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Hedging of raw material to control operating costs by corporates by using commodity futures on indian commodity exchanges.
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COMMODITY FUTURESCOMMODITY FUTURES
AGENDA
INTRODUCTION - Understanding Commodity Futures Trading (‘CFT’).
TYPES OF COMMODITIES TRADED.
VARIOUS PARTIES INVOLVED.
BENEFITS TO PARTIES INVOLVED.E-SERIES
UNDERSTANDING COMMODITY FUTURES TRADING (‘CFT’)
GROUND REALITIES Its a financial contract The underlying commodity is bought or sold at a future date. It is a tool used by Investors, Hedgers, Arbitrageurs, Day
Traders, etc.. The commodities are traded on Exchanges, which are
Screen based and Online, transparent,having counter party guarantee, andhaving large settlement guarantee funds
FACTORS DRIVING CFTDemand and supplySeasonal patternsIndian economic data/ policiesWeatherImport/ export parity and government
policiesForex/ currency movement against USD
and INRGlobal political/ economic events and dataGlobal benchmark commodity IndicesGlobal commodity prices
MAJOR COMMODITIES TRADEDEdible oilseed complex - Mustardseed,
Soybean seed.Food grains – Barley, Maize, etc.Fibres - Cotton, Jute, etcSpices - Turmeric, Pepper, Cardamom,
etc.Metals - Gold, Silver, Copper, Zinc, Aluminum etc.Energy _ Crude Oil, Natural Gas etc.Others - Castorseed, Sugar, Jaggery,
Rubber,
PARTIES INVOLVEDSpeculators
Arbitragers
Hedgers (Farmers, Producers, Processors, Exporters etc)
BENEFITS TO PARTIES INVOLVEDEffective Price Discovery Platform
A farmer can do crop planning by looking at prices prevailing in the futures market
Efficient Price Risk management Tool A farmer can sell futures to ensure better
price realization and hedge against seasonal price volatility
A processor / manufacturer can buy futures to hedge against volatile raw material costs
An exporter can buy / sell futures to commit a price to his foreign clients and thus do better financial planning
A stockist can hedge his carrying risk to ensure smooth prices of the seasonal commodities round the year
COMMODITY DERIVATIVES -BENEFITS TO HEDGERSHedgers
Can use futures as protection or insurance, against unfavorable price fluctuations Risks)
Hedgers can protect themselves by taking an opposite position in the futures market to their exposed position in cash commodity
An Effective Risk Management Tool
Types Of HedgingLong Hedge•This requires taking a long (buy) position in the futures contract. •Appropriate when a certain asset or commodity would be purchased in the future and one is interested in locking in the price.
•Short Hedge•This requires taking a short (Sell) position in the futures contract. •Appropriate when a certain asset or commodity would be sold in the future and one is interested in locking in the price now
Think and Act!Now you have seen how Commodities market is evolving worldwide especially the Commodity Derivatives market in terms
• Profits• Risk Mitigation Tool• Risk Diversification• Expansion• Globalization• In all Economic Savior
Let’s Begin!