consumer perception toward online trading

8/12/2019 consumer perception toward online trading

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A

Project Report

On

Training undertaken at

Titled

A Profile of Commodity Dealers with special reference to Cotton in Sri Ganganagar

Submitted in partial fulfillment for the

Award of Degree of

Master of Business Administration

Submitted By: - Submitted To:-

Pradeep Panecha Miss Sandhya Taneja

MBA III SEM. (Assistant Professor)

2012-2014

B.J.S. RAMPURIYA INSTITUTE OF MANAGEMENT STUDIES

BIKANER


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PrefaceBeginning of the system project is entirely creative. This does not come all of a sudden, but it

comes by result of discussion, consultation and contemplation. Problem unsolved here can never

be satisfactory later. It is therefore a slow process.Moreover practical training is an important part of management courses. The theoretical studies

are not sufficient to get into the corporate world. Only practical knowledge can help us to

understand the complexities of large scale organizations.

To develop healthy managerial and administration skill in potential managers, it is necessary that

theoretical knowledge must be supplemented with exposure to the real environment. Actually, it

is life for, a management itself is realized.

In my case I confronted myself to MCX. And the exposure that I could not gained from the

books. I found it very interesting and challenging. I did my training at SRI GANGANAGAR and

my topic of project is A Profile of Commodity Dealers with special reference to Cotton in

Sri Ganganagar.


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AKNOWLEDGEMENTSummer Internship is indeed an important aspect of MBA program and it is my great privilege to

have this internship at an esteemed organization, MCX Ltd. The organization has provided me

the opportunity to complete my Summer Internship in the best possible manner.Words are inadequate to express my gratitude to MCX for giving me an opportunity to practical

training in their company and extend me full cooperation, enabling me to successfully complete

this project report.

I would like to extend my heartfelt gratitude to Miss Sandhya Taneja, my internal guide for

valuable suggestion and encouragement during my project.

I am grateful to Mr. Ravikant Khatri, MCX for his cooperation extended to me my by

providing necessary information and timely help.

I would like to thank entire Ganpati Multi Commodity team for supporting and helping me

during my Summer Internship with a positive approach.

Pradeep Panecha


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Need for Study:-The study aims to understand the major factors influencing the behavior of commodity traders

and analysis of the prospective traders for MCX commodity market. This study will give insights

to the marketer that would help that would help to understand the traders segment and increase

the trading pattern and general satisfaction level of this target group.

Scope of project:-

This project gives me great exposure to the commodity market because it includes product

knowledge and the field job in which I have visited the commodity trading store comes under the

region of Bikaner. During this project I also took part in exhibition of MCX which held for the

purpose branding and awareness of MCX product. This project helps me to know the market

practically .in my project I find that how do they trading with MCX and how to achieve profit.

My job includes while visiting the shops:-

Calculate the position of MCX agri. Items in every trading shop which comes under Bikaner

region.

Collect the data of traders that how much traders are interested in trading of AGRI. (guar gum,

guar seed) item with MCX.

Find out the problems that the traders are facing in Owen trading.

Find out the traders response for MCX agri. Item trading.


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EXECUTIVE SUMMARYThe objective of my research is to explore commodity market, MCX, agri. product-Cotton and

investment in Commodity Market.The data is collected with the help of primary as well as secondary data. I have done survey of

130 dealers through questionnaire to know their knowledge about Commodity and to find out

their opinion about investment in Cotton at MCX.

I have found during my survey that people are not ready to do invest in commodity market

because either they dont have much knowledge about commodity market, some of them not

even ready to take risk.

I have found during my survey that most of people invest in Cotton in MCX due to presence of

delivery center of Cotton in Sri Ganganagar.

Through my questionnaire survey I found that people are interested in investing in commodity

market and most of them want good return while investing in commodity. It is a self decision or

friendsdecision to do investment in commodity market.


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TABLE OF CONTENT Certificate from the Company Certificate from the Institute Preface Acknowledgement Need for Study Executive Summary

S. No. Chapters Page No.

1 Introduction to Commodity Market 07

2 Introduction to MCX 31

3 Project Profile 38

4 Research Methodology 41

5 Analysis and Interpretation 46

6 Facts and Findings 56

7 Limitation of the study 58

8 Conclusion 59

9 Bibliography 60

10 Annexure 61


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INTRODUCTION TO COMMODITY MARKET DERIVATIVESWhat we know as the Commodity Market of today from some humble beginnings. Trading in

future originated in Japan during the 18thcentury and was primarily used for the trading of rice

and silk. It wasnt until the 1850s that U.S. started using futures markets to buy and sell

commodities such as cotton, corn and wheat.Definition of a Commodity:-

Any product that can be used for commerce or an article of commerce which is traded on an

authorized commodity exchange is known as commodity. The article should be movable of

value, something which is bought or sold and which is produced or used as the subject or barter

or sale. In short commodity includes all kinds of goods. Forward Contracts (Regulation) Act

(FCRA), 1952 define goods as every kinds of movable property other than actionable claims,

money and securities.

In current situation, all goods and products of agricultural (including plantation), mineral and

fossil origin are allowed for commodity trading recognized under the FCRA. The nation

commodity exchanges, recognized by the Central Government, permits commodities which

include precious (gold and silver) and non-ferrous metals; cereals and pulses; ginned and un-

ginned cotton; oilseeds, oils and oilcakes; raw jute and jute goods; sugar and gur; potatoes and

onions; coffee and tea; rubber and spices etc

Different dictionary defines Commodity as under:-

Any item that can be bought and sold, taken to refer to Exchange- traded items including sugar,

wheat, soya beans, coffee and tin. That which affords convenience, advantages, or profit,

especially in commerce, including everything movable that is bought and sold (except animals),

goods, wares, merchandise, produce of land and manufactures etc.

In other words of business, a commodity is an undifferentiated product whose market value

arises from the owners right to sell rather than to use. Example commodities from the financial

world include oil (sold by the barrel), wheat and bulk chemicals such as sulphuric acid and even

pork-bellies.


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A Brief History of Commodities:-

Before the North American futures market originated some 150 years ago, farmers would growtheir crops and then bring them to market in the hope of selling their commodity of inventory.

But without any indication of demand, supply often exceeded what was needed and unpurchased

crops were left to rot in the streets. Conversely, when a given commodity such as soybeans was

out of season, the goods made from it became very expensive because the crop was no longer

available, lack of supply.

In the mid-19thcentury, grain markets were established and a central market palace was created

for farmers to bring their commodities and sell them either for immediate delivery (spot trading)or for forward delivery. The latter contracts, forwards contracts were the fore-runners to todays

futures contracts. In fact, this concept saved many farmers from the loss of crops and helped

stabilize supply and prices in the off-season.

Todays commodity market is a global marketplace not only for agriculture product, but also

currencies and financial instruments such as Treasury Bonds and securities futures. Its a diverse

marketplace of farmers, exporters, importers, manufactures and speculators. Modern technology

has transformed commodities into a Global Marketplace where a Kansas Farmer can match a bid

from a buyer in Europe.

Future contract derivativeFuture Contract:-

A commodity future contract is a type of derivative, or financial contract, in which two parties

agree to transact a set of financial instruments or physical commodities for delivery at a

particular price at a later date. If you buy a commodity contract, you are basically agreeing to

buy something, for a set of price that a seller has not yet produced. But participating in the

commodity market does not necessarily mean that you will be responsible for receiving or


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delivering large inventories of physical commodities, remember, buyers and sellers in the future

market primarily enter into futures contracts to hedge risk or speculate rather than delivery

(which is the primary activity of the cash/spot market). That is why commodities are used as

financial instruments by not only producers and consumers but also speculators.

The consensus in the investment world is that the commodities market is a measure financial

hub, more importantly, providing a centre to manage price risk. The commodity market is

extremely liquid, risky, and complex by nature, but it can be understood if we break down how it

function.

While commodities are not for the risk-averse, they are useful for a wide range of people.

Advantage of future contracts:-

If price moves are favorable, the producer realizes the greatest return with this marketingalternative.

No premium charge is associated with futures market contracts.Disadvantages of future contracts:-

Subject to margin calls Unable to take advantage of favorable price moves Net price is subject to basis change

Future contracts are similar to options. Both represent actions that occur in future. But

options are contract on the underlying futures contract where future is either to accept or

deliver the actual physical commodity. To make a decision between using a future

contract or an option contract, producers need to evaluate both alternatives.

Derivatives:-

commodities whose value is derived from the price of some underlying assets like securities,

commodities, bullion, currency, interest level, stock market index or anything else are known as

Derivatives. In simpler form, derivatives are financial security such as option or future whose

value is derived in part from the value and characteristics of another security, the underlying


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assets. It is a generic term for a variety of financial instruments. Essentially, this means you buy

a promise to convey ownership of the asset, rather than asset itself. The legal term of a contract is

much more varied and flexible than the term of property ownership. In fact, its this flexibility

that appeals to investors.

When a person invests in derivative, the underlying asset is usually a commodity, bond, stock, or

currency. He bet that the value derived from the underlying asset will increase or decrease by a

certain amount within a certain fixed period of time.

Futures and option are two commodity traded types of derivatives. An option contract gives

the owner the right to buy or sell an asset at a set price on or before a given date. On the other

hand, the owner of a futures contract is obligated to buy or sell asset.

The other example of derivatives is warrants and convertible bonds (similar to shares in that they

are assets). But derivatives are usually contracts. Beyond this, the derivatives range is only

limited by the imagination of investment bank.

It is likely that any person who has funds invested an insurance policy or a pension fund that they

are investing in, and exposed to, derivatives- wittingly or unwittingly. Shares or bonds are

financial assets where one can claim on another person or corporation; they will be usually being

fairly standardized and governed by the property of securities laws in an appropriate country.

On the other hand, a contract is merely an agreement between two parties; where the contract

detail may not be standardized.

Derivatives securities or derivative products are in real term contracts rather than solid as it fairly

sounds.

COMMODITY MARKET IN INDIAIntroduction:-

The Indian economy is witnessing a mini revolution in commodity derivatives and risk

management. Commodity options trading and cash settlement of commodity futures had been


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banned since 1952 and until 2002 commodity derivatives market was virtually non-existent,

except some negligible activity on an OTC basis. Now in September 2005, the country has 3

national level electronic exchange and 21 regional exchanges for trading commodity derivatives.

As many as eighty (80) commodities have been allowed for derivatives trading. The value of

trading has been booming and is likely to cross the$ 1 Trillion mark in 2006 and, if all goes well,

seems to be set to touch $5 Trillion in a few years.

History:-

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 oilseed 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 where detrimental to the healthy functioning of the

markets for the underlying commodities, hence to the farmers. With a view to restricting

speculative activity in cotton market, the government of Bombay prohibited option 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 commodities all over India. The Act applies to goods, which are defined as any

moveable property other than security, currency and actionable claims. The Act prohibited

option trading in goods along with cash settlements of forward trades, rendering a crushing

blow to the commodity derivative 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:

1. The Exchange which organizes forward trading in commodities can regulate trading onday-to-day basis;

2. The Forward Market Commission provide regulatory oversight under the powersdelegated to it by the central government, and


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3. The Central Government-Department of Consumer Affairs, Ministry of ConsumerAffairs, Food and Public Distributionis 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 derivatives markets dismantled and

undergrounds 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.

Structure of Indian Commodity Market:-

Change in Government Policy:-

After the Indian economy embarked upon the process of liberalization and globalization in

1990s, the Government set up a Committee in 1993 to examine the role of futures trading. The

Committee (headed by prof .K.N. Kabra) recommended allowing futures trading in 17

commodity groups. It also recommended strengthening of the Forward Markets Commission,


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and certain amendments to Forward Contracts (regulation) Act 1952, particularly allowing

option trading in goods and registration of broker s with Forward Markets Commission. The

Government accepted most of these recommendations futures trading was permitted in all

recommended commodities.

Commodity futures trading in India remained in a state of hibernation for nearly four decades,

mainly due to doubts about the benefits of derivatives. Finally a realization that derivatives do

perform a role in risk management led the government to change its stance. The policy

changes favoring commodity derivatives were also facilitated by the enhance role assigned to

free market forces under the new liberalization policy of the government. Indeed , it was a

timely decision too, since internationally the commodity cycle is on the upswing and the next

decade is being touted as the decade of commodities.

Why are commodity Derivatives Required?

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 contribution about 22% to the GDP of the

Indian economy. It employees around 57% of the labor force on a total of 163million 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 center for trading of commodity derivatives. It

is unfortunate that the policies of FMC during the most of 1950s to 1980s suppressed the vary

markets it was supposed to encourage and nature 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 market and the farmers. Such suspicions might normally arise due to

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.


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COMMODITY FUTURES MARKETS IN INDIAAgriculture sector in India has always been a major field of government intervention since long

back. Government tries to protect the interest of the poor Indian farmers by procuring crops at

remunerative prices directly from the farmers without involving middleman in between. This

way government maintains sufficient buffer stock and at the same time provides the farmers

safeguard against the fluctuating food crop prices. But government at the same time has

restricted this traditional sector by fixing prices of crops at a particular level and also by

imposing several other restrictions on export and import of agriculture commodities. All these

restrictions prevented this sector to move its traditional features. So according to many

economists liberalization of this traditional sector could have been of great benefit to our

economy. But question will naturally come up about the maintenance of buffer stock and

provision of remunerative price to the farmers. In absence of governments intervention farmers

will not be getting any prior information about the future market of their products. Naturally a

sudden price crash of food crops will have devastating effects on farmers. Here comes the

significant role of futures market. If the buyers in the commodity market anticipate shortage of a

particular crop in the coming season, future price of that crop will increase now and this will act

as a signal to the farmers who will accordingly plan their seeding decisions for the next season.

In the same way, an increase in future demand of food crops will be reflected in the todays

price in futures market. In this way the system of futures market can be of great help to the

Indian farmers preventing them from being directly exposed to the unexpected price changes all

of a sudden. It also helps towards evolving a better cropping pattern in our country.

If the peasants are farming some crop now and are very much concerned that price will crash by

the time the crop comes in, then if there is futures market, they will have the option to sell their

products in it. Price in the future markets being fixed ; by selling products in future markets they

get rid of their worries about the unexpected price fall this helps them to take the risk ofinnovations, by using new high yielding varieties of seeds , fertilizers and new techniques of

cultivation. Futures market will act as a smoothing agent between the present and future

commodity market. If the price, which is going to prevail in future, is high compared to what it

is now, then the arbitragers would like to buy the commodities now to sell those in future. The


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reverse process is also true. So the existence of a futures market is always good for any

economy. It opens up a new opportunity to people to protect them from unexpected risk

Commodity exchangesA brief description of commodity exchanges is those which trade in particular commodities,

neglecting the trade of securities, stock index futures and options etc. In the middle of 9 th

century in the United States, businessmen began organizing market forums to make the buying

and selling of commodities easier. These central marketplaces provided a place for buyers and

sellers to meet, set quality and quantity standards and establish rules of business.

Agricultural commodities were mostly traded but as long as there are buyers and sellers, any

commodities can be trade. In 1872, a group of Manhattan dairy merchants got together to bring

chaotic condition in New York market to a system in terms of storage, pricing and transfer of

agricultural products.

In 1933, during the Great Depression, the Commodities Exchange, Inc. was established in New

York through the merger of four small exchanges- the National Metal Exchange of New York,

the National Raw Skill Exchange and the New York Hide Exchange.

The major commodities market is in the United Kingdom and in the USA. In India there are 25

recognized future exchanges, of which there are national level multi-commodities exchanges.

After a gap of almost three decades, Government of India has allowed forward transaction in

commodities through Online Commodity Exchanges, a modification of tradition business

known as Adhat and Vayda Vyapar to facilitate better risk coverage and delivery of

commodities.

National Exchanges

Compulsory online trading

Transparent trading


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Exchanges to be de-mutualised

Exchange recognised on permanent basis

Multi commodity exchange

Large expanding volumes

Regional Exchanges:-

Online trading not compulsory

De-mutualisation not mandatory

Recognition given for fixed period after which it could be given for re-regulation

Generally, these are single commodity exchanges. Exchanges have to apply for trading each

commodity.

Low volumes in niche markets

Forward Markets Commission (FMC):-

It is statutory institution set up in 1953 under Forward Contracts (Regulation) Act, 1952.

Commission consists of minimum two and maximum four members appointed by Central Govt.

Out of these members there is one nominated chairman. All the exchanges have been set up

under overall control of Forward Market Commission (FMC) of Government of India.

NMCE (National Multi Commodity Exchange of India Ltd.)

NMCE is the first demutualized electronic commodity exchange of India granted the National

exchange on Govt. of India and operational since 26th Nov, 2002. Promoters of NMCE are,

Central warehousing corporation (CWC), National Agricultural Cooperative Marketing

Federation of India (NAFED), National Institute of Agricultural Marketing (NIAM) and Neptune

Overseas Ltd. (NOL). Main equity holders are PNB. The Head Office of NMCE is located in

Ahmadabad. There are various commodity trades on NMCE Platform including Agro and non-

agro commodities.


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The three exchanges are: National Commodity & Derivatives Exchange Limited (NCDEX) Multi Commodity Exchange of India Limited (MCX) National Multi-Commodity Exchange of India Limited (NMCEIL)

All the exchanges have been setup under overall control of Forward Market Commission (FMC)

of Government of India.

National Commodity & Derivatives Exchange Limited (NCDEX):-

National Commodity & Derivatives Exchange Limited (NCDEX) located in Mumbai in 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 national level institutions. It is promoted by ICICI Bank Limited, Life

Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development

(NABARD) and National Stock Exchange of India Limited (NSE). It is a professionally

managed online multi commodity exchange. NCDEX is regulated by forwarded market

commission and is subjected to various laws of the land like the companies act, stamp act,

contracts act, forward commission (regulation) act and various other legislations.

Multi Commodity Of India Exchange (MCX):-

Headquartered in Mumbai multi commodity exchange of India limited (MCX), is an independent

and de- mutilated exchange with a permanent recognition from government of India. Key

shareholders of MCX are Financial technologies (India) Ltd., State Bank of India, Union Bank of

India, Corporation Bank, Bank of India and Canara Bank. MCX facilitates online trading,

clearing and settlement operations for commodity future markets across the country.

MCX started offering trade in November 2003 and has built strategic alliance with Bombay

Bullion Association, Bombay Metal Exchange, Solvent Extractors Association of India, Pulse

Importers Association and shetkari Sanghatana.


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National Multi-Commodity Exchange of India Limited (NMCEIL):-

NATIONAL MULTI COMMODITY EXCHANGE OF INDIA LIMITED (NMCEIL) is the first

de-mutual zed, electronic multicommodity exchange in India. On 25 July, 2001, it was granted

approval by the government to organized trading in the edible oil complex. It has operationalised

from November 26, 2002. It is being supported by central warehousing corporation Ltd., Gujarat

state agriculture marketing board and Neptune overseas Ltd. It got its recognition in October

2002. Commodity exchange in India plays an important role where the prices of any commodity

are not fixed, in an organized way. Earlier only the buyers of produce and its seller in the market

judged upon the prices. Others never had a say. Today, commodity exchanges are purely

speculative in nature. Before discovering the price, they reach to the producers, end users, and

even the retail investors, at a grassroots level. It brings an ice transparency and risk managementin the vital market.

Pricing and LimitsAs we mentioned before, contracts in the commodity futures market are a result of competitive

price discovery. Prices are quoted as they would be in the cash market: in dollars and cents or perunit (gold ounces, bushels, barrels, index point, percentages and so on). Prices on future

contracts, however, have a minimum amount that they can move. These minimum are

established by the futures exchanges and are known as ticks. For example, the minimum sum

that a bushel of grain can moves upwards or downwards in a day is quarter of one U.S. cent. For

futures investors, its important to understand how the minimum price movement for each

commodity will affect the size of the contract in question. If you had a grain contract for 3000

bushels, a minimum of $7.50(0.25cents*3000) could be gained or lost on that particular contract

in one day.

Futures prices also have a price change limit that determines the price between which the

contract trade on a daily business. The price change limit is added to and subtract from the

previous daysclose, and the result remain the upper and lower price boundary for the day. Say


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that the price change limit on silver per ounce is $0.25. Yesterday, the price per ounce closed at

$5. Todaysupper price boundary for silver would be $5.25 and lower boundary would be $4.75.

If any moment during the day price of future contracts for silver reaches either boundary, the

exchange shuts down all trading of silver futures for the day. The next day, the new boundaries

are again calculated by adding and subtracting $0.25 until an equilibrium price is found. Because

trading shuts down if price reaches their daily limits, there may be occasions when it is not

possible to liquidate an existing futures position at will.

Kinds of CommoditiesSoft Commodities:-

Soft commodities are typically grown, while hard commodities are typically mined or extracted.

Orange juice, corn, wheat, lean hogs, coffee, sugar and beans are all examples of soft

commodities. Many soft commodities are subject to spoilage, which can create huge volatility in

the short term; if youre sitting on 30000 pounds of cocoa beans and price drops, you might have

to dump them into the market whether you want to or not. On the flip side, a well-timed, narrow

investment in a soft commodity can yield phenomenal gains if you buy in at just the right time.

Producers are often large players in the softs market. Farmers, for instance, regularly hedge

their crops by selling futures contracts and locking in prices. The demand . Combined with the

natural growing cycle of many of these commodities can create a natural seasonality in prices,

which investors must consider as theyre looking into the space. Weather plays a huge role in the

soft market, which makes predicting supply especially difficult.

Sample Soft Commodities:-

Barley

Canola

Corn

Oats


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Rice

Soybean Meal

soybean Oil

Cocoa

Coffee

Lean Hogs

Live Cattle

Orange Juice

Sugar

Wool

Hard Commodities:-

Hard commodities are typically mined from the ground or taken from other natural resources:

gold, oil, rubber, aluminum. In many cases, initial products are refined into further commodities,

as oil is refined in gasoline.

Some agriculture products such as cotton are also considered hard commodities, because

they dont rot quickly and they are industrial materials rather than foodstuffs.

Because hard commodities are easier to handle than soft commodities and because they aremore integrated into the industrial process, most investors focus on these products. Thats

changing to an extent as former soft like corn and sugar are transformed into ethanol-based

energy products, but still, hard commodities dominate the marketplace. For instant, literally

trillions of dollars of oil futures trade hands each year.

Sample Hard Commodities:-

Light sweet crude oil

Gas oil

Heating oil

Natural gas

Unleaded gasoline


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Cotton

Rubber

Aluminum

Copper gold lead

Nickel

Platinum

Silver

Tin, Zinc

Emerging commodities:-

Beyond these, there is a whole class of goods that most of us consider commodities, but for

whatever reason, have no liquid futures market. These include things like coal, timber, and iron.

There are also emerging commodities like water (and water rights); pollution rights and

ethanol, which many expect to develop into booming markets in 5-10 years. There are serious

investors who believe that these function in a similar fashion to other commodities, and that they

deserve a place in a commodities portfolio. For now, investor can only access these commodities

by buying stock in companies that operate in this field.

Economic Important of the Futures MarketBecause the commodity market is both highly active and central to the global marketplace, its a

good source for vital market information and sentimental indicators.

Price Discovery:-

Due to its highly competitive nature, the futures market has become an important economic tool

to determine prices, based on todays and tomorrows estimated amount of supply and demand.

Futures market prices depend on a continues flow of information from around the world and thus

require a high amount of transparency. Factors such as weather, war, debt default, refugee


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displacement, land reclamation and deforestation can all have a major effect on supply and

demand and hence the present and future price of a commodity. This kind of information and the

way people absorb it constantly changes the price of a commodity. This process is known as

price discovery.

Risk Reduction:-

Futures markets are also a place for a people to reduce risk when making purchases. Risk are

reduce because of price is pre-set, therefore letting participations know how much of the

commodity they will need to buy or sell. This helps reduce the ultimate cost to the retail buyer,

because with less risk there is less chance of manufactures hiking up prices to make up for profit

losses in the cash market.


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How to tradeYou can invest in the futures market in a number of different ways, but before taking the plunge,

you must be sure of the amount of risk youre willing to take. As futures traders, you should have

a solid understanding of how the market works and contracts functions. Youll also need to

determine how much time, attention, and research you can dedicate to the investment. Talk to

your broker and ask question before opening a futures account.

Unlike traditional equity traders are advice to only use funds that have been earmarked as risk

capital. Once youve made the initial decision to enter the market, the next question should be,

how? Here are three different approaches to consider:

Self directed:

As an investor, you can trade your own account, without the aid or advice of a commodity

broker. This involve the most risk because you become responsible for managing funds ,

ordering traders , maintaining margins , acquiring research , and coming up with your own

analysis of how the market will move in relation to the commodity in which youve invested. It

requires time and complete attention to the market.

Full Service:-

Another way to participate in the markets by opening a managed account, similar to an equity

account. Your broker would have the power to trade on behalf, following conditions agreed

upon when the account was opened. This method could lesson your financial risk, because a

professional broker would be assisting you, or making informed decision on your behalf.

However, you would still be responsible for any loss incurred and margin calls.

Commodity pool:-

A third way to enter the market, and one that offers the smallest risk, is to join a commodity

pool. Like mutual funds, the commodity pool is a group of commodities which can be invested

in. no one person has an individual account; funds are combined with others and traded as one.

The profit & losses are directly proportionate to the account of money invested. By entering a


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commodity pool, you also gain the opportunity to invest in diverse type of commodities. You are

also not subject to margin calls. However, it is essential that the pool be managed by a

Types of TradersThe players in futures market fall into two categories:- Hedger and Speculator.

1 Hedger:-

A Hedger can be farmers, manufacturers, importers and exporter. A hedger buys or sells in the

future market to secure the future price of a commodity intended to be sold at a later date in the

cash market. This helps protect against price risks.

The holder of the long position in future contracts (buyers of the commodity), are trying to

secure as low a price as possible. The short holders of the contract (sellers of the commodity),

will want to secure as high a price as possible. The commodity contract, however, provides a

definite price certainty for both parties, which reduces the risk associated with price volatility.

By means of future contracts, Hedging can also be used as a means to lock in an acceptable price

margin between the cost of the raw material and the retail cost of the final product sold.

Example:

A silversmith must secure a certain amount of silver in six months time for earrings and bracelets

that have already been advertised in an upcoming catalog with specific prices. But what if the

price of silver goes up over the next six months? Because the prices of the earring and bracelets

are already set, the extra cost of the silver cant be passed onto the retail buyer, meaning it would

be passed onto the silversmith. The silversmith needs to hedge, or minimize her risk against a

possible price increase in silver. How? The silversmith would enter the futures market and

purchase a silver contract for settlement in six months time (lets say June) at a price of $5 per

ounce. At the end of six months, the price of silver in the cash market is actually $6 per ounce, so

the silversmith benefits from the futures contract and escapes the higher price. Had the price of

silver declined in the cash market, the silversmith would, in the end, have been better off without

the future contract. At the same time, however, because the silver market is very volatile, the


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silver market was still sheltering him from risk by entering into the future contract. So thats

basically what a hedger is: the attempt to minimize risk as much as possible by locking in prices

for a later date purchase and sale. Someone going long in a securities future contract now can

hedge against rising equity prices in three months. If at the time of the contracts expiration the

equity price has risen, the investors contract can out at the higher price. The opposite could

happen as well: a hedger could go short in a contract today to hedge against declining stock

prices in the future. A potato farmer would hedge against lower French fry prices, while a fast

food chain would hedge against higher potato prices. A company in need of a loan in six months

could hedge against rising in the interest rates future, while a coffee beanery could hedge against

rising coffee bean prices next year.

2 SPECULATORS:-

Other commodity market participants, however, do not aim to minimize risk but rather to benefit

from the inherently risky nature of the commodity market. These are the speculators, and they

aim to profit from the very price change that hedgers are protecting themselves against. A hedger

would want to minimize their risk no matter what they are investing in, while speculators want to

increase their and therefore maximize their profits. In the commodity market, a speculator

buying a contract low in order to sell high in the future would most likely be buying that contract

from a hedger selling a contract low in anticipation of declining prices in the future.

Unlike the hedger, the speculator does not actually seek to own the commodity in question.

Rather, he or she will enter the market seeking profits by offsetting rising and declining prices

through the buying and selling of contracts.

Long Short

Hedger Secure a price now to protect

against future rising prices.

Secure a price now to protect against future

declining prices.

Speculator Secure a price now in anticipation

of rising prices.

Secure a price now in anticipation of

declining prices.


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CHALLENGES AND RisksGiven the marked change in the landscape of commodities investment, several challenges and

risks exist. Here we detail these challenges and risks we perceive for firms, recognized

investment exchanges, and consumers exposed to the commodities market.1 Firm:-

1.1 Lack of expertise:-Many firms told us of the challenge in recruiting enough staff with the appropriate degree of

expertise and experience. As firms have expanded their commodities investment activities, or

have entered these markets for the first time, they have struggled to recruit staff with the

necessary experience. Some firms are transferring staff from the fixed income areas of their

business, or staff with experience of derivatives but not specifically commodity derivatives.

Firms are training staff in this area but there is inevitably a time lag before these staff gain

enough experience. If the sector continues to increase, this will become an even more pressing

matter. Stories of qualified commodity traders receiving substantial recruitment inducements

indicate the extent to which demand exceeds supply in the market. Many we spoke to said that

while they need, they doubt other can recruit the necessary commodities specialists. We expect

that all firms would consider they have adequate resource, but we heard the same concerns so

often that we have to conclude that some firms must be overstretched. The FSAs Financial Risk

Outlook 2007 identifies this as a risk and it is something that concerns our firm supervisors. If

inexperienced traders dont fully understand the nature of the commodities markets they operate

in, this could harm the interests of both individual firm and the markets as a whole.

1.2 Ineffective Risk Management:-Several markets have become much more volatile, and many analysts believe that the market isnot responding to fundamentals as perhaps it used to. Electronic access has speeded up the

market and algorithmic trading enables the trading of large volumes very quickly. So the daily

price range can be much wider than before.


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In light of this increased volatility firms risk management must be effective and their risk

modeling appropriate. One of the Ospraie funds (a US-based hedge fund) had to close after

incurring substantial losses on short base metals position. Amaranth Advisors was also forced to

close after suffering heavy losses of around $6 billion in a single week from a wrong way bet on

natural gas spreads. Many correspondents believe this was an important test of market stability,

demonstrating the ability of the markets to spread. These examples do however highlight the

potential pitfalls that await firms that fail to maintain effective risk management systems and risk

models. To return to the issue of black box trading, it is essential that firms have adequately

tested their algorithmic trading system. Many scenarios must be modeled to ensure automated

trading systems behave appropriately in any given set of circumstances. By way of example,

overnight trading when volumes are thin can, and has, resulted in unintentional disorderly

trading and price spikes in some markets. Exchanges and firms have an obligation to ensure

markets remain orderly at all times.

1.3 Potential for market abuse:-

There is no suggestion that these markets are any more susceptible to market abuse than any

other, but the FSA will increasingly focus its attention on monitoring them. This reflects the

growing size of the market, though still relatively small, and the increasing range and changing

nature of those investing in commodities. it is vital that appropriate measures are in place at

firms and exchanges to detect and prevent improper practices , and that the FSA ensures markets

remain efficient orderly and fair .

1.4 Acquisition of physical assets:-

In addition to the changing risks facing firms due to increased volatility some firms have become

involved with commodities through the acquisition of physical assets such as power station .this

presents a significantly different element to their portfolio of risk, which is otherwise determined

by the management of exposure to financial instruments based on underlying commodities. It is

vital that firms have appropriate arrangements in place to manage this very different type of

exposure and resulting range of risk.


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1.5 Increased cost of trading:-

In time of sustained volatility the clearing houses increased initial margins. Margin rates on the

London metal exchange increased by 500% (from $5000 to $25000/ contract) over the space of a

few month. Larger firms can afford to buy or sell, but smaller players have had to reduce the

number of contracts they hold, which has reduced overall market open interest, and may lead to

greater volatility in the market (which in itself may discover age more conservative investors)

1.6 Liquidity issues:-

Several participants felt that the influx of money into the commodity market had caused

increased tightness in some market, especially in the front months where index rolling takes

place. As is always the case with physically delivered markets a risk may exist that some

speculative investors are unable to trade out of certain position, resulting in the delivery of

physical assets on occasion. However, our findings do not suggest this is of particular concern to

the market at present.

2. Recognized Investment Exchanges (RIEs):-

2.1 System Capacity:-

With volumes increasing rapidly over the past 5 years, U.K recognized investment exchangesupon which commodities futures are traded have had to ensure that their system and control are

sufficiently robust to enable them to monitor their respective markets. Primarily, especially given

the shift towards electronic trading, this means that it systems must be thoroughly tested and

robust and able to cope with large volumes. The first concern may be the trading platform, but

exchanges must also consider the requirements for reporting data and ensure the systems in place

are sufficient to deal with this side of operation.

2.2 Compliance resource:-

Compliance departments must be appropriately staffed and capable of maintaining standards of

monitoring. The challenge of recruiting staff with appropriate expertise and experience is also

one that many firms are facing.


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2.3 New User Type:-

New user often has trading experience but may be less well aware than traditional users of

commodity markets behaviors and characteristics. Conversely, they may bring new techniques

that the commodity markets are not used to. For example, an automated trading system or

inexperienced commodities trader may seek to exit positions triggered by stop-losses at times of

low liquidity, or too near to settlement and cause an unusual price spike (which may be less

remarkable in equity markets). The challenge for exchanges is to separate inexperienced

behavior from potentially abusive behavior and then to decide on the most appropriate action, be

that education or disciplinary measures.

3 Retail Consumers

3.1 Suitability of Investment:-

We have reported on the eagerness of some professionals to devise investment products to target

retail consumers, and they have begun to do so with varieties of ETFs, ETNs and ETCs. We have

reported the scarcity of experienced market professionals who fully understand the subtleties of

the commodities markets. Given these two factors there may be a danger that consumers will at

risk of taking up investments without sufficiently understanding the associated risk.

3.2 Indirect exposure is growing:-

Institutional investors have to be authorized to invest in commodities market (or have a mandate

to invest in them in the case of pension funds), yet consumers are already increasingly exposed

through the assets institutions hold on their behalf. At present, a pension fund is unlikely to fail

through over exposure to commodities where these represent an estimated average 3% of the

portfolio. However, if some firms increase their exposure to 20% as has been suggested, the risk

of significant losses may increase even if a failure doesnt occur. Significant pension fund losses

would create undesirable detriment.


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INTRODUCTION TO MCX

The Multi Commodity Exchange of India Limited (MCX), Indias first listed exchange, is astate-of-the-art, commodity futures exchange that facilitates online trading, and clearing and

settlement of commodity futures transactions, thereby providing a platform for risk management.

The Exchange, which started operations in November 2003, operates within the regulatory

framework of the Forward Contracts Regulation Act, 1952 (FCRA, 1952) and regulations there

under.

MCX offers trading in more than 30 commodity futures contracts across segments including

bullion, ferrous and non-ferrous metals, energy, and agricultural commodities. The exchange

focuses on providing commodity ecosystem participants with neutral, secure and transparent

trade mechanisms, and formulating quality parameters and trade regulations, in conformity withthe regulatory framework. The Exchange has an extensive national reach, with over 2100

members, operations through more than 400,000 trading terminals (including CTCL), spanning

over 1770 cities, townsvillages of India.MCX is Indias leading commodity futures exchange with a market share of 87.3 per cent in

terms of the value of commodity futures contracts traded in FY 2012-13. The Exchange was the

third largest commodity futures exchange in the world, in terms of the number of contracts

traded in CY2012, based on the Futures Industry Associations annual volume survey released in

March 2013. Moreover, as per the survey, during CY 2012, MCX was the world's largestexchange in silver and gold futures, second largest in copper and natural gas futures.

To ease participation, the Exchange offers facilities such as calendar-spread facility, as also EFP

(Exchange of Futures for Physical) transactions which enables participants to swap their

positions in the futures/ physical markets. The exchanges flagship index, the MCXCOMDEX, is

a real-time composite commodity futures price index which gives information on market

movements in key commodities. Other commodity indices developed by the exchange include

MCX agri., MCX energy, and MCX metal. MCX has been certified to three ISO standards

including ISO 9001:2000 quality management standard, ISO 27001:2005 information security

management standard and ISO 14001:2004 environment management standard.

With an aim to seamlessly integrate with the global commodities ecosystem, MCX has forged

strategic alliances with leading international exchanges such as CME Group, London Metal

Exchange (LME), Shanghai Futures Exchange (SHFE) and Taiwan Futures Exchange

(TAIFEX). The Exchange has also tied-up with various trade bodies, corporate, educational

institutions and R&D centers across the country.


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MCXs ability to use and apply technology efficiently is a key factor in the development of its

business. The exchanges technology framework is designed to provide high availability for all

critical components, which guarantees continuous availability of trading facilities. The robust

technology infrastructure of the exchange, along with its with rapid customization and

deployment capabilities enables it to operate efficiently with fast order routing, immediate trade

execution, trade reporting, real-time risk management, market surveillance and market data

dissemination.

The Exchange is committed to nurturing communities that are vital for the development of its

business. To achieve our goal of inclusive growth, we collaborate with diversified partners.

Gramin Suvidha Kendra, our social inclusion programmed in partnership with India Post, seeks

to enhance farmers value realization from agricultural activities.

MCX has been continuously raising the bar through effective research and product development,

intelligent use of information and technology, innovation, thought leadership and ethical

business conduct.

It is regulated by the Forward Markets Commission.

MCX is India's No. 1 commodity exchange with 83% market share in 2009 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 (But actual volume is far behind CME group volume as Silver is traded in

30 kg lots on MCX whereas CME traded in Approx 155 kg Lot size same in Gold 1 kg :

3. kg Approx and Crude 100 Barrels : 1000 Barrels on CME) and major volume in

manipulated as there in no strict regulation in Indian markets just to Escalate the prices of

Shares of company. Also the major volume comes from Arbitration of CME and MCX

which is also not legal to do.

The highest traded item is gold. MCX has several strategic alliances with leading exchanges across the globe As of early 2010, the normal daily turnover of MCX was about US$ 6 to 8 billion MCX 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


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BUSINESS AREA AND MAIN PRODUCT OF MCXMajor Commodities:-

BULLIONS PLANTATION

ENERGY

OIL & OIL SEEDS PULSES

CEREALS

GOLD SILVER RUBBER

ATF BRUET OIL CRUDE OIL THERMAL COAL

SOYA SEEDS SOYA OIL CHANA URAD


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METALS

SPICES

OTHERS

WHEAT BARLEY RICE

Copper STEEL ALUMANIUM

TURMERIC PEPPER JEERA

POTATO SUGAR GUAR SEED


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VISION MISSIONVision:-

We envision a unified Indian commodity market that is driven by market forces and continually

provides a level playfield for all stakeholders ranging from the primary producer to the end-

consumer; corrects historical aberrations in the system; leverages technology to achieve

exceptional efficiencies and ultimately lead to a common world market. We also envision a

brand image for MCX that identifies it as the Exchange of Choice not only by direct participants

in the commodity ecosystem but also by the general public.

Mission:-

MCX shall accomplish the above vision by relentlessly endeavoring to enhance awareness and

understanding of exchange-enabled trade in commodity derivatives. The Exchange will continue

to minimize the adverse effects of price volatilities; providing commodity ecosystem

participants with neutral, secure and transparent trade mechanisms; formulating quality

parameters and trade regulations in conjunction with the regulatory authority. Moreover, it willcontinue to enforce a zero-tolerance policy toward unethical trade practices-attempted or real-by

any participant/s; and invest in the all-round development of the commodity ecosystem.


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Promoter group companies

Exchange Ventures:-

A pan-India electronic spot market for agri

commodities trading

National Spot Exchange Limite

(NSEL)

www.nationalspotexchange.com

Indias first power exchange for trading in

electricity

Indian Energy Exchange (IEX

www.iexindia.com

First international Pan-Asian derivatives

exchange, that provides a single platform for

multi-product trade between Asia and the world

Singapore Mercantile Exchang

(SMX)

www.smx.com.sg

First multi-asset, multi-access international

exchange in Bahrain and the Middle East, where

market participants can raise capital and manage

risk using both conventional and Islamic

financial instruments.

Bahrain Financial Exchange (BFX

www.bfx.bh

Multi-asset class electronic exchange from

Mauritius to serve as a gateway to the African

continent

Global Board of Trade (GBOT

www.gbot.mu

Multi-asset-class pan African exchange and

ecosystem based out of Botswana hub

Bourse Africa (BA

www.bourseafrica.com

First international commodity and currency

derivatives market in the Middle East

Dubai Gold and Commodit

Exchange (DGCX

www.dgcx.ae
http://www.nationalspotexchange.com/http://www.nationalspotexchange.com/http://www.nationalspotexchange.com/http://www.nationalspotexchange.com/http://www.nationalspotexchange.com/http://www.nationalspotexchange.com/http://www.iexindia.com/http://www.iexindia.com/http://www.iexindia.com/http://www.iexindia.com/http://www.smx.com.sg/http://www.smx.com.sg/http://www.smx.com.sg/http://www.smx.com.sg/http://www.smx.com.sg/http://www.smx.com.sg/http://www.smx.com.sg/http://www.smx.com.sg/http://www.bfx.bh/http://www.bfx.bh/http://www.bfx.bh/http://www.bfx.bh/http://www.bfx.bh/http://www.gbot.mu/http://www.gbot.mu/http://www.gbot.mu/http://www.gbot.mu/http://www.gbot.mu/http://www.bourseafrica.com/http://www.bourseafrica.com/http://www.bourseafrica.com/http://www.bourseafrica.com/http://www.dgcx.ae/http://www.dgcx.ae/http://www.dgcx.ae/http://www.dgcx.ae/http://www.dgcx.ae/http://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/groupcompanies/exchangeventures.htmhttp://www.mcxindia.com/aboutus/g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Ecosystem Ventures:-

A platform to enable 'any transaction

on mobile'

atom technologies

www.atomtech.in

Global content provider in the

financial information services

industry, which integrates and

disseminates ultra-low latency data

feeds, news and information to

support investment decisions

TickerPlant Limited

www.tickerplantindia.com

Specializes in securities and

commodities market education

FT Knowledge Management

Company Limited

www.ftkmc.com

It is the clearing arm of the MCX-SX,

and has been jointly promoted by

MCX-SX, MCX and FTIL.

MCX-SX Clearing

Corporation Limited (MCX-

SX CCL)

Pan-India warehouse network

platform to offer organized markets

for rural lending

National Bulk Handling

Corporation (NBHC)

www.nbhcindia.com

Provides high quality domain

consulting services to the Banking and

Financial Services Industry on

financial risk management, risk

analytics

Riskraft Consulting Ltd.

(Riskraft)

www.riskraft.com/
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Project Profile

Introduction To Cotton:-

Introduction:-

Cotton is essentially grown for its fiber, which is used the world-over in textile manufacturing.

Cotton fiber is one of the most important textile fibers, accounting for around 35% of the total

textile fiber used in the world.

Its strength, absorbency and capacity to be washed and dyed, make cotton an adaptable raw

material for producing a variety of textile products such as clothes, space suits, household

items and industrial products.

Cotton is classified on the basis of staple, grade and character of each balestaple refers to

the fiber length; grade ranges from course to premium and is a function of color, brightness

and purity; and character refers to the fibersstrength and uniformity.

Global Scenario:-

Cotton production and trade is widely spread across the world, with more than 80 nations

cultivating the crop. However, its production, consumption and trade are dominated by a few

nations.

The world cotton production in 2012-13 marketing year (July August) is forecasted to be

26.25 million metric tons (MMT) (154.41 million bales of 170 kg each) as compared with

27.44 MMT (161.35 million bales of 170 kg each) in 2011-12 marketing year.

The world's four largest cotton-producing countries are China, India, USA and Pakistan. They

account for nearly 79% of the world's production. The other major producers include Brazil

and Uzbekistan.

The top three consumers of cotton are China, India and Pakistan, which together account fortwo thirds of the world's consumption, which is estimated around 23.3 MMT. Turkey, Brazil

and the USA are the other major consumers.

In the recent years, the global trade has been around 7-8 MMT.

While USA is the largest exporter of cotton, accounting for over one-third of the global trade

in raw cotton, China is its largest importer.


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Indian Scenario:-

India's annual production of cotton has been steadily increasing in the recent years supported

by a rise in acreage, better genetically modified seeds and improved practices.

India is expected to produce 33.4 million bales of cotton from an acreage of 11.61 million

hectares in 2012-13 (OctoberSeptember).

In India, the yield of cotton is estimated to be at 489 kg per hectare against the world average

of 766 kg per hectare.

In India, cotton is planted from the end of April through September, and harvested from

October to January, based on the time of sowing.

India's cotton consumption increased by 15% from 21.9 million bales in 2005-06 to 25.3

million bales in 2011-12. This further increased to 27.0 million bales in 2012-13.

The states of Gujarat, Maharashtra and Andhra Pradesh are the major producers of cotton,

accounting for about 75% of the total production.

India has been a major exporter of cotton, since 2005-06 and currently, the world's second

largest exporter. It is likely to export 7 million bales of cotton in 2012-13.

India mostly imports Long and Extra Long Staple (ELS) cotton from the US, Egypt, and West

Africa.

Factors Influencing the Market:-

The domestic demand supply scenario, inter-crop price parity, cost of production and

international price situation are the major factors that influence prices in the market.

Weather, pests, diseases and other risk factors associated with agricultural crops also have a

bearing on cotton production.

Government policies with relation to import, export and Minimum Support Price are

significant influencers of cotton prices.

Cotton yarn accounts for around 70% of the total yarn production in India. Thus, the price of

cotton is a very important factor that influences the health of India's textile industry. And the

Government usually considers both the cotton and textile sectors while deciding on its polices.

Cotton yarn prices at different markets across the country show a high correlation of above

90% with India's raw cotton prices.

Global trade is particularly important for cotton. In addition to around 30% of global cotton


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fiber production being traded, it is also traded indirectly as yarn, fabric and clothing.

As cotton is used primarily in manufacturing products such as clothing and home furnishings,

the overall health of associated industries and the economic well-being of final consumers are

important.

New developments in the textile industry, with regard to the adoption of new technology,

fibers, mechanization, and so forth, impact cotton prices in the long run.


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RESEARCH METHODOLOGY

Research is used to choose the best line of action (in the light of growing competition and

increasing uncertainty). Research in common context refers to a search for knowledge. It canalso be defined as a scientific and systematic search for gaining information and knowledge on a

specific topic of phenomena. In management research is extensively used in various areas.

Research is a structured inquiry that utilizes acceptable scientific methodology to solve problems

and create new knowledge that is generally applicable.

It contains characteristics like Controlled, Rigorous, Systematic, Valid and Verifiable, Empirical,

Critical.

Title of Research:-

A Profile of Commodity Dealers with special reference to Cotton in Sri Ganganagar

Duration of the Project:-

Duration of the project was 45 days i.e. from 25 thApril to 24 June.

Objectives of the Project:-

1. Primary objective:-

The main objective of filed survey during the project was to find out traders interest aboutMCX agri. Items

Find out nature of traders in survey how they can do trading The main objective of research was to identify potential traders for MCX agri. item and

development these traders

Find out the problems of traders those are faced by him in everyday trading This will ease the dependence on the some big traders like nine star commodity Pvt. Ltd. &

bhairavnath derivatives & commodity Pvt. Ltd.


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2. Secondary objective:-

To enhance the knowledge of trading market To increase the knowledge of commodity in MCX To enhance the knowledge about the marketing of commodity market(MCX)

Types of study:-

Descriptive Research:-

The types of research adopted for study is descriptive. Descriptive studies are undertaken in

many circumstances when the researches is interested to know the characteristic of certain group

such as age ,sex, education level, occupation or income . A descriptive study may be necessary in

cases when a researcher is interested in knowing the proportion of people in a given population

who have in particular manner, making projection of a certain thing, or determining the

relationship between two or more variable. The objective of such study is to answer the who,

what, where, and how of the subject under investigation. There is a general feeling that

descriptive studies are factual and very simple. This is not necessarily true. Descriptive study can

be complex, demanding a high degree of scientific skill on part of the researcher.

Descriptive studies are well structured. An exploratory study needs to be flexible in its approach,

but a descriptive study in contrast tends to be rigid and its approach cannot be changed every

now and then. It is therefore necessary the researcher give sufficient thought to framing

researcher.

Question and deciding the types of data to be collected and the procedure to be used in this

purpose. Descriptive studies can divided into two broad categories: cross sectional and

longitudinal sectional. A cross sectional study is concerned with a sample of elements from a

given population. Thus, it may deal with household, dealers, retail stores and other entities. Data

on a number of characteristics from sample elements are collected and analyzed. Cross sectional

studies are two types: Field study and survey. Although the distinction between them is not clear

cut, there are some practical differences, which need different techniques and skills. Field

studies are ex-postfactor scientific inquiries that aim at finding the relations and interrelations


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among variable in a real setting. Such studies are done in live situations like communities,

school, factories, and other organizations.

Another type of cross sectional study is survey result, which has been taken by me. A major

strength of survey research is its wide scope. Details information can be obtained from a sample

of large population. Besides it is economical as more information can be collected per unit of

cost. In addition, it is obvious that a sample survey needs less time than a census inquiry.

Descriptive research includes survey and fact finding enquiries of different kinds of the major

purpose. Descriptive research is description of the state of affairs, as it exists at present. The

main characteristic of this method is that the researcher has no control over the variables; he can

only report what has happened or what is happening. The method of research utilized in

descriptive research is survey methods of all kinds including comparative and co relational

methods. The reason for using such needs to be flexible in its approach , but a descriptive study

in contrast tends to be rigid and its approach cannot be changed every now and study.

Research methods:-

Methodology used is explained in detail. Data collection, primary or secondary, is done using appropriate technique. The type of data (evidence, framework, argument) collected and used are evidently

appropriate & justified.

Contact method with personal interview and internet connectivity. Data collection method used through survey for primary data and internet surfing for

secondary data.

Structured schedule and computer with internet research instrument was used.Sampling Design:-

Population: Sri Ganganagar District

Unit Sample: Agri. commodity investor

Sample Size: 130


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Data Collection:-

Primary Data: it is collected for new research for the first time.

Personal interview Close interview Survey conduction Group discussion

Secondary Data: already existed data is called secondary data. I collected them from following

method.

Internet Books Previous research

Research Design:-

A research design is a specification of method and procedures or acquiring the information

Documents

consumer perception toward online trading