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Q. Which are the major Commodity Exchanges? |
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There are three National level commodity Exchanges in India. :: 1. Multi Commodity
exchange of India Ltd.(MCX) Mumbai. 2. National Commodity and Derivatives Exchange
(NCDEX) Mumbai. 3. National Commodity Exchange (NMCE), Ahmedabad |
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Q. What is the requirement to have nationalized Exchanges for Commodity? |
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It is necessary to have a common platform of commodity futures exchange where demand
and supply forces can act together in bringing out the best price for any commodity.
The main purpose of a future commodity exchange as a marketplace is to enable commodity
producers/processors to sell their produce in advance to protect them against possible
price fall for their commodities and allow consumers, traders, processors to buy
in advance to protect against possible price increase. |
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Q. How do I choose my broker? |
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You can contact any registered brokers who are having membership of MCX and NCDEX.
You can also get a list of more members from the respective exchanges and decide
upon the broker you want to choose from. |
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Q. What do I need to start trading in commodity futures? |
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You will have to enter into Commodity Trading account agreements with the broker.
You also have to submit proof required by KYC norms of Exchange and Pan card number
is compulsory in all cases. You will also need only one bank account. You will need
a separate commodity demat account from the National Securities Depository Ltd to
trade on the NCDEX/MCX just like in stocks. |
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Q. What is Commodity Futures? |
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A commodity futures contract is an agreement between two parties to buy and sell
a specified and standardized quantity and quality of a commodity at a certain time
in future at a price agreed upon at the time of entering into the contract on the
commodity futures exchange. |
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Q. What is a Derivative contract? |
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A derivative contract is an enforceable agreement whose value is derived from the
value of an underlying asset; the underlying asset can be a commodity, precious
metal, currency, bond, stock, or, indices of commodities, stocks etc. Four most
common examples of derivative instruments are forwards, futures, options and swaps/spreads. |
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Q. What is a forward contract? |
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A forward contract is a legally enforceable agreement for delivery of goods or the
underlying asset on a specific date in future at a price agreed on the date of contract.
Under Forward Contracts (Regulation) Act, 1952, all the contracts for delivery of
goods, which are settled by payment of money difference or where delivery and payment
is made after a period of 11 days, are forward contracts. |
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Q. Is delivery mandatory in futures contract trading? |
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The provision for delivery is made in the Byelaws of the Associations so as to ensure
that the futures prices in commodities are in conformity with the underlying. Delivery
is generally at the option of the sellers. However, provisions vary from Exchange
to Exchange. Byelaws of some Associations give both the buyer and seller the right
to demand/give delivery. |
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Q. What is a futures contract? |
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Futures Contract is specie of forward contract. Futures are exchange - traded contracts
to sell or buy standardized financial instruments or physical commodities for delivery
on a specified future date at an agreed price. Futures contracts are used generally
for protecting against rich of adverse price fluctuation (hedging). As the terms
of the contracts are standardized, these are generally not used for merchandizing
propose. |
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Q. How professionals predict prices in futures? |
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Two methods generally used for predicting futures prices are fundamental analysis
and technical analysis. The fundamental analysis is concerned with basic supply
and demand information, such as, weather patterns, carryover supplies, relevant
policies of the Government and agricultural reports. Technical analysis includes
analysis of movement of prices in the past. Many participants use fundamental analysis
to determine the direction of the market, and technical analysis to time their entry
and exist. |
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Q. Who are the participants in forward/futures markets? |
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Participants in forward/futures markets are hedgers, speculators, daytraders/ scalpers,
market makers, and, arbitrageurs. |
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Q. Who is hedger? |
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Hedger is a user of the market, who enters into futures contract to manage the risk
of adverse price fluctuation in respect of his existing or future asset. |
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Q. What is arbitrage? |
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Arbitrage refers to the simultaneous purchase and sale in two markets so that the
selling price is higher than the buying price by more than the transaction cost,
so that the arbitrageur makes risk-less profit. |
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Q. Who are day-traders? |
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Day traders are speculators who take positions in futures or options contracts and
liquidate them prior to the close of the same trading day. |
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Q. What is hedging? |
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Hedging is simply an Investment strategy that is designed to offset investment risk.
When hedger is going to buy a commodity in the cash market at a future date, he
buys the futures contract now and when he buys the commodity in the cash market,
the future contract is squared off to reduce or limit the risk of the purchase price. |
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Q. What are the trading timings of MCX |
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The exchange operates on all days except Sundays and exchange specified Holidays...
Monday to Friday - 10:00 am to 5:00 pm (for all commodities). Monday to Friday –
5:00 pm to 11:30 pm (All commodities except agri commodities and sponge Iron). Saturday
– 10:00 am to 2:00 pm All commodities |
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Q. What are Long and short position? |
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Long Position – Long Position is buying a contract. Short Position – Short Position
is selling a contract. |
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Q. What does Open Interest in the market means? |
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The open interest is the number of contracts outstanding / unsettled in the market. |
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Q. What are the margin requirements in Commodity trading? |
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In all commodities average margin is 5%. |
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Q. What is the settlement period? |
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Settlement period is the cycle, which includes trade execution to settlement of
that trade. Commodity trading has a monthly cycle. In all commodities last 5 days
of a month are delivery period. If you do not like to give or take delivery than
one has to do settlement before 5 days of delivery period. |
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Q. When does pay-in and Pay-out Occur? |
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Pay in and pay out of funds for mark to market settlement is affected on T+1 basis.
It means that any booked losses or profit of the members are debited or credited
in their bank settlement account on the next day of its trading. Pay in and pay
out of funds for delivery –based settlement is effected on E+2 /E+3 (E Stands for
expiry of contract) basis for delivery of good delivery by the seller or a prescribed
in the contract settlement. |
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Q. Are there physical deliveries in commodity futures exchanges? |
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YES, the exchanges, have made available provisions of settlement of contracts by
physical delivery Do we have to pay sales tax for commodity futures transactions?
If the trade is squared off before expiry of the contracts, do not have to pay sales
Tax. Because selling a futures contract means a commitment to sale. Which is different
from actual sale. If the seller does not square off the position and intends to
deliver goods in respect of his sale position, than only he is required to pay sales
tax.
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