2. Future Trading and Sugar
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The future trading in commodities is allowed in accordance with the
provisions of the Forward Contracts (Regulation) Act, 1952.
In April 2001, the Government of India's Cabinet Committee on Economic
Affairs (CCEA) and the Ministry of Food permitted futures trading in white
sugar to stabilize the market and safeguard the interest of farmers, stockists
and exporters.
3. Two Major Commodities Exchange in India
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MCX ( Multi Commodity Exchange)
NCDEX ( National Commodities & Derivative Exchange)
4. Commodities Traded on the exchanges
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Agri Products – Pepper,
Sugar, Chilli, Turmeric
Precious Metals – Gold,
Silver, Platinum
Base Metals – Copper,
Lead, Zinc, Aluminum
Energy – Crude Oil, Natural
gas
5. What are Commodity futures?
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A financial contract;
The underlying commodity is bought and sold at the future
date;
A tool used by Investors, Hedgers, Arbitrageurs, Day Traders.
6. Why future trading in Commodities?
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Portfolio diversification and risk management.
Additional investment opportunity
Low cost business
No transportation, storage, insurance, security charges.
Low margins – high leverage
Intrinsic value of the commodity
Domain knowledge of industry.
Hedging/Arbitrage
7. Benefits of Future Trading
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Price discovery for commodity players
- A farmer can plan his crop by looking at prices prevailing in the future market.
Accordingly, a farmer can plan his plantation and put his effort in the right
direction.
8. 8
Hedging against price risk
- A farmers can sell in future to ensure remunerative prices
- A processor/ manufacturing firm can buy in futures to
hedge against volatile raw material cost
- An exporter can commit to a price to his foreign clients
- A stockist can hedge his carrying risk to ensure smooth
prices of the seasonal commodities around the year.
9. Continue…..
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Easy availability of finance
- Based on hedged positions commodity market players (farmers, processors,
manufacturers, exporters) may get easy financing from the banks.
Risk Management
- Growers – Short Hedge on upcoming produce
- Traders – Short Hedge on stored quantity
- Manufacturers – Long Hedge on input, Short Hedge on finished products
Price Discovery
- Future prices can be used as indicative prices for negotiating the export prices and
also upcountry sales.
10. Practices at National Commodity Exchange
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Particulars MCX NCDEX
Contract Size
Benchmark market
Operational Cost
Transaction Cost
Channel Trade
Transparency
Channel Financial
Integrity
Lead Transaction Cost
Physical Delivery
