Limited (NOL), National Institute of
Agricultural Marketing (NIAM). It has got its recognition in October 2002.
National Spot Exchange Limited
National Spot Exchange Ltd (NSEL) is an electronic, demutualised commodity spot
market. The Exchange is promoted by Financial Technologies (India) Ltd (FTIL) and
National Agricultural Cooperative Marketing Federation of India Limited (NAFED).
It provides an electronic, transparent, well organized and centralized trading platform

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with the facility to access and participate in the market remotely. It facilitates risk free
and hassle free purchase and sell of quality and quantity specified commodities to
commodity market participants including farmers, traders, processors, exporters,
importers, arbitrageurs, investors and the retail market participants. Exchange also
offers various other services such as quality certification, warehousing, warehouse
receipt financing, etc.
NSEL commenced its live operations on 15th October 2008. The Exchange has
started trading in Pre-certified cotton bales for Mumbai delivery, Imported Gold bar
and silver bar for Ahmedabad delivery from the day one and now has added number
of commodities for the spot trading. Its stated mission is to develop a Common Indian
Market, by setting up a national level electronic spot market and providing a state of
art trading, delivery and settlement facilities in various commodities, which can be
accessed from across the country.
It has created efficient spot delivery platform, helping the sellers/producers to sell
commodities directly to the end buyers comprises of processors/ exporters. Currently,
NSEL holds a market share of over 98% of the Indian electronic commodity Spot
market, and has more than 495 registered members operating through over 3000
trader work stations, across India. Government organizations like FCI, HAFED,
MMTC, PEC, NAFED, APMARKFED, RAJFED, and CCI have been actively
utilizing the Exchange platform for selling various commodities. More than 33
commodities are traded on NSEL Platform having delivery locations spread across 14
states.
For the first time in India, NSEL has introduced demat delivery based instrument
products called e-Series, in commodities like gold, silver, copper, zinc and lead. This
is a unique market segment, which is functioning just like cash segment in equities,
but offering commodities in demat form in smaller denominations.
Salient Features
On spot exchange single day contracts are traded.
It provides intra day trading with settlement of obligation on net basis.
All positions outstanding at end of the day should result into compulsory delivery.

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Demat delivery facility is available .
Fungibility of delivery between National Spot Exchange and MCX with common
ICIN nos is possible.
Loan facility against pledge of demate / warehouse receipt all deliverable futures
contracts, including agri commodities, gold, silver, non-ferrous metals and wide
number of other industrial products to be launched.
Table 1.1 Commodities Traded over the Exchanges
Bullion Gold and Silver
Oil &
Oilseeds
Castor Seeds, Soya Seeds, Castor Oil, Refined Soya Oil, Soya meal, Crude Palm
Oil, Groundnut Oil, Mustard Seed, Cotton Seed Oil Cake, Cottonseed.
Spices Pepper, Red Chilly, Jeera, Turmeric, Cardamom
Metals Steel Long, Steel Flat, Copper, Nickel, Zinc, Tin, Steel, Aluminum,Lead
Fibre Kapas, Long Staple Cotton, Medium Staple Cotton
Pulses Chana,Urad,Yellow Peas, Tur,
Grains Rice, Basmati Rice, Wheat, Maize, Sarbati Rice, Jeera
Energy Crude Oil, Natural Gas, Brent Crude, Heating oil, Gasoline
Others Rubber, Guar Seed, Guar Gum, Cashew, Cashew Kernel, Sugar, Gur, Coffee, Silk,
Almond.

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2. Introduction to Commodity Derivatives
2.1 Derivatives
The term “derivatives” refer to financial instruments which derive their value from
some underlying assets. The underlying assets could be equities (shares), debt (bonds,
T-bills, and notes), currencies, commodities and even indices of these various assets,
such as the Nifty 50 Index. Derivatives derive their names from their respective
underlying asset. Here, in case of commodity derivatives the underlying asset is a
commodity. There are various types of derivatives traded on exchanges across India.
They are
 Forwards
 Futures
2.1.1 Forwards
A forward contract or simply a forward is a contract between two parties to buy or
sell an asset at a certain future date for a certain price that is pre-decided on the date
of the contract. The future date is referred to as expiry date and the pre-decided price
is referred to as Forward Price.
The party that agrees to buy the asset on a future date is referred to as a long investor
and is said to have a long position. Similarly the party that agrees to sell the asset in a
future date is referred to as a short investor and is said to have a short position. The
price agreed upon is called the delivery price or the Forward Price.
Forward contracts are traded only in Over the Counter (OTC) market and not in stock
exchanges. OTC market is a private market where individuals/institutions can trade
through negotiations on a one to one basis.
A drawback of forward contracts is that they are subject to default risk. There are
chances for one party to default, i.e. not honor the contract. It could be either the
buyer or the seller. This results in the other party suffering a loss. This risk of making
losses due to any of the two parties defaulting is known as counter party risk. The
main reason behind such risk is the absence of any mediator between the parties, who
could have undertaken the task of ensuring that both the parties fulfill their

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obligations arising out of the contract. Default risk is also referred to as counter party
risk or credit risk.
2.1.2 Futures
A futures contract is an agreement between two parties to buy or sell an asset at a
certain time in the future at a certain price. But unlike forward contracts, the futures
contracts are standardized and exchange traded. To facilitate liquidity in the futures
contracts, the exchange specifies certain standard features of the contract. It is a
standardized contract with standard underlying instrument, a standard quantity and
quality of the underlying instrument that can be delivered, (or which can be used for
reference purposes in settlement) and a standard timing of such settlement. A futures
contract may be offset prior to maturity by entering into an equal and opposite
transaction. More than 99% of futures transactions are offset this way.
The standardized items in a futures contract are:
• Quantity of the underlying
• Quality of the underlying
• The date and the month of delivery
• The units of price quotation and minimum price change
• Location of settlement

26
3. Commodities Trading
3.1 Spot Trading
Earlier, commodity spot markets are essentially over the counter markets (OTC).
OTC is a private market. In these markets, individuals/institutions trade through
negotiations on a one to one basis. People who are in need of a commodity, buys the
product from those persons (farmer, processor, wholesaler etc) who had stock with
them. The buyer does the payment immediately on the spot and the seller handovers
the product. Thus, a spot market contract involves immediate payment and immediate
transfer of asset.
Now –a –days, the face of commodity spot market is changing drastically. Electronic
spot exchanges have come into existence. Now, spot trading in commodities is similar
to equity spot trading that is cash segment of equity market. We have only one
national exchange in India where spot trading of commodities is allowed. It is
National Spot Exchange Limited (NSEL) which was set up in October, 2008. It is an
electronic spot exchange. It is India’s No.1 spot exchange having 99% market share,
providing delivery based trading platform in commodities (CashSegment in Indian
Commodity Market). Its promoters are Financial Technologies and National
Agricultural Co-Operative Marketing Federation of India Limited (NAFED).
The products offered by NSEL are
1. Agricultural Products
Cereals: Paddy, Wheat, Bajra
Pulses: Bengal gram, Green Gram, Black gram, Pigeon Peas, Yellow Peas etc.
Edible Oils & Oilseeds: Soya bean, Castor Seed, Mustard Seed etc.
Cotton, sugar and Black Pepper.
2. Non Agricultural Products
Bullion: Gold & Silver (Bars & Coins)
Steel: Ignots and Billets

27
3. E-Series products
E-Gold
E-Silver
E- Copper
E-Zinc
E-Lead
.
3.1.3 E-series Products
E-series products provide facility to buy commodities in smaller
denominations. Whereas, in future market investor has to buy commodities in lot
sizes. For example, if an investor wants to buy copper, he has to buy 1 lot size i.e
1MT (metric ton) on MCX. In spot market, he will be able to buy 50 kg of copper and
hold in demat account.
Features of E-series products
• Promotes Systemic investment and savings
• Invest in smaller denomination (1 gm gold and 100 gm Silver)
•Transparent and uniform pan India pricing
•Convenient and secure online buying and selling
• No storage or holding costs
• Physical delivery of accumulated demat units at multiple centres available
• Extending trading hours from 10 am to 11.30 pm.
NSDL and CDSL act as the Depository for holding commodity units in the electronic
form, while the commodity in physical form is kept in the designated vault/storage.
Designated vault for Bullion is Brinks Arya.
Registrar and Transfer Agent (RTA) is Karvy.

28
NSEL is the issuer.
E-series products function just like cash segment in equities.
Retail investors, corporate can trade and invest in the instrument.
Only Authorized Dealers appointed by NSEL are eligible to demat and take care of all
compliance.
These products are eligible for off market transfer and pledge.
Physical conversion of accumulated demat units is possible at designated centres.
There are no storage / WR charges for storing of E-Series ICINs.
Advantages of commodity E-Series contract trading:
1. Holding commodities in demat form.
2. Retail investors can diversify their portfolio.
3. No worry for daily MTM pay in/pay out as in derivative market.
4. No risk of commodity custody/theft.
5. Liquidity/ any time buying and selling of commodity.
6. Hassel free low cost transaction in physical commodity.

29
Table 3.1 Contract Specification for e-series products
Commodity e-gold e-silver e-copper
Symbol E-Gold E-Silver E-Copper
Trading days &
time
Mon-Fri(10am-
11.30pm)
Mon-Fri(10am-
11.30pm)
Mon-Fri(10am-
11.30pm)
Price quote Per gram Per 100 gram Per kg
Trading units 1 gram 100 gram 1 kg
Tick size 10 paise 10 paise 5 paise
Purity 995 999 999
Demat units 1 gram 1 gram 1kg
DPR 5% 5% 5%
Intial Margin 5% 5% 5%
Delivery margin 10% 10% 10%
ICIN INC20000007 INC200000015 INC200000023
Settlement T+2 T+2 T+2
Market Type Normal Normal Normal
GOLD:
Price Quotation Lot Size Margin
Mega 10 Gram 1 Kg 5%
Mini 10 Grams 100 Grams 5%

30
Guinea 8 Grams 8 Grams 5%
Petal 1Gram 1 Gram 5%
Silver:
Silver 1Kg 1Kg 5%
Copper:
Mega 1 Mt 1 Kg 5%
Mini 250 Kg 1 Kg 5%
Table 3.2 The market timings for trading on the online platform of the Exchange
(NSEL) are as under
Products Monday to Friday Saturday
AGRI 10:00 to 18:00 10:00 to 14:00
NON-AGRI 10:00 to 23:30 10:00 to 14:00
Intraday
Contracts(Agri/non-agri)
10:00 to 16:00
E-series product 10:00 to 23:30
3.2 Futures Trading
There are many exchanges in India that provide trading in commodity futures. The
major exchanges that provide futures trading in commodities in India are MCX and
;NCDEX.

31
A commodity futures market (or exchange) is, in simple terms, nothing more or less
than a public marketplace where commodities are contracted for purchase or sale at an
agreed price for delivery at a specified date. These purchases and sales, which must be
made through a broker who is a member of an organized exchange, are made under
the terms and conditions of a standardized futures contract. The primary distinction
between a futures market and a market in which actual commodities are bought and
sold, either for immediate or later delivery, is that in the futures market one deals in
standardized contractual agreements only. These agreements (more formally called
futures contracts) provide for delivery of a specified amount of a particular
commodity during a specified future month, but involve no immediate transfer of
ownership of the commodity involved.
In other words, one can buy and sell commodities in a futures market regardless of
whether or not one has, or owns, the particular commodity involved. When one deals
in futures one need not be concerned about having to receive delivery (for the buyer)
or having to make delivery (for the seller) of the actual commodity, providing of
course that one does not buy or sell a future during its delivery month. One may at
any time cancel out a previous sale by an equal offsetting purchase or a previous
purchase by an equal offsetting sale. If done prior to the delivery month the trades
cancel out and thus there is no receipt or delivery of the commodity.
Actually, only a very small percentage, usually less than two percent, of the total
futures contracts that are entered into are ever settled through deliveries. For the most
part they are cancelled out prior to the delivery month in the manner just described.
3.3 Delivery
1. Sellers and buyers have to convey intention on or before five days of the contract
expiry date.
2. The intentions are then matched and assigned by the Exchange with the
corresponding buyers. As is the case universally, seller has freedom to tender
delivery during the delivery period at any approved delivery centers. In other
words, buyer cannot demand delivery at delivery center of his choice. When the

32
seller gives intimation, a call is made to the corresponding buyer to whom the
delivery is assigned by the Exchange. Delivery margin is collected from both the
buyer and seller.
3. After matching the open positions of relevant buyer and seller, the same is
transferred from the system and settled at the closing price of the preceding day,
so that mark to market (MTM) is not levied or paid to the member.
4. Within five days from the position transfer, the buyer has to maintain the required
funds in their clearing & settlement account while the seller has to tender the
warehouse receipts to the exchange along with the computation of warehouse
charges. On the 3rd day, the exchange makes pay-in & payout simultaneously
after retaining the warehouse charges margin and sales tax margin from the buyer
and seller respectively.
5. After the completion of pay-in and payout, duly endorsed warehouse receipts are
sent to the buyer immediately.
6. Settlement of warehouse charges, margins and sales tax margins take place soon
after receipt of relevant documents (copies of sales bill, sales tax form) from the
member.
3. 4 Do’s and Don’ts for Clients/Investors in Commodity Futures
Market
DO’s
1. Deal only with a registered member of MCX. To check, visit
2. While you take a trading account, carefully read and fill out all the documents that
the Member has to give you, in particular the Know Your Client (KYC form), the
Member-Client Agreement and the Risk Disclosure Document, and keep copies.

33
3. Only pay your member by cheque ( including margins), insist on receipts and keep
these carefully.
4. Record and check all trades. High value trades should be in writing; insist on
signed copies of Contract Notes within 48 hours of trade execution; obtain bills for
every settlement and also obtain fortnightly monthly statements of your ledger
account. You can check the genuineness of trades, if there are discrepancies report to
your Member within 7 days, and if Member does not respond, report to the Exchange
within 15 days.
Don’ts
1. Don’t undertake off market transactions as they are illegal and fall outside the
jurisdiction of the Exchange.
2. Don’t get influenced by indicative returns, rumors, hot tips, luring advertisements,
explicit/implicit promises and bull/bear runs of market sentiment.
3. Don’t start trading before reading and understanding the Risk Disclosure
Agreement and entering into the prescribed agreement with a member.
4. Don’t accept/ pay cash from/to your member towards margins and settlement.
5. Don’t accept contract notes/confirmation memos that are duplicate
/unsigned/signed.
6. Don’t sign Blank Delivery Slips while furnishing security deposits.

34
Table 3.3 Difference & Similarities between MCX and NCDEX
MCX NCDEX
Contract Months Different for each
commodity
Normally monthly
Expiry Day Different for commodities 20th of each contract
month
Timing Summer (May to October)
:All Commodities : 10 AM
to 11:30 PM. International
Commodities:
5 PM to 11.30 PM.
Summer (May to October)
: All Commodities : 10
AM to 5 PM. International
Commodities:
5 PM to 11.30 PM.

35
Winter (Nov to April):
10 AM to 5 PM.
International
Commodities:
5 PM to 11.55 PM.
Winter (Nov to April):
10 AM to 5 PM.
International
Commodities:
5 PM to 11.55 PM.
Table 3.4 Contract Specification (MCX)
Commodity LTP Price
Quotati
on
Lot
Size
(Qty
) / 1
Rs
(+
& -)
Margi
n %
Lot
Value(R
s)
Appro
x
Margi
n (Rs)
Contract
Months
GOLD 1770
0
10GRM
S
100 4% 1,770,00
0
70,800 Feb, April,
June, Aug,
Oct, Dec.
SILVER 2830
0
1KGS 30 5% 849,000 42,450 Mar, May,
July, Sep,
Dec.
COPPER 322 1KGS 100
0
5% 322,000 16,100 Nov, Feb,
April.
CRUDEOIL 3550 1BBL 100 5% 3,550,00
0
17,750 Jan, Feb,
Mar.
(Monthly)
NATURALG
AS
240 1mmBtu 125
0
8% 240,000 24,000 Nov, Dec,
Jan.(Monthl
y)
NICKEL 750 1KGS 250 7% 750,000 13,125 Nov, Dec,
Jan.(Monthl
y)

36
Table 3.5 Contract Specification (NCDEX)
Commo
dity
LT
P
Price
Quotation
Lo
t
Si
ze
Mar
gin
%
Varia
nt (1
Rs +
& - )
Lot
Value(
Rs)
Appr
ox
Marg
in
(Rs)
Contract
Months
Turmeri
c
107
00
Rs/Quintal 10
M
T
34% 100 1,070,0
0
363,8
00
Nov, Dec,
Apr.
Guar
Seed
280
0
Rs/Quintal 10
M
T
7% 100 280,00
0
19,60
0
Nov, Dec,
Jan, Feb,
Mar,
Apr.(Monthly
)
Soy Oil 495 Rs/10Kgs 10
M
T
5% 1000 495,00
0
24,75
0
Nov, Dec,
Jan.(Monthly)
Pepper 156
50
RS/QUIN
TAL
1
M
T
5% 10 156,50
0
7,825 Nov, Dec,
Jan, Feb,
Mar,
Apr.(Monthly
)
Chana 262
0
RS/QUIN
TAL
10
M
T
6% 100 262,00
0
15,72
0
Nov, Dec,
Jan, Feb,
Mar.(Monthly
)
Soy
Bean
242
0
RS/QUIN
TAL
10
M
T
6% 100 242,00
0
14,52
0
Nov,Dec, Jan,
Feb,Mar.(Mo
nthly)

37

38
Regulatory Board
Commodity exchanges in India are regulated by Forward Markets Commission.
Forward Markets Commission (FMC) headquartered at Mumbai, is a regulatory
authority which is overseen by the Ministry of Consumer Affairs, Food and Public
Distribution, Govt. of India. It is a statutory body set up in 1953 under the Forward
Contracts (Regulation) Act, 1952.
" The Act provides that the Commission shall consist of not less than two but not
exceeding four members appointed by the Central Government out of them being
nominated by the Central Government to be the Chairman thereof. Currently
Commission comprises three members among whom Shri B.C. Khatua, IAS, is the
Chairman, Shri Ramesh Abhishek, IAS and Shri D.S.Kolamkar, IES are the Members
of the Commission."
The functions of the Forward Markets Commission are as follows:
(a) To advise the Central Government in respect of the recognition or the withdrawal
of recognition from any association or in respect of any other matter arising out of the
administration of the Forward Contracts (Regulation) Act 1952.
(b) To keep forward markets under observation and to take such action in relation to
them, as it may consider necessary, in exercise of the powers assigned to it by or
under the Act.
(c) To collect and whenever the Commission thinks it necessary, to publish
information regarding the trading conditions in respect of goods to which any of the
provisions of the act is made applicable, including information regarding supply,
demand and prices, and to submit to the Central Government, periodical reports on
the working of forward markets relating to such goods;
(d) To make recommendations generally with a view to improving the organization
and working of forward markets;
(e) To undertake the inspection of the accounts and other documents of any
recognized association or registered association or any member of such association
whenever it considerers it necessary.

39
(f) To perform such other duties and exercise such other powers as may be assigned to
the Commission by or under this Act, or as may be prescribed.
Powers of the Commission
(1) The Commission shall, in the performance of its functions, have all the powers of
a civil court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit
in respect of the following matters, namely:
(a) Summoning and enforcing the attendance of any person and examining him on
oath;
(b) requiring the discovery and production of any document;
(c) receiving evidence on affidavits;
(d) requisitioning any public record or copy thereof from any office;
(e) any other matters which may be prescribed.
(2) The Commission shall have the power to require any person, subject to any
privilege which may be claimed by that person under any law for the time being in
force, to furnish information on such points or matters as in the opinion of the
Commission may be useful for, or relevant to any matter under the consideration of
the Commission and any person so required shall be deemed to be legally bound to
furnish such information within the meaning of Sec. 176 of the Indian Penal code,
1860 (45 of 1860).
(3) The Commission shall be deemed to be a civil court and when any offence
described in Sections. 175, 178, 179, 180 or Sec. 228 of the Indian Penal Code, 1860
(45 of 1860), is committed in the view or presence of the Commission, the
Commission may, after recording the facts constituting the offence and the statement
of the accused as provided for in the Code of Criminal Procedure, 1898 (5 of 1898)
forward the case to a Magistrate having jurisdiction to try the same and the Magistrate
to whom any such case is forwarded shall proceed to hear the complaint against the
accused as if the case had been forwarded to him under Section 482 of the said
Code1.

40
(4) Any proceeding before the Commission shall be deemed to be a judicial
proceeding within the meaning of Sections 193 and 228 of the Indian Penal Code,
1860(45 of 1860).
Gold:-
A gold price fully depends on US Dollar and Indian Rupee value. When
Dollar decrease Gold value will be decrease in India. Because Gold is imported in
India from Us. so Us rate is reflected to Gold price in India.
India rupee value increase the gold price will be decrease, Rupee value
decrease gold price will Increase.
Now a days gold price is come down because Foreign countries has a
thinking to sell the god for increase the Foreign currency and increase the them
currency value.
In India Foreign investors are very high, US has to thinking to increase the
interest rate so India those have a foreign investors are going to invest in US so earn
profit.
When the Foreign investors invest in Indian Gold Market, Gold price will
be increase, otherwise decrease.
Silver:-
Silver, like other precious metals, may be used as an investment. For more than
four thousand years, silver has been regarded as a form of money and store of value.
However, since the end of the silver standard, silver has lost its role as a legal
tender in all developed countries, although some countries mint bullion and collector
coins like the American Silver Eagle with nominal face values. In 2009, the main
demand for silver was for industrial applications (40%), jewelry, bullion
coins and exchange-traded products. In 2011, the global silver reserves amounted to
530,000 tones.
Millions of Canadian Silver Maple Leaf coins and American Silver Eagle are
purchased as investments each year. The Silver Maple Leaf is legal tender at $5 per
ounce and there are many other silver coins with higher legal tender values, including
$20 Canadian silver coins. Silver is legal tender in the U.S. state of Utah, and can be
used to pay all debts

41
Like most commodities, the price of silver is driven by speculation and supply
and demand. Compared to gold, the silver price is notoriously volatile. This is because
of lower market liquidity, and demand fluctuations between industrial and store of
value uses. At times this can cause wide ranging valuations in the market, creating
volatility.
Silver often tracks the gold price due to store of value demands, although the
ratio can vary. The crustal ratio of silver to gold is 17.5:1. The gold/silver price ratio
is often analyzed by traders, investors and buyers. In Roman times, the price ratio was
set at 12 or 12.5 to 1. In 1792, the gold/silver price ratio was fixed by law in
the United States at 15:1, which meant that one troy ounce of gold was worth 15 troy
ounces of silver; a ratio of 15.5:1 was enacted in France in 1803. The average
gold/silver price ratio during the 20th century
Copper:-
Copper is a chemical element with symbol Cu (from Latin: cuprum) and atomic
number 29. It is a ductile metal with very high thermal and electrical conductivity.
Pure copper is soft and malleable; a freshly exposed surface has a reddish-orange
color. It is used as a conductor of heat and electricity, a building material, and a
constituent of various metal alloys.
The metal and its alloys have been used for thousands of years. In the Roman
era, copper was principally mined on Cyprus, hence the origin of the name of the
metal as aes сyprium (metal of Cyprus), later corrupted to сuprum, from which the
words copper (English), cuivre (French), and Kupfer (German) are all derived.[3] Its
compounds are commonly encountered as copper(II) salts, which often impart blue or
green colors to minerals such as azurite andturquoise and have been widely used
historically as pigments. Architectural structures built with copper corrode to give
green verdigris (or patina). Decorative art prominently features copper, both by itself
and as part of pigments.
Copper is essential to all living organisms as a trace dietary mineral because it
is a key constituent of the respiratory enzyme complex cytochrome c oxidase.
In molluscs and crustacea copper is a constituent of the blood pigment hemocyanin,
which is replaced by the iron-complexed hemoglobin in fish and other vertebrates.
The main areas where copper is found in humans are liver, muscle and bone. Copper
compounds are used asbacteriostatic substances, fungicides, and wood preservatives.
Copper, silver and gold are in group 11 of the periodic table, and they
share certain attributes: they have one s-orbital electron on top of a filled d-electron
shell and are characterized by high ductility and electrical conductivity. The filled d-
shells in these elements do not contribute much to the interatomic interactions, which
are dominated by the s-electrons through metallic bonds. Unlike in metals with

42
incomplete d-shells, metallic bonds in copper are lacking a covalent character and are
relatively weak. This explains the low hardness and high ductility of single crystals of
copper. At the macroscopic scale, introduction of extended defects to the crystal
lattice, such as grain boundaries, hinders flow of the material under applied stress,
thereby increasing its hardness. For this reason, copper is usually supplied in a fine-
grained polycrystallineform, which has greater strength than monocrystalline forms.
The softness of copper partly explains its high electrical conductivity
(59.6×106 S/m) and thus also high thermal conductivity, which are the second highest
(to silver) among pure metals at room temperature. This is because the resistivity to
electron transport in metals at room temperature mostly originates from scattering of
electrons on thermal vibrations of the lattice, which are relatively weak for a soft
metal. The maximum permissible current density of copper in open air is
approximately 3.1×106 A/m2 of cross-sectional area, above which it begins to heat
excessively. As with other metals, if copper is placed against another metal, galvanic
corrosion will occur.
Together with caesium and gold (both yellow), and osmium (bluish), copper is
one of only four elemental metals with a natural color other than gray or silver. Pure
copper is orange-red and acquires a reddish tarnish when exposed to air. The
characteristic color of copper results from the electronic transitions between the filled
3d and half-empty 4s atomic shells – the energy difference between these shells is
such that it corresponds to orange light. The same mechanism accounts for the yellow
color of gold and caesium.

43
Relationships between commodity futures market and Spot market :-
To find out the determination of equilibrium price of future contract
of an agricultural commodity along with relationship of future contract with the
expected spot market at maturity of the contract. They identified three determinations
of the equilibrium price i.e. risk aversion of hedgers, demand and supply conditions
expected by hedgers in the spot market and expectations and responsiveness of
speculators about current spot market. In case of relationship between future contract
and spot market, existence of excess demand was observed. Speculator’s expectation
of increase in spot prices resulted in high demand for future and in opposite situation
of low prices the speculators by doing reverse trade creates off setting positions.
Pointed out that significant risk returns features and diversification potential has made
commodities popular as an asset class. Indian futures markets have improved pretty
well in recent years and would result in fundamental changes in the existing isolated
local markets particularly in case of agricultural commodities. Observed the hedging
performance of agricultural commodity futures market in terms of price discovery and
risk management. Out of selected six agricultural commodities, caster seed and
pepper futures markets were found as efficient and unbiased in terms of price risk
management and hedging effectiveness. The factor responsible for inefficient
hedgingin other commodities were found as low volume, lowparticipation, inadequate
warehouse facility and deficient information system of commodity exchanges.

44
Methodology:-
Secondary Data:-
Getting Started…..
At the start of our SIP, our very first objective was to understand the commodity
markets and its dos and don’ts. Having understood the intricacies of the working and
the functioning of the commodity market, we also understood how risk can be
minimized by taking a position at the exchange.
The Bullion Traders…….
In Bullion markets, more specifically on gold traders. Gold is the most actively
traded commodity over the exchange. More amount of liquidity is observed in the
MCX exchange. Hence, there would be a greater opportunity of trading and hedging
for its investors. Keeping in view this point, we focused more on gold rather than on
silver.
Opportunity with clients……………….
Share Khan Pvt Ltd. had organized an educational campaign at the hi-tech city
(Annexure -), Hyderabad. The main objective of the campaign was to educate the
HNI’s about various investment opportunities available in the market. It was a two
day program and we had an great opportunity to interact with the clients and
understand their perspective about the market. As we had a pretty good exposure to
the market movements and other technicalities of trading at Share khan we were given
the responsibility to explain the clients about the company’s product.
Most of the clients there were either Business holders or working for big MNCs such
as Google, Microsoft, etc. Others were Business Holders, Students etc. We observed
the following from the interaction with these clients.
 All the clients were well informed about the happenings in the market.
 They had very huge portfolios which basically included mutual funds and diversified
stocks. Very few people invested in commodities which was basically lack of
awareness about the commodity markets.
 People, who invested, invested only for the speculation purpose only and to book
profits.

45
Value Addition to Share Khan:
Summer Internship Program at Share Khan was a great learning opportunity for me as
the entire duration of the course was equally distributed in gaining theoretical
knowledge about commodities and the practical exposure provided by them in terms
of meeting the clients. The employees at Share khan were always readily available for
clarifying my doubts in every petty issue. With the support of my Company guide and
the employees I was successful in attaining the following goals for Share Khan:
I was able to get new clients for Share Khan.
Conclusion and Limitation of Research
Conclusion:
India is an agrarian country producing a large variety of crops. It also stands as one of
the leaders in the production of wheat, spices and other such crops. For such a country
like ours, commodity futures trading can prove to be an excellent opportunity to the
famers and other such traders for efficient price discovery. Commodity trading can
also be used as a hedging tool for minimizing risk against future price fluctuations.
In order to attain the actual objective of commodity trading, there should be adequate
awareness among these farmers, traders, manufacturers, importers and exporters. But
according to the primary research, we have concluded that the awareness level about
the commodity market is very less and there is a long way to go to reach the actual
beneficiaries of these markets. One can say this because the awareness level among
the qualified and educated people is itself low so it will take a long period of time to
reach these farmers.
The main reason for this lack of awareness is due to the nascent markets and the
mechanism of their operations. Almost all the commonly traded commodities are
present over the exchanges; most of the market participants prefer forward contracts
over the exchange traded futures contracts. The participants who prevail in the market
have issues regarding the delivery mechanism and the specification standards of the

46
contract. Also, as only very few large players exist in the markets, monopoly is being
created by them and thus efficient price discovery is unable to take place.
People prefer the security in the investments in the assets as compared to the high
returns on those particular assets. As an asset class, commodity markets are said to
have high risk with high returns. So, not many people who have knowledge about
commodity trading participate in the markets.
Primary research also reveals the fact that the amount of speculator as more as
compared to the number of hedgers in the commodity markets. Due to this fact,
although the volumes are high, the actual amount of delivery is very meager.
Discriminant analysis reveals that the investment in an asset class by any investor
depend on his annual income, the amount he saves annually and the expectations of
the returns.

47
ANALYSES AND FIENDINGS:-
Objective- 1:-
Analyses the Fluctuate on gold prices, with comparisons of US dollar.
In the month of May:-
Table :-1
DATE US-DOLLAR
to INR
Difference Gold Price Difference
1/5/2015 63.72 26,629
4/5/2015 63.52 -0.2 26874 251
5/5/2015 63.37 -0.15 26900 26
6/5/2015 63.62 0.25 26920 20
7/5/2015 64.07 0.45 26928 8
8/5/2015 63.71 -0.36 26884 -44
11/5/2015 64.01 0.30 26849 -38
12/5/2015 64.15 0.14 27154 305
13/5/2015 64.01 -0.14 27514 360
14/5/2015 63.38 -0.63 27452 -62
15/5/2015 63.44 0.06 27465 13
18/5/2015 63.71 0.27 27634 185
19/5/2015 63.76 0.05 27278 -356
20/5/2015 63.60 -0.16 27261 -17
21/5/2015 63.58 -0.02 27125 -136
22/5/2015 63.49 -0.09 27095 -30
25/5/2015 63.50 0.01 27155 75
26/5/2015 63.97 0.47 26917 -238
27/5/2015 63.83 -0.14 26880 -37
28/5/2015 63.76 -0.07 26844 -36
29/5/2015 6.74 -0.02 26848 4

48
Graph:-1.1
Graph:-1.2
Interpretation :-
From the above data, we can understand the inverse relation of gold and silver
prices. Whenthe US Dollarincreases,Goldprice will be decrease.
62.8
63
63.2
63.4
63.6
63.8
64
64.2
64.4 1/5/2015
4/5/2015
5/52015
6/5/2015
7/5/2015
8/5/2015
11/5/2015
12/5/2015
13/5/2015
14/5/2015
15/5/2015
18/5/2015
19/5/2015
20/5/2015
21/5/2015
22/5/2015
25/5/2015
26/5/2015
27/5/2015
28/5/2015
29/5/2015
US-INR
US-INR
26,000
26,200
26,400
26,600
26,800
27,000
27,200
27,400
27,600
27,800
1-May-15
3-May-15
5-May-15
7-May-15
9-May-15
11-May-15
13-May-15
15-May-15
17-May-15
19-May-15
21-May-15
23-May-15
25-May-15
27-May-15
29-May-15
Gold
Rs/10gm
Rs/10gm

49
EX:-
In the first day of this month (1/5/2015) the dollar price is– ₹ 63.72, on the
same day the gold price is ₹ 26,629, next day (4/5/2015) the dollar is ₹ 63.52, on the
same day the gold prices are ₹ 26,874.
From the above data the dollar price is decrease; it’s reflected to the gold
price, it is increase.
Objective 2:-
Observe and analyses the price fluctuation of silver, comparison of gold
In the Month of June Analysis:-
Date Gold Diffrence Silver Diffrence
G&S
Diffrence
1-Jun-15 26,761 38,573 -11,812
2-Jun-15 26,833 72 38,399 -174 -11,566
3-Jun-15 26,750 -83 37,921 -478 -11,171
4-Jun-15 26,621 -129 37,219 -702 -10,598
5-Jun-15 26,729 108 37,030 -189 -10,301
8-Jun-15 26,771 42 36,848 -182 -10,077
9-Jun-15 26,841 70 36,861 13 -10,020
10-Jun-15 26,979 138 36,803 -58 -9,824
11-Jun-15 26,897 -82 36,794 -9 -9,897
12-Jun-15 26,895 -2 36,592 -202 -9,697
15-Jun-15 27,016 121 37,069 477 -10,053
16-Jun-15 26,969 -47 36,920 -149 -9,951
17-Jun-15 26,836 -133 36,840 -80 -10,004
18-Jun-15 27,167 331 36,930 90 -9,763
19-Jun-15 27,060 -107 36,660 -270 -9,600
22-Jun-15 26,706 -354 36,705 45 -9,999
23-Jun-15 26,607 -99 35,964 -741 -9,357
24-Jun-15 26,526 -81 36,183 219 -9,657
25-Jun-15 26,493 -33 36,089 -94 -9,596
26-Jun-15 26,513 20 35,942 -147 -9,429
29-Jun-15 26,705 192 35,908 -34 -9,203
30-Jun-15 26,534 -171 35,724 -184 -9,190

50
Graph 2.1:-
Graph 2.2:
26,000
26,200
26,400
26,600
26,800
27,000
27,200
27,400
1-Jun-15
2-Jun-15
3-Jun-15
4-Jun-15
5-Jun-15
8-Jun-15
9-Jun-15
10-Jun-15
11-Jun-15
12-Jun-15
15-Jun-15
16-Jun-15
17-Jun-15
18-Jun-15
19-Jun-15
22-Jun-15
23-Jun-15
24-Jun-15
25-Jun-15
26-Jun-15
29-Jun-15
30-Jun-15
Gold
Gold
34,000
34,500
35,000
35,500
36,000
36,500
37,000
37,500
38,000
38,500
39,000
1-Jun-15
2-Jun-15
3-Jun-15
4-Jun-15
5-Jun-15
8-Jun-15
9-Jun-15
10-Jun-15
11-Jun-15
12-Jun-15
15-Jun-15
16-Jun-15
17-Jun-15
18-Jun-15
19-Jun-15
22-Jun-15
23-Jun-15
24-Jun-15
25-Jun-15
26-Jun-15
29-Jun-15
30-Jun-15
Silver
Silver

51
Most commodities, the price of silver is driven by speculation and supply and
demand. Compared to gold, the silver price is notoriously volatile. This is because of
lower market liquidity, and demand fluctuations between industrial and store of value
uses. At times this can cause wide ranging valuations in the market, creating
volatility.
Silver often tracks the gold price due to store of value demands, although the
ratio can vary. The crustal ratio of silver to gold is 11:1. The gold/silver price ratio is
often analyzed by traders, investors and buyers.
Interpretation:-
From the above data we was found that, gold 11 rupees increase, silver 1 rupee
increase. When gold price 11 ticks move, the silver price moves 1 tick only. Silver
price is fully depends on demand and supply.

52

53
Objective: - 3
Analyses the copper price fluctuation.
In the month of July.
Table: 3.1
Date Copper Copper
1/7/2015 371.9
2/7/2015 373.95 2.05
3/7/2015 372.35 -1.6
6/7/2015 370 -2.35
7/7/2015 357.3 -12.7
8/7/2015 348.25 -9.05
9/7/2015 353.3 5.05
10/7/2015 359.65 6.35
13/7/2015 358.7 -0.95
14/7/2015 359.4 0.7
15/7/2015 358.1 -1.3
16/7/2015 356.35 -1.75
17/7/2015 356.3 -0.05
20/7/2015 352.15 -4.15
21/7/2015 351.4 -0.75
22/7/2015 350.15 -1.25
23/7/2015 344.4 -5.75
24/7/2015 338.6 -5.8
27/7/2015 340.25 1.65
28/7/2015 336.15 -4.1
29/7/2015 341.4 5.25
30/7/2015 341.65 0.25
Graph:-3.1

54
Interpretation:-
The copperispartiallydependsongoldprices.If goldprice increase copperprice also
will be increase.
The copperprice isalsodependsondemandandsupply.
310
320
330
340
350
360
370
380
1/7/2015
2/7/2015
3/7/2015
6/7/2015
7/7/2015
8/7/2015
9/7/2015
10/7/2015
13/7/2015
14/7/2015
15/7/2015
16/7/2015
17/7/2015
20/7/2015
21/7/2015
22/7/2015
23/7/2015
24/7/2015
27/7/2015
28/7/2015
29/7/2015
30/7/2015
Copper
Copper

55
9. References / Bibliography
www.mcxindia.com
www.ncdex.com
www.nseindia.com
www.sharekhan.com
www.nationalspotexchange.com
www.sripadonline.com
www.fmc.gov.in
http://www.goldpriceindia.com/gold-price-history.php
http://in.investing.com/currencies/usd-inr-historical-data.

Project Report on commodity market

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