A study on commodity futures as an

investment avenue

- Sairam Bathulla 11-E06

Research Objectives

• To examine the various risk factors in using commodity future.

• To study the influence of futures trading, on price and price variation

• To evaluate the effectiveness of the various measures of commodity futures as investment avenues in India

Literature Review

• Indian commodity exchange and progress• Rules governing commodity derivatives

exchanges • Use of commodity derivatives for-

HedgingSpeculation Arbitrage.

Research Methodology

• Data collection• Primary data – questionnaire• Secondary data - books, internet, newspaper articles

• Convenient Sampling• Sample size - 30

Analysis & Interpretation

13%

43%

43%

Age of Respondents

18 – 24 years

25 – 30 years

31 & Above

Analysis & Interpretation

23%

20%

30%

27%

1,00,000 – 2,00,000

2,00,000 – 3,00,000

3,00,000 – 5,00,000

5,00,000 & above

Annual income level

Analysis & Interpretation

100%

Yes No

Do you trade in commodity futures ?

Analysis & Interpretation

80%

20%

Regular Trader

Potential Customer

what is the frequency of trading?

Analysis & Interpretation

25%

33%

25%

17%

Trade on an organized exchange

Standardized contract terms

follows of daily settlement

location of settlement

Reasons behind regular trading:

Analysis & Interpretation

Yes

No

0

2

4

6

8

10

12

14

16

18

Is futures trading influence the price and price variation ?

Analysis & Interpretation

If influences then on which factors

Seasonal price variation Inter & intra seasonal price variation

Short term oscillation Average received by producer and paid by

consumer

0

1

2

3

4

5

6

Analysis & Interpretation

If dose not influence commodity futures then what influence among following?

By hedging By speculation By arbitrage0

1

2

3

4

5

6

7

8

Analysis & Interpretation

Satisfaction about future trading in commodity exchange –

0

2

4

6

8

5

8

5 5 5

2

Analysis & Interpretation

Satisfaction on current regulatory mechanism of commodity futures in India -

17%

30%

13%

20%

20%

a b

c d

e

a. Limit on net open position as on the close of the trading hours.

b. Limit on price fluctuation to allow cooling of market in the event of abrupt upswing or downswing prices.

c. Special margin deposit to be collected on outstanding purchase or sales when price fluctuate.

d. Minimum\maximum prices-these are prescribed to prevent futures prices from falling below as rising above not warranted prospective supply or demand.

e. Skipping trading in certain derivatives of the contract, closing the market for a special period and even closing out the contract.

Conclusion

• The risk can be eliminated by –

Speculation

Hedging

Arbitrage

Seasonal price fluctuation

• The beta calculation

• The weighting scheme

Suggestion & Recommendations

• A negotiable document• An agency is to be set up • A Clearing House • Commodities trading must be settled in

determined form • Widespread market awareness • Healthy competition• The market should be made broader

Thank You…..