Commodity market

PRESENTED BYGAYATRI, MEENAKSHI

& VANDANA

GUIDED BY PROF. AMREEN SHAIKH

WHAT IS COMMODITY MARKET?

Commodity markets are markets where raw or primary products are exchanged.

It covers physical product (food, metals, electricity) markets.

Modern Commodity Market have their roots in the trading of agricultural products.

The trading of commodities includes physical trading of food items, Energy and Metals, etc.

CLASSIFICATION OF COMMODITIES

AgricultureGrainsPulses

Edible oils/seedsSpices etc

Base MetalsCopper

ZincAluminum

NickelTin

EnergyCrude oil

Heating oilNatural gasFurnace oil

Etc.

BullionGoldSilver

etc

Commodities

ENERGIES Crude Oil Petroleum

By Products Of Petroleum

Heating Oil

Natural Gas

Coal.

AGRICULTURAL PRODUCTS

1. Wheat

2. Rice

3. Corn

4. Oat

5. Soy bean

SOFT COMMODITIES:

1. Coffee

2. Cotton

3. Sugar

4. Orange Juice

5. Cocoa

PERFORMANCE OF THE MARKETReturns Across Various Commodities in 5 Yrs.

92.8662.54

3.83

-12.36-45.21

9.25

87.12

22.25 4.96 9.6551.16

142.80

94.21

485.86

23.60

-100

0

100

200

300

400

500

600

Gold

Silv

er

Cru

de o

il

Copper

Zin

c

Alu

min

ium

Lead

Guar

Seed

Guar

Gum

Soy O

il

Soybean

Pepper

Jeera

Turm

eric

Menth

a O

il

Source:Bloomberg,Way2Wealth Research

Types of Market For Commodity Trading

SpotTrading

Future Trading

Forward Trading

Option Trading

Swap Trading

SPOT TRADING

Instant cash is used to physically exchange the commodities, which pass from sellers hands to users.

FORWARD MARKETS AND FUTURE MARKETS

Forward markets and Future markets are derived for trading of commodities in markets, with a view of ascertaining a future value of the same commodity.

After keeping view of the demandClimatic conditionsFluctuation in currency Inflation

OPTIONS TRADING

These are contracts that give the owner the right, but not an obligation, to buy (call option) or sell (put option) an asset.

SWAPS TRADING

These are contracts exchange cash (flows) on / before a specified future date based on the underlying value of bonds/interest rates, currencies/exchange rates, stocks, commodities, or other assets.

REGULATING BODIES

The trading of commodity derivatives is regulated by Forward Markets Commission (FMC).

In terms of Section 15 of the Forward Contracts (Regulation) Act, 1952 (the Act)

Forward contracts in commodities notified under section 15 of the Act can be entered into only

a member of a recognized association.

The recognized associations/commodity exchanges are granted recognition under the Act by the Central Government

All the Exchanges, which permit forward contracts for trading, are required to obtain certificate of registration from the Central Government.

The other legislations which have relevance to commodity trading are the

Companies Act, Stamp Act, Contracts Act, Essential Commodities Act 1955, Prevention of Food Adulteration Act,1954 And various other legislations, which impact on

their working

BENEFITS OF INVESTING IN COMMODITY MARKET

Leverage Liquidity Diversification Inflation Hedge Assurance Of PurityTransparency Of RatesPreferential Tax Treatment Than Stocks

RISK ASSOCIATED WITH INVESTMENTS IN COMMODITY

MARKET Price risk

Quantity risk

Cost risk (Input price risk)

Political risk

PROCESS OF BUYING AND SELLING PRODUCTS

1.Market OrderThe customer chooses a specific

commodity or commodities that he / she wants to buy or to sell.

The customer chooses the number of contracts that will deliver monthly.

The contracts will not have a price on them.

Time is the priority, not price.

2.Buy Limit Order- This order is only filled at the specified price “or

better.” This order specifies a price limit for the order be filled.

The goal is to buy at the lowest price possible for the commodity or commodities.

3.Sell Limit Orders: This order is only executed at the current market

price or higher.

The goal is to sell the commodity or commodities at the highest price.

4.Stop order:

It becomes a market order when the stop level is reached in the specified commodity or commodities

INDIAN COMMODITY EXCHANGE

1) Precious Metals  Gold 

 Silver 

2) Metals  Copper 

 Lead   3) Energy  Crude Oil 

 Natural Gas 

4)Oils & Oilseed Complex  Mustard Seed   Soya Bean 

Soya Oil 

5) Fibers  Raw Jute

6) Other Agro product   Mentha Oil

7) Minerals  Iron Orez

TAX IMPLICATIONS

1. Futures contracts are in the nature of agreement to buy or sell at a future date and hence are not liable for payment of VAT/sales tax.

2. If the futures contract is closed out and settled between the Constituents prior to the settlement date without actually buying or selling the commodities, there is no liability for payment of VAT/sales tax.

3.When the futures contract fructifies into a sale and culminates into delivery, there would be liability for payment of sales tax. This liability will arise in the State in which the warehouse (into which the

4. Goods are lodged by the Constituent) is situated when the commodities are delivered to the buyer.

There are favourable tax rates for commodities as they are taxed at 60% long-term capital gains and 40% short-term capital gains.

Long-term gains are capped at 15% and short-term gains are taxed at your ordinary tax rate, which depends on your adjusted income.

Commodity exchange

INDIAN COMMODITY EXCHANGES The East India Cotton Association Surendra nagar Cotton oil & Oilseeds

Association Ltd The East India Jute & Hessian Exchange Ltd, The Spices and Oilseeds Exchange Ltd. Vijay Beopar Chamber Ltd., Muzaffarnagar Ahmadabad Commodity Exchange First Commodity Exchange of India Ltd, Kochi The Bikaner Commodities Exchange Limited Haryana Commodities Ltd., Hissar The Bombay Commodity Exchange Ltd The Indian Pepper and Spice Trade Association

Bhatinda Om & Oil Exchange Ltd., Bhatinda The Meerut Agro Commodities Exchange Co.

Ltd., Meerut The Central India Commercial Exchange Ltd,

Gwalior National Board of Trade Limited The Chamber of Commerce Rajdhani Oils and Oilseeds Exchange Ltd. , Delhi E-Commodities Ltd The Rajkot Seeds oil & Bullion Merchants`

Association Ltd