Rakesh Summer Report Final

ACKNOWLEDGEMENT
I would like to express regards and thanks to Mr. Santosh Kumar Singh, Branch Head,
Religare Securities Ltd. for granting an opportunity to do summer internship project at Religare
Securities Ltd, Rajouri Garden New Delhi and simultaneously gain live industrial experience.
With a deep sense of gratitude and humble submission I would like to express my heartiest
gratefulness to my faculty guide Ms Ruchi Gupta, Delhi Institute of Advanced Studies, New
Delhi for guiding me throughout my summer internship project. I am equally grateful to Mr.
Gaurav Jindal and other Equity and Commodity Manager, Religare Securities Ltd., Rajouri
Garden, New Delhi for mentoring and guiding me in my project. And lastly I give my heartiest
thank to all my faculty members and all my classmates for supporting me in my project.
Date: 30-08-09 Signature: RAKESH KUMAR
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EXECUTIVE SUMMARY
This project has been a great learning experience as well as it give enough scope to
implement the analytical ability. The first part gives an insight about the basics of commodity
market and their various aspects.
This project also describes about the Customers Perception regarding RCL and to find the
different ways to attract the new customers by analyzing the satisfaction of the customers.
Commodity markets are the market where raw or primary products are exchanged. These raw
commodities are traded on regulated commodities exchanges, in which they are bought and sold
in standardized contracts. Also, the project explains about different commodity exchanges that
help in working of the commodity market.
Also, the project highlights about derivative and future trading in the commodity market where
‘how to trade in the future market’ is given by explaining all the essential things which enable a
person to trade in the commodity market i.e information related to the margon money, client
code requirement etc.
The commodities market exists in two distinct forms namely the Over the Counter (OTC) market
and the Exchange based market. Commodity future market provides different tools i.e options,
forward contract etc to minimize the risk associated in the investment and to earn higher return.
The success story of good market share of different market organizations depends upon the
availability of the product and services near to the customer, which can be distributed through a
distribution channel.
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S. No. Topics Page No.
1 ACKNOWLEDGEMENT 1
2 EXECUTIVE SUMMARY 2
3 INTRODUCTION 5
4 RESEARCH METHODOLOGY
A. OBJECTIVE OF THE STUDY 6
B. RESEARCH DESIGN 7
5 COMPANY PROFILE 9
6 INDIAN COMMODITY MARKET 14
A. INTRODUCTION 15
B. COMMODITY MARKET 17
C. HISTORY OF COMMODITY MARKET 18
D. FACTORS AFFECTING COMMODITY 20
MARKET
7 COMMODITY EXCHANGES
A. MULTI COMMODITY 21
EXCHANGE(MCX) 22
B. NATIONAL COMMODITY &
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DERIVATIVE EXCHANGE LIMITED(NCDEX)
8 DERIVATIVE & FUTURE TRADING IN COMMODITY 28

MARKET
27
A. COMMODITY DEIVATIVE
30
B. DERIVATIVE MARKET 31
C. COMMODITY FUTURE TRADING IN
INDIA
9 DATA ANALYSIS AND INTERPRETATION 38
10 FINDINGS AND CONCLUSIONS 52
A. FINDINGS 53
B. LIMITATIONS 53
C. CONCLUSION 54
11 SUGGESTIONS 55
12 BIBLIOGRAPHY 57
13 ANNEXURE 58
A. DEFINITION RELATED TO
COMMODITY MARKET 58
66
B. QUESTIONNAIRE
68
C. PERFORMANCE APPRAISAL
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INTRODUCTION
The rapidly advancing technology, particularly the Internet, has drastically changed the
social and economic landscapes and every aspect of our daily lives. In the securities industry &
Futures Commodities, the internet has facilitated on-line trading, changing the way the market
works, as well as the way the investors access the market. Having taken advantage of
information technology at an opportune time, India has emerged as a front-running country of
on-line trading in the global securities & commodities markets.
The commodity market is playing the major role in development of an economy. By the help of
commodity derivative and future trading, the investors invest even the small portion of and get
the higher return with low risk than equity market. Also, an investor can take the benefit of
online trading.
“On-line trading” is broadly defined as a trading mechanism where investors place orders and
confirm trading results via electronic communication channels, such as the Internet, mobile
phones, In India, the whole process of securities & commodities transactions, from order
placement and routing, order execution, to trade confirmation, is fully automated, thus enabling
the investors who have placed orders to confirm their trading results within few seconds.
The main focus of this research is to know the consumer satisfaction about services provided by
Religare Commodities.
RESEARCH METHOLODOGY
STATEMENT OF THE PROBLEM
Online future commodities trading involve personal factors, technical factors, business
factors and economic factors. The interplay of these factors on commodities market requires a
deep study about the pattern process and procedures and performance.
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This study is intended to identify the various concepts about online commodities trading and its
way of functioning. Also, tend to study about the customer satisfaction in different aspects of
trading in commodity market.
OBJECTIVES OF THE STUDY

The project work is programmed and directed to some particular targets and the main
objectives of the study: -
• To understand the commodity market and future trading.

• To conduct a survey to know the satisfaction level of customers on different services like
margin trading, online trading etc provided by the Religare Commodity Limited.
• To identify the target customers for commodity trading through Referrals.
• To find an appropriate approach for attracting the people in investing into Religare
Commodities Ltd.
SCOPE OF THE STUDY:

Globalization of the financial market has led to a manifold increase in investment. New
markets have been opened; new instruments have been developed; and new services have been
launched. Besides, a number of opportunities and challenges have also been thrown open.
Online commodities trading are new as compared to equity market in India. Mainly four
exchanges are involved in online commodities trading MCX, NCDEX, NBOT and NMCE.
Hence, the scope of commodity market is very wide in the market.
1. RESEARCH DESIGN OF THE STUDY

The study is descriptive in nature and based on survey technique to find out facts and
affairs in the commodity market. The study consists of analysis about customer’s satisfaction of
Religare Commodities Ltd. For the purpose of the study, 150 customers are taken and their views
solicited on different parameters.
The methodology adopted includes:
1. Structured questionnaire
2. Discussions with the concerned by personal interview
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2. SOURCES OF DATA :
Survey was conducted to know the satisfaction level of customers on the services
provided by the RCL. To conduct the study, primary and secondary data was considered.
1) In primary data collection, the questionnaire and personal interview are used in
collecting the data. In questionnaire, the question is very simple and related to the
customer’s desire and preferences.
2) In secondary data collection, different journals, magazines and internet sites are
used in collecting the data relating to the commodity market and future trading.
SAMPLING PLAN:
1) POPULATION: (universe) customers of Religare Enterprise Ltd.
2) SAMPLING SIZE: A sample of one hundred fifty has been chosen for the purpose of
the study. Sample consists of small investors, large investors and traders of RCL.
3) SAMPLING METHODS: Since Religare Enterprise Ltd has many segments, 100%
coverage is difficult within the limited period of time. Probability sampling requires
complete knowledge about all sampling units in the universe. Hence convenience
sampling under non-probability sampling has been chosen for the study.
4) FIELD STUDY: The data has been collected with the help of questionnaire directly
from the respondents like businessmen, small shopkeepers, commodities traders and
service class people.
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COMPANY PROFILE
ABOUT RELIGARE & ITS GROUP COMPANIES

Religare is a financial services company in India, offering a wide range of financial
products and services targeted at retail investors, high net worth individuals and corporate and
institutional clients. Religare is promoted by the promoters of Ranbaxy Laboratories Limited.
Religare operate from six regional offices and 25 sub-regional offices and have a presence in
330 cities and towns controlling 979 locations which are managed either directly by Religare or
by our Business Associates all over India, the company have a representative office in London.
While the majority of Religare offices provide the full complement of its services yet it has
dedicated offices for investment banking, institutional brokerage, portfolio management services
and priority client services.
Religare is a financial services company in India, offering a wide range of financial products and
services targeted at retail investors, high net worth individuals and corporate and institutional
clients. Religare is promoted by the promoters of Ranbaxy Laboratories Limited.
Religare financial services group comprises of Religare Securities Limited, Religare Comdex
Limited and Religare Finvest Limited, which provide services in equity, commodity and
financial services businesses.
Religare Religare Religare

Securities Finvest Ltd Wealth
Ltd. Mgt.
Services
Religare Religare
Commoditie Capital Mkt
s Ltd Ltd.
Religare RELIGARE SECURITIES LTD. Religare

Insurance Finance
Broking Ltd Ltd.
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Religare Religare Religare
Venture Reality Ltd. Insurance
Capital Pvt. Holding
Ltd. Company Ltd
RELIGARE ENTERPRISES LIMITED IS THE HOLDING COMPANY &

ITS PRINCIPAL SUBSIDIARIES INCLUDE:
1. RELIGARE SECURITIES LIMITED (RSL)
Registered with SEBI as an registered stockbroker with membership of National Stock
Exchange (NSE) and Bombay Stock Exchange (BSE). Registered with SEBI for portfolio
management services (PMS) Registered with SEBI as a Depository Participant providing
services of National Securities Depository Limited (NSDL) and Central Depository Services
Limited (CDSL). Applied with SEBI to be sponsor of an asset management company (AMC) in
a joint venture with AEGON International N.V., a global provider of life insurance and pension
services.
2. RELIGARE COMDEX LIMITED
Registered with the Forward Market Commission (FMC) as a commodity broker.

Member of National Commodities and Derivative Exchange (NCDEX), Multi Commodity
Exchange (MCX) and National Multi Commodity Exchange of India Limited (NMCE).
3. RELIGARE FINVEST LIMITED
Registered with the Reserve Bank of India (RBI) as a non-banking finance company
(NBFC) and presently engaged in providing personal credit (such as loans against shares (LAS),
and personal loans), distribution of mutual funds, wealth management, IPO financing, and
corporate finance services.
4. RELIGARE INSURANCE BROKING LIMITED (“RIBL”)
Registered with the Insurance Regulatory Development Authority (IRDA) as a composite

broker, which enables RIBL to distribute products and services of life insurance companies,
non-life insurance companies and re-insurance businesses.
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RELIGARE PRODUCTS
RETAIL INSTITUTIONAL WEALTH SPECTRUM

SPECTRUM SPECTRUM
Caters to a large number of To provide customized To forge and build strong
retail clients by offering all wealth advisory services to relationships with corporate
products under one roof high net worth individuals and institutional clients
through our branch
network and online mode
1. Equity and 1. Wealth Advisory 1. Institutional Equity

Commodity Trading Services Broking
2. Personal Financial 2. Portfolio Management 2. Investment Banking
Services Services a. Merchant
a. Distribution 3. International Equity Banking
of mutual funds b. Transaction
4. Priority Client Equity
b. Distribution Advisory
Services
of Services
insurance 5. Arts Initiative
c. Distribution
of
savings products
3. Personal Credit
a. Personal
loan services
b. Loans
against shares
4. Online Investment
COMPETITIVE ADVANTAGES OF RELIGARE
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PARTICIPANT ON THE COUNTRY’S PREMIER EXCHANGE: Religare is a member of
the country’s premier stock exchange – The National Stock Exchange of India (NSE).
CLEARING MEMBERSHIP ON CAPITAL & DERIVATIVES SEGMENTS: It has

clearing memberships on both the capital market and derivatives segment of the exchange.
DEPOSITORY PARTICIPANTS WITH NSDL & CDSL: Religare is the depository

participants with the country’s premier depository service - National Securities Depository
Limited (NSDL), as well as with the only other depository with a countrywide reach - Central
Depository Services Limited (CDSL).
LEADING PRIVATE SECTOR BANK AS PARTNER: Religare’s banking partner is HDFC

Bank – The foremost private sector bank in the country, which has the most technologically
advanced infrastructure in the country, with Internet banking allowing access to information
24 X 7.
BLOOMBERG INFORMATION SERVICES: The world’s two best information services are
Bloomberg LP and Reuters. These are prohibitively expensive for all but mutual funds and
financial institutions to own terminals of, and subscribe to. We however have two connections to
the Bloomberg Information Service, the premier services; both in Delhi and Mumbai, and these
provide us information ahead of the general public, and at par with the financial institutions. This
provides access to breaking news from across the globe, and across asset classes, and superior
research and analysis capabilities.
PRIME OFFICE LOCATIONS: Religare have prime office locations in the nation’s political
capital and the business capital – Delhi and Mumbai, in the heart of the city.
RESEARCH CAPABILITIES: Religare have a dedicated team of analysts in their Bombay

office – They provide fundamental analysis of stocks and markets, which are fundamentally
strong, and provide above market returns to investors, but over a slightly longer time frame –
typically 6 months and above.
TECHNICAL ANALYSIS: Religare has in-house technical analyst, who is a recognized

leading practitioner of the science, publishes a daily technical newsletter. It has a success rate of
over 73% and tracks the progress of the calls on a real-time basis, and advises of any change in
the profit points or stop loss levels.
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INDIAN COMMODITY MARKET
“We are moving from a world in which the big eat the small to one in which the fast eat the
slow”.
-Klaus Schwab, 2000
(Founder of the World Economic Forum)
“A strong and vibrant cash market is a pre-condition for a successful and transparent futures
market.”
INTRODUCTION
The vast geographical extent of India and huge population is aptly complemented by the
size of the market. The broadest classification of the Indian Market can be made in terms of the
commodity market and the bond market.
The commodity market in India comprises of all probable markets that we come across in our
daily lives. Such markets are social institutions that facilitate exchange of goods for money. The
cost of goods is estimated in terms of domestic currency. India commodity market can be
subdivided into the following two categories:
• Wholesale Market
• Retail Market
The traditional wholesale market in India dealt with whole sellers who bought goods from the
farmers and manufacturers and then sold them to the retailers after making a profit in the
process. It was the retailers who finally sold the goods to the consumers. With the passage of
time the importance of whole sellers began to fade out for the following reasons:
• The whole sellers in most situations, acted as mere parasites who did not add any value to
the product but raised its price which was eventually faced by the consumers.
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• The improvement in transport facilities made the retailers directly interact with the
producers and hence the need for whole sellers was not felt.
In recent years, the extent of the retail market (both organized and unorganized) has evolved in
leaps and bounds. In fact, the success stories of the commodity market of India in recent years
has mainly centered on the growth generated by the Retail Sector. Almost every commodity
under the sun both agricultural and industrial is now being provided at well distributed retail
outlets throughout the country.
Moreover, the retail outlets belong to both the organized as well as the unorganized sector. The
unorganized retail outlets of the yesteryears consist of small shop owners who are price takers
where consumers face a highly competitive price structure. On the other hand the organized
sector is owned by various business houses like Pantaloons, Reliance, Tata and others. Such
markets are usually selling a wide range of agricultural articles and manufactured, edible and
inedible, perishable and durable. Modern marketing strategies and other techniques of sales
promotion enable such markets to draw customers from every section of the society. However
the growth of such markets has still centered on the urban areas primarily due to infrastructural
limitations.
Considering the present growth rate, the total valuation of the Indian Retail Market is estimated
to cross Rs. 10,000 billion by the year 2010. Demand for commodities is likely to become four
times by 2010 than what it presently is.
COMMODITY
A commodity may be defined as an article, a product or material that is bought and sold.
It can be classified as every kind of movable property, except Actionable Claims, Money &
Securities. Commodities actually offer immense potential to become a separate asset class for
market-savvy investors, arbitrageurs and speculators. Retail investors, who claim to understand
the equity markets, may find commodities an unfathomable market. But commodities are easy
to understand as far as fundamentals of demand and supply are concerned. Retail
investors should understand the risks and advantages of trading in commodities futures before
taking a leap. Historically, pricing in commodities futures has been less volatile compared with
equity and bonds, thus providing an efficient portfolio diversification option.
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In fact, the size of the commodities markets in India is also quite significant. Of the country's
GDP of Rs 13, 20,730 crore (Rs 13,207.3 billion), commodities related (and dependent)
industries constitute about 58 per cent.
Currently, the various commodities across the country clock an annual turnover of Rs 1, 40,000
crore (Rs 1,400 billion). With the introduction of futures trading, the size of the commodities
market grows many folds here on.
COMMODITY MARKET
Commodity markets are markets where raw or primary products are exchanged. These
raw commodities are traded on regulated commodities exchanges, in which they are bought and
sold in standardized contracts.
It covers physical product (food, metals and electricity) markets but not the ways that services,
including those of governments, nor investment, nor debt, can be seen as a commodity. Articles
on reinsurance markets, stock markets, bond markets and currency markets cover those concerns
separately and in more depth. One focus of this article is the relationship between simple
commodity money and the more complex instruments offered in the commodity markets.
Commodity market is an important constituent of the financial markets of any country. It is the
market where a wide range of products, viz., precious metals, base metals, crude oil, energy and
soft commodities like palm oil, coffee etc. are traded. It is important to develop a vibrant, active
and liquid commodity market. This would help investors hedge their commodity risk, take
speculative positions in commodities and exploit arbitrage opportunities in the market.
HISTORY OF COMMODITY TRADING

COMMODITY TRADING IN INDIA
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 oilseeds in
Bombay (1900), raw jute and jute goods in Calcutta (1912), wheat in Hapur (1913) and in
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Bullion in Bombay (1920). However, many feared that derivatives lead to unnecessary
speculation in essential commodities, and were harmful to the healthy functioning of the markets
for the underlying commodities, and also to the farmers.
With a view to restricting speculative activity in cotton market, the Government of Bombay
prohibited options 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 movable property other than security, currency and actionable claims.
The Act prohibited Options trading in goods.
The Act envisages (imagine) three-tier regulation:

1) The Exchange which organizes forward trading in commodities can regulate trading on a
day-to-day basis,
2) The Forward Markets Commission provides regulatory oversight under the powers delegated
to it by the central Government.
3) The Central Government - Department of Consumer Affairs, Ministry of Consumer Affairs,
Food and Public Distribution - is the ultimate regulatory authority.
In 1970s and 1980s the Government relaxed forward trading rules for some commodities.
STRUCTURE OF COMMODITY MARKET
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DIFFERENT TYPES OF COMMODITIES TRADED
World-over one will find that a market exits for almost all the commodities known to us.
These commodities can be broadly classified into the following:
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METAL Aluminium, Copper, Lead, Nickel, Sponge Iron, Steel Long
(Bhavnagar), Steel Long (Govindgarh), Steel Flat, Tin, Zinc
BULLION Gold, Gold HNI, Gold M, i-gold, Silver, Silver HNI, Silver M
FIBER Cotton L Staple, Cotton M Staple, Cotton S Staple, Cotton Yarn, Kapas
ENERGY Brent Crude Oil, Crude Oil, Furnace Oil, Natural Gas, M. E. Sour
Crude Oil
SPICES Cardamom, Jeera, Pepper, Red Chilli
PLANTATIONS Arecanut, Cashew Kernel, Coffee (Robusta), Rubber
PULSES Chana, Masur, Yellow Peas
PETROCHEMICALS HDPE, Polypropylene(PP), PVC
OIL & OIL SEEDS Castor Oil, Castor Seeds, Coconut Cake, Coconut Oil, Cotton Seed,
Crude Palm Oil, Groundnut Oil, Kapasia Khalli, Mustard Oil, Mustard
Seed (Jaipur), Mustard Seed (Sirsa), RBD Palmolein, Refined Soy Oil,
Refined Sunflower Oil, Rice Bran DOC, Rice Bran Refined Oil,
Sesame Seed, Soymeal, Soy Bean, Soy Seeds
CEREALS Maize
OTHERS Guargum, Guar Seed, Gurchaku, Mentha Oil, Potato (Agra), Potato
(Tarkeshwar), Sugar M-30, Sugar S-30
FACTORS AFFECTING COMMODITY MARKET
• INFLATION: - It directly affect the functioning of the commodity market. If there is

inflation say 8% the rise in prices of commodities is very high which make the changes in
the prices of the commodities very frequently and volatility very high.
• WAR, INNOVATION OR CRISIS: - War also creates problems in smooth functioning
of the commodity market by not providing necessary funds as well as the commodities
for delivery purpose.
• PRODUCTION: - It means the manufactured goods and services dealt in commodity
market. Low production of goods and services creates the problems in the smooth
functioning of the trading.
• DEMAND: - Demand also affects the functioning. If the demand is very high, there will
be more seller to buy that good ultimately rise in prices and less supply of that goods.
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• SUPPLY: - Proper supply of goods is essential for smoothly work in the commodity
market. If there is shortage in supply, make goods costlier and increase in the inflation
which directly affects the trading process.
LEADING COMMODITY MARKETS OF INDIA
The government has now allowed national commodity exchanges, similar to the BSE &
NSE, to come up and let them deal in commodity derivatives in an electronic trading
environment. These exchanges are expected to offer a nation-wide anonymous, order driven;
screen based trading system for trading. The Forward Markets Commission (FMC) will regulate
these exchanges. Consequently four commodity exchanges have been approved to commence
business in this regard. They are:
S.NO. COMMODITY MARKET IN INDIA
1 MULTI COMMODITY EXCHANGE (MCX), MUMBAI
2 NATIONAL COMMODITY AND DERIVATIVE EXCHANGE LTD (NCDEX),

MUMBAI
3 NATIONAL BOARD OF TRADE (NBOT), INDORE
4
NATIONAL MULTI COMMODITY EXCHANGE (NMCE), AHMEDABAD
COMMODITY EXCHANGES IN INDIA:

A commodity exchange refers to the market place where buying and selling of
commodities for future delivery takes place. The two important commodity exchanges in India in
which most of the commodity are traded, are Multi-Commodity Exchange of India Limited
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(MCX), and National Multi-Commodity & Derivatives Exchange of India Limited
(NCDEX).
I. MULTI-COMMODITY EXCHANGE (MCX)

MCX an independent multi-commodity exchange has permanent recognition from
Government of India for facilitating online trading, clearing and settlement operations for
commodity futures markets across the country. Key shareholders of MCX are Financial
Technologies (India) Ltd., State Bank of India, NABARD, NSE, HDFC Bank, State Bank of
Indore, State Bank of Hyderabad, State Bank of Saurashtra, SBI Life Insurance Co. Ltd.,
Union Bank of India, Bank Of India, Bank Of Baroda, Canara Bank, Corporation Bank.
Headquartered in Mumbai, MCX is led by an expert management team with deep domain
knowledge of the commodity futures markets. Through the integration of dedicated resources,
robust technology and scalable infrastructure, since inception MCX has recorded many first
to its credit.
Inaugurated in November 2003 by Mukesh Ambani, chairman & managing director, Reliance
Industries Ltd, MCX offers futures trading in the following commodity categories: Agro
Commodities, Bullion, Metals- Ferrous & Non-ferrous, Pulses, Oils & Oilseeds, Energy,
Plantations, Spices and other soft commodities. MCX has built strategic alliances with some of
the largest players in commodities eco-system, namely, Bombay Bullion Association, Bombay
Metal Exchange, Solvent Extractors' association of India, pulses importers association,
shetkari sanghatana, united planters association of India and India pepper and spice trade
association.
Today MCX is offering spectacular growth opportunities and advantages to a large cross section
of the participants including producers / processors, traders, corporate, regional trading centers,
importers, exporters, cooperatives, industry associations, amongst others MCX being
nation-wide commodity exchange, offering multiple commodities for trading with wide reach
and penetration and robust infrastructure, is well placed to tap this vast potential.
II. NATIONAL COMMODITY & DERIVATIVES EXCHANGE

LIMITED (NCDEX)
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National Commodity & Derivatives Exchange Limited (NCDEX) is a professionally
managed online multi commodity exchange promoted by ICICI Bank Limited (ICICI Bank),
Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural
Development (NABARD) and National Stock Exchange of India Limited (NSE). Punjab
National Bank (PNB), CRISIL Limited (formerly the Credit Rating Information Services of
India Limited), Indian Farmers Fertilizer Cooperative Limited (IFFCO) and Canara Bank by
subscribing to the equity shares have joined the initial promoters as shareholders of the
Exchange. NCDEX is the only commodity exchange in the country promoted by national level
institutions. This unique parentage enables it to offer a bouquet of benefits, which are currently
in short supply in the commodity markets. The institutional promoters of NCDEX are prominent
players in their respective fields and bring with them institutional building experience, trust,
nationwide reach, technology and risk management skills.
NCDEX is a public limited company incorporated on April 23, 2003 under the Companies Act,
1956. It obtained its Certificate for Commencement of Business on May 9, 2003. It has
commenced its operations on December 15, 2003.
NCDEX is a nation-level, technology driven de-metalized on-line commodity exchange with an
independent Board of Directors and professionals not having any vested interest in commodity
markets. It is committed to provide a world-class commodity exchange platform for market
participants to trade in a wide spectrum of commodity derivatives driven by best global
practices, professionalism and transparency.
NCDEX is regulated by Forward Market Commission in respect of futures trading in
commodities. Besides, NCDEX is subjected to various laws of the land like the Companies Act,
Stamp Act, Contracts Act, Forward Commission (Regulation) Act and various other legislations,
which impinge on its working. NCDEX is located in Mumbai and offers facilities to its members
in more than 390 centers throughout India. The reach will gradually be expanded to more
centers. NCDEX currently facilitates trading of thirty six commodities - Cashew, Castor Seed,
Chena, Chilly, Coffee, Cotton, Cotton Seed Oilcake, Crude Palm Oil, Expeller Mustard Oil,
Gold, Guar gum, Guar Seeds, Guar, Jeera, Jute sacking bags, Mild Steel Ingot, Mulberry Green
Cocoons, Pepper, Rapeseed - Mustard Seed ,Raw Jute, RBD Palmolein, Refined Soy Oil, Rice,
Rubber, Sesame Seeds, Silk, Silver, Soy Bean, Sugar, Tar, Turmeric, Arad (Black Mated),
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Wheat, Yellow Peas, Yellow Red Maize & Yellow Soybean Meal. At subsequent phases trading
in more commodities would be facilitated.
Since 2002 when the first national level commodity derivatives exchange started, the exchanges
have conducted brisk business in commodities futures trading. In the last three years, there has
been a great revival of the commodities futures trading in India, both in terms of the number of
commodities allowed for futures trading as well as the value of trading. While in year 2000,
futures trading were allowed in only 8 commodities, the number jumped to 80 commodities in
June 2004. The value of trading in local currency saw a quantum jump from about INR 350
billion in 2001-02 to INR 1.3 Trillion in 2003-04. The data in the below Table indicates that the
value of commodity derivatives in India could cross the US$ 1 Trillion mark in 2006. The
market regulator Forward Markets Commission (FMC) disseminates fortnightly trading data for
each of the 3 national & 21 regional exchanges that have been set up in recent years to carry on
the futures trading in commodities in the country. Exhibit presents comparative trading data for
three fortnightly periods in March, June and September 2005 and brings up some interesting
facts.
TURNOVER OF INDIAN COMMODITY EXCHANGE
Indian Commdity Future Market (Rs Crores)

EXCHANGES 2005 2006 2007 2008
Multi Commodiy 165,147 961,633 1,621,803 2,505,206
Exchange(MCX)
NCDEX 266,338 1,066,686 944,066 733,479
NMCE 13,988 18,385 101,731 24,072
NBOT 58,463 53,683 57,149 74,582
OTHERS 67,823 54,735 14,591 37,997
ALL EXCHANGES 571,759 2,155,122 2,739,340 3,375,336
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HOW COMMODITY MARKET WORKS?
There are two kinds of trades in commodities. The first is the spot trade, in which one
pays cash and carries away the goods. The second is futures trade. The underpinning for futures
is the warehouse receipt. A person deposits certain amount of say, good X in a ware house and
gets a warehouse receipt. Which allow him to ask for physical delivery of the good from the
warehouse. But someone trading in commodity futures need not necessarily posses such a receipt
to strike a deal. A person can buy or sale a commodity future on an exchange based on his
expectation of where the price will go.
Futures have something called an expiry date, by when the buyer or seller either closes (square
off) his account or give/take delivery of the commodity. The broker maintains an account of all
dealing parties in which the daily profit or loss due to changes in the futures price is recorded.
Squiring off is done by taking an opposite contract so that the net outstanding is nil.
For commodity futures to work, the seller should be able to deposit the commodity at warehouse
nearest to him and collect the warehouse receipt. The buyer should be able to take physical
delivery at a location of his choice on presenting the warehouse receipt. But at present in India
very few warehouses provide delivery for specific commodities.
Today Commodity trading system is fully computerized. Traders need not visit a commodity
market to speculate. With online commodity trading they could sit in the confines of their home
or office and call the shots.
The commodity trading system consists of certain prescribed steps or stages as follows:
1. TRADING
The trading system on the NCDEX provides a fully automated screen based trading for
futures on commodities on a nationwide basis as well as online monitoring and surveillance
mechanism. It supports an order driven market and provides complete transparency of trading
operations. Order matching is essential on the basis of commodity, its price, time and quantity.
All quantity fields are in units and price in rupees. The exchange specifies the unit of trading and
the delivery unit for futures contracts on various commodities. The exchange notifies the regular
lot size and tick size for each of the contracts traded from time to time. When any order enters
~ 25 ~
the trading system, it is an active order. It tries to finds a match on the other side of the book. If it
finds a match, a trade is generated. If it does not find a match, the order becomes passive and
gets queued in the respective outstanding order book in the system. Time stamping is done for
each trade and provides the possibility for a complete audit trail if required. NCDEX trades
commodity futures contracts having one month, two month and three month expiry cycles. All
contracts expire on the 20th of the expiry month. Thus a January expiration contract would
expire on the 20th of January and a February expiry contract would cease trading on the 20th of
February. If the 20th of the expiry month is a trading holiday, the contracts shall expire on the
previous trading day. New contracts will be introduced on the trading day following the expiry of
the near month contract. At this stage the following is the system implemented-
o Order receiving o Surveillance
o Execution o Price limits
o Matching o Position limit
o Reporting
2. CLEARING
National Securities Clearing Corporation Limited (NSCCL) undertakes clearing of trades
executed on the NCDEX. The settlement guarantee fund is maintained and managed by NCDEX.
Only clearing members including professional clearing members (PCMs) only are entitled to
clear and settle contracts through the clearing house. At NCDEX, after the trading hours on the
expiry date, based on the available information, the matching for deliveries takes place firstly, on
the basis of locations and then randomly, keeping in view the factors such as available capacity
of the vault/warehouse, commodities already deposited and dematerialized and offered for
delivery etc. Matching done by this process is binding on the clearing members. After
completion of the matching process, clearing members are informed of the deliverable/
receivable positions and the unmatched positions. Unmatched positions have to be settled in
cash. The cash settlement is only for the incremental gain/loss as determined on the basis of final
settlement price. This stage has following system in place-
o Matching o Notation
o Registration o Margining
o Clearing o Price limits
o Clearing limits o Position limits
~ 26 ~
o Clearing house.
3. SETTLEMENT
Futures contracts have two types of settlements, the MTM settlement which happens on a
continuous basis at the end of each day, and the final settlement which happens on the last
trading day of the futures contract. On the NCDEX, daily MTM settlement and the final MTM
settlement in respect of admitted deals in futures contracts are cash settled by debiting/crediting
the clearing accounts of CMs with the respective clearing bank.
All positions of a CM, brought forward, created during the day or closed out during the day, are
market to market at the daily settlement price or the final settlement price at the close of trading
hours on a day. On the date of expiry, the final settlement price is the spot price on the expiry
day. The responsibility of settlement is on a trading cum clearing member for all trades done on
his own account and his client’s trades. A professional clearing member is responsible for
settling all the participants’ trades, which he has confirmed to the exchange. On the expiry date
of a futures contract, members submit delivery information through delivery request window on
the trader workstations provided by NCDEX for all open positions for a commodity for all
constituents individually. NCDEX on receipt of such information matches the information and
arrives at delivery position for a member for a commodity. The seller intending to make delivery
takes the commodities to the designated warehouse. These commodities have to be assayed by
the exchange specified assayer. The commodities have to meet the contract specifications with
allowed variances. If the commodities meet the specifications, the warehouse accepts them.
Warehouse then ensures that the receipts get updated in the depository system giving a credit in
the depositor’s electronic account. The seller the gives the invoice to his clearing member, who
would courier the same to the buyer’s clearing member. On an appointed date, the buyer goes to
the warehouse and takes physical possession of the commodities. This stage has following
system followed as follows-
o Marking to market
o Receipts and payments
o Reporting
o Delivery upon expiration or maturity.
~ 27 ~
DERIVATIVE AND FUTURES TRADING IN COMMODITY MARKET
DERIVATIVE
Commodities whose value is derived from the price of some other assets like security
currency interest level stock market index or anything else are known as Derivative. 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 the asset itself. The legal terms of a contract are
much more varied and flexible than the terms of property ownership. In fact, it’s the 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.
A contract that specifies the rights and obligations between two parties to receive or deliver
future cash flows (or exchange of other securities or assets) based on some future event For
example: the right (but not obligation) to buy 100 barrels of oil at $80 per barrel in 2 years time
is a call option.
COMMODITY DERIVATIVES
Derivatives as a tool for managing risk first originated in the commodities markets. They
were then found useful as a hedging tool in financial markets as well. In India, trading in
commodity futures has been in existence from the nineteenth century with organised trading in
cotton through the establishment of Cotton Trade Association in 1875. Over a period of time,
other commodities were permitted to be traded in futures exchanges. Regulatory constraints in
1960s resulted in virtual dismantling of the commodities future markets. It is only in the last
decade that commodity future exchanges have been actively encouraged. However, the markets
have been thin with poor liquidity and have not grown to any significant level. In this chapter we
look at how commodity derivatives differ from financial derivatives. We also have a brief look at
the global commodity markets and the commodity markets that exist in India.
• OPTION – Right without obligation to exercise the contract.

• FUTURE – Right with obligation to exercise the contract.
OPTION
~ 28 ~
When an investor with the help of a future forward contract, he basically locked himself
at a price with no room of taking the advantage of the favorable price moment of the asset in the
cash market as both the buyers and the sellers have the obligation to honor the contract.
Option addresses this issue of advantage to the hedger in case of favorable price movement in the
price of the underlying, by offering the right to buy or sell the underlying. Therefore the essential
difference between future and option contract is that in future contract both the parties has
obligation to perform the contract , while in case of options, only the seller has the obligation
while the buyer has the right without the obligation to exercise the contract.
In order to acquire the right of option, the option buyer pays to the option seller an option
premium which is the price pays for right.
TYPES OF OPTION
a. CALL OPTION:- the option which gives the buyer a right to buy the underlying asset is
called a call option.
b. PUT OPTION:- the option which gives the buyer a right to sell the underlying asset is
called a put option.
SIMPLE BINOMIAL MODEL USED FOR PRICING CALL OPTION
Current share price = 100 today

Suppose next day price will be 115 or 95
but we do not know probability Pre-agreed exercise price of the call option is 100
Suppose share price increase to 115 or decrease to 95
Suppose we buy 0.75 shares to hedge the call sold option portfolio valuation next day
if share price rises = 0.75(115)-15=71.25
if share price falls = 0.75(95) - 0 = 71.25
STYLE OF OPTION
a. AMERICAN OPTION: - an option that is exercisable on or before the expiry date is
called American option.
b. EUROPEAN OPTION: - an option that is exercisable only on expiry date, is called

European option.
~ 29 ~
FUTURE
Futures Contract means a legally binding agreement to buy or sell the underlying security
on a future date. Future contracts are the organized/standardized contracts in terms of quantity,
quality (in case of commodities), delivery time and place for settlement on any date in future.
The contract expires on a prespecified date which is called the expiry date of the contract. On
expiry, futures can be settled by delivery of the underlying asset or cash. Cash settlement enables
the settlement of obligations arising out of the future/option contract in cash.
TYPES OF FUTURES TRADERS

a. HEDGER
b. SPECULATOR
HEDGER -
An individual or company who offsets a cash market position by shifting some of the risk
of adverse fluctuations in price, by buying or selling a futures contract.
Example: a farmer plants his corn crop in March and immediately sells a September futures corn
contract. In the fall he harvests the corn and sells it on the cash market. He then buys back his
September futures contract. He locks in his price and avoids market fluctuations.
SPECULATOR
A market participant who tries to make a profit on buying or selling commodity futures
contracts and assumes the majority of the risk from the hedger.
Example: a person expects cotton to rally because of heavy rains in the Mississippi delta will
damage the crop and cause harvest delays. He buys a Dec contract of cotton and prays.
DERIVATIVE MARKET
The financial market for derivatives is known as the derivative market. The derivative
market has two parts:
1) EXCHANGE TRADE DERIVATIVES

2) OVER- THE- COUNTER DERIVATIVES
EXCHANGE TRADE DERIVATIVE
~ 30 ~
The exchange traded derivatives are the futures and options. The futures are standardized
derivative contracts. The Euronext.liffe and the Chicago Mercantile Exchange are some
derivative markets, to name a few.
OVER- THE- COUNTER DERIVATIVES

The derivatives traded over the counter are known as the over the counter derivative
market .The over the counter derivative market consists of the investment banks and include
clients like hedge funds, commercial banks, government sponsored enterprises etc.
Over the counter (OTC) derivatives are privately negotiated contracts. Merchants entered into
contracts with one another for future delivery of specified amount of commodities at specified
price. A primary motivation for prearranging a buyer or seller for a stock of commodities in early
forward contracts was to lessen the possibility that large swings would inhibit marketing the
commodity after a harvest.
The OTC derivatives markets have the following features compared to exchange-traded
derivatives:
1) The management of counter-party (credit) risk is decentralized and located within
individual institutions.
2) There are no formal centralized limits on individual positions, leverage, or margining.
3) There are no formal rules for risk and burden-sharing.
4) There are no formal rules or mechanisms for ensuring market stability and
integrity, and for safeguarding the collective interests of market participants.
5) The OTC contracts are generally not regulated by a regulatory authority and the
exchange's self-regulatory organization, although they are affected indirectly by
national legal systems, banking supervision and market surveillance.
COMMODITY FUTURES TRADING IN INDIA

INTRODUCTION
Derivatives as a tool for managing risk first originated in the Commodities markets. They
were then found useful as a hedging tool in financial markets as well. The basic concept of a
derivative contract remains the same whether the underlying happens to be a commodity or a
financial asset. However there are some features, which are very peculiar to commodity
~ 31 ~
derivative markets. In the case of financial derivatives, most of these contracts are cash settled.
Even in the case of physical settlement, financial assets are not bulky and do not need special
facility for storage. Due to the bulky nature of the underlying assets, physical settlement in
commodity derivatives creates the need for warehousing. Similarly, the concept of varying
quality of asset does not really exist as far as financial underlyings are concerned. However in
the case of commodities, the quality of the asset underlying a contract can vary largely. This
becomes an important issue to be managed.
FUTURES TRADING SYSTEM

The trading system on the NCDEX, provides a fully automated screen-based trading for
futures on commodities on a nationwide basis as well as an online monitoring and surveillance
mechanism. It supports an order driven market and provides complete transparency of trading
operations. The trade timings on the NCDEX are 10.00 a.m. to 4.00 p.m. After hours trading has
also been proposed for implementation at a later stage.
The NCDEX system supports an order driven market, where orders match automatically. Order
matching is essentially on the basis of commodity, its price, time and quantity. All quantity fields
are in units and price in rupees. The exchange specifies the unit of trading and the delivery unit
for futures contracts on various commodities . The exchange notifies the regular lot size and tick
size for each of the contracts traded from time to time. When any order enters the trading system,
it is an active order. It tries to find a match on the other side of the book. If it finds a match, a
trade is generated. If it does not find a match, the order becomes passive and gets queued in the
respective outstanding order book in the system. Time stamping is done for each trade and
provides the possibility for a complete audit trail if required.
GUIDELINES FOR ALLOTMENT OF CLIENT CODE

The trading members are recommended to follow guidelines outlined by the exchange for
allotment and use of client codes at the time of order entry on the futures trading system:
1) All clients trading through a member are to be registered clients at the member's back
office.
~ 32 ~
2) A unique client code is to be allotted for each client. The client code should be
alphanumeric and no special characters can be used.
3) The same client should not be allotted multiple codes.
CONTRACT SPECIFICATIONS FOR COMMODITY FUTURES
NCDEX plans to trade in all the major commodities approved by FMC (Forwards Market
Commission) but in a phased manner. In the first phase, under the category of bullion, it has
already started trading in gold and silver, and in agri commodities, trading has commenced in
cotton (long and medium staple), soybean, soya oil, rape/ mustard seed, rape/ mustard oil, crude
palm oil and RBD palmolein.
In the second phase NCDEX plans to offer the following commodities for trading - rice, wheat,
coffee, tea. edible oil products like groundnut, sunflower, castor (seed, oil and cake), base metals
(aluminum, copper, zinc and nickel) and commodity indices like agro commodity index and
metal commodity index.
COMMODITY FUTURES CONTRACT AND THEIR SYMBOLS

1. Pure Gold Mumbai GLDPURMUM
2. Pure Silver New Delhi SLVPURDEL
3. Soybean Indore SYBEANIDR
4. Refined Soya Oil Indore SYOREFTDR
5. Rapeseed Mustard Seed Japura RMSEEDJPR
6. Expeller Rapeseed Mustard Oil Japura RMOEXPJPR
7. RBD Palm Olean Kakinada RBDPLNKAK
8. Crude Palm Oil Kindle CRDPOLKDL
9. J34 Medium Staple Cotton Bhatinda COTJ34BTD
10. S06 L S Cotton Ahmadabad COTS06ABD
COMMODITY FUTURES TRADING CYCLE

NCDEX trades commodity futures contracts having one-month, two-month and three-
month expiry cycles. All contracts expire on the 20th of the expiry month. Thus a January
expiration contract would expire on the 20th of January and a February expiry contract would
~ 33 ~
cease trading on the 20th of February. If the 20th of the expiry month is a trading holiday, the
contracts shall expire on the previous trading day. New contracts will be introduced on the
trading day following the expiry of the near month contract.
ORDER ENTRY ON THE TRADING SYSTEM

The NCDEX trading system has a set of function keys built into the trading front-end. These
keys have been provided to facilitate faster operation of the system and enable quicker trading on
the system. The function keys can be operated from the keyboard of the user. The set of function
keys enable the following:
Buy open Trade cancel Exercise/ Position liquidation

Sell open Client master maintenance Portfolio offline order entry
Order cancellation Market by order Alphabetical sorting of contracts
Order modification Market by price Spread order status
Outstanding orders Activity log Spread activity log
Quick order cancel Security list/ portfolio setup Snap quote
Spread order entry Previous trades Online offline order entry
Trade modify Contract description Message log
Market watch setup
Market movement Buy close
Full message display Net position upload Sell close
Market inquiry Order status Liquidity schedule
MARGINS FOR TRADING IN FUTURES

Margin is the deposit money that needs to be paid to buy or sell each contract. The
margin required for a futures contract is better described as performance bond or good faith
money. The margin levels are set by the exchanges based on volatility (market conditions) and
can be changed at any time. The margin requirements for most futures contracts range from 2%
to 15% of the value of the contract.
In the futures market, there are different types of margins that a trader has to maintain. At this
stage we look at the types of margins as they apply on most futures exchanges.
1) INITIAL MARGIN: The amount that must be deposited by a customer at the

time of entering into a contract is called initial margin. This margin is meant to cover the
~ 34 ~
largest potential loss in one day. The margin is a mandatory requirement for parties who
are entering into the contract.
2) MAINTENANCE MARGIN: A trader is entitled to withdraw any balance in the margin

account in excess of the initial margin. To ensure that the balance in the margin account never
becomes negative, a maintenance margin, which is somewhat lower than the initial margin, is
set. If the balance in the margin account falls below the maintenance margin, the trader receives
a margin call and is requested to deposit extra funds to bring it to the initial margin level within a
very short period of time. The extra funds deposited are known as a variation margin. If the
trader does not provide the variation margin, the broker closes out the position by offsetting the
contract.
3) ADDITIONAL MARGIN: In case of sudden higher than expected volatility, the

exchange calls for an additional margin, this is a preemptive move to prevent breakdown. This is
imposed when the exchange fears that the markets have become too volatile and may result in
some payments crisis, etc.
4) MARK-TO-MARKET MARGIN (MTM): At the end of each trading day, the margin
account is adjusted to reflect the trader's gain or loss. This is known as marking to market the
account of each trader. All futures contracts are settled daily reducing the credit exposure to
one day's movement. Based on the settlement price, the value of all positions is marked-to-
market each day after the official close. i.e. the accounts are either debited or credited based on
how well the positions fared in that day's trading session. If the account falls below the
maintenance margin level the trader needs to replenish the account by giving additional
funds. On the other hand, if the position generates a gain, the funds can be withdrawn (those
funds above the required initial margin) or can be used to fund additional trades.
WHY COMMODITY FUTURES EXIST

One answer that is heard in the financial sector is "we need commodity futures markets
so that we will have volumes, brokerage fees, and something to trade''. One have to look at
futures market in a bigger perspective -- what is the role for commodity futures in India's
economy?
In India agriculture has traditionally been an area with heavy government intervention.
Government intervenes by trying to maintain buffer stocks, they try to fix prices, and they have
~ 35 ~
import-export restrictions and a host of other interventions. Many economists think that they
could have major benefits from liberalization of the agricultural sector.
In this case, the question arises about who will maintain the buffer stock, how will one smoothen
the price fluctuations, how will farmers not be vulnerable that tomorrow the price will crash
when the crop comes out, how will farmers get signals that in the future there will be a great
need for wheat or rice. In all these aspects the futures market has a very big role to play.
If one thinks there will be a shortage of wheat tomorrow, the futures prices will go up today, and
it will carry signals back to the farmer making sowing decisions today. In this fashion, a system
of futures markets will improve cropping patterns.
Next, if the farmers are growing wheat and worried that by the time the harvest comes out prices
will go down, then they can sell wheat on the futures market. One can sell wheat at a price,
which is fixed today, which eliminates risk from price fluctuations. These days, agriculture
requires investments -- farmers spend money on fertilizers, high yielding varieties, etc. They are
worried when making these investments that by the time the crop comes out prices might have
dropped, resulting in losses. Thus a farmer would like to lock in his future price and not be
exposed to fluctuations in prices.
The third is the role about storage. Today the Indian Food Corporation in India which is doing a
huge job of storage, and it is a system, which does not work. Futures market will produce their
own kind of smoothing between the present and the future. If the future price is high and the
present price is low, an arbitrager will buy today and sell in the future. The converse is also true,
thus if the future price is low the arbitrageur will buy in the futures market. These activities
produce their own "optimal" buffer stocks, smooth prices. They also work very effectively when
there is trade in agricultural commodities; arbitrageurs on the futures market will use imports and
exports to smooth Indian prices using foreign spot markets.
In totality, commodity futures markets are a part and parcel of a program for agricultural
liberalization. Many agriculture economists understand the need of liberalization in the sector.
Futures markets are an instrument for achieving that liberalization.
~ 36 ~
BENEFITS OF FUTURE TRADING
1. BENEFITS TO INDUSTRY
• Hedging the price risk associated with futures contractual commitments.

• Spaced out purchases possible rather than large cash purchases and its storage.
• Efficient price discovery prevents seasonal price volatility.
• Greater flexibility, certainty and transparency in procuring commodities would
aid bank lending.
• Facilitate informed lending.
• Hedged positions of producers and processors would reduce the risk of default
faced by banks. Lending for agricultural sector would go up with greater
transparency in pricing and storage.
• Commodity Exchanges to act as distribution network to retail agri-finance from
Banks to rural households.
• Provide trading limit finance to Traders in commodities Exchanges.
2. BENEFITS TO EXCHANGE MEMBER
• Access to a huge potential market much greater than the securities and cash market in
commodities.
• Robust, scalable, state-of-art technology deployment.
• Member can trade in multiple commodities from a single point, on real time basis.
~ 37 ~
• Traders would be trained to be Rural Advisors and Commodity Specialists and through
them multiple rural needs would be met, like bank credit, information dissemination, etc.
3. BENEFITS TO INVESTOR
• A good low-risk portfolio diversifier.
• A highly liquid asset class, acting as a counterweight to stocks, bonds and real estate.
• Less volatile, compared with, equities and bonds.
• Investors can leverage their investments and multiply potential earnings.
• Better risk-adjusted returns.
• A good hedge against any downturn in equities or bonds as there is little correlation with
equity and bond markets.
~ 38 ~
1. Gender
Inference: 78% male respondents are taken for the study and rest females to study the
satisfaction on the different services provided by the RCL.
2. Age Group
~ 39 ~
Inference: Majority of respondents are taken in the age group of 30-40 year i.e. 43% and rest
of the respondents lie in age group of 20-30, 40-50 and above 50 with 18%, 16% and 23%
respectively.
3. Education status
Inference: Study is done on the respondents of different qualification, out of 150 respondents
40% respondents are graduate, 28% sr. secondary, 24% metric and rest are post graduate who are
associated with Religare Enterprise Ltd.
~ 40 ~
4. Occupation
Inference: Majority of respondents is from service class i.e 45%, 32% are retired and rests
are businessman. These respondents deal in the commodity market.
5. Income Level
~ 41 ~
Inference: There are 36% respondents who earn more than 300000, 28% earn between
200000-300000, 21% earn between 100000-200000 and there are very less respondents in the
survey who earn less than 100000 i.e 15%.
A. Investment in equity and commodity Market
Attributes No. of persons Percentages
Equity 70 67%
Commodity 30 20%
Both 50 33%
~ 42 ~
typeof Investment
28%
Equity
56%
17% Commodity
Both
Inference: The survey is conducted to know the satisfaction of customer’s and the question is
asked to know the respondents who deal with RCL. Here majority of investors are of Equity
market, almost one-sixth invest in only commodity and another one-fourth in both. Basically the
survey is conducted only those respondents who belong to Religare Enterprise.
150 respondents are taken for survey that are associated with Religare Enterprise Limited.
But the main focus to conduct the survey to know the satisfaction of customers of the
services provided by the RCL.
Hence, there are only 80 respondents who belong to RCL. So, the remaining answers have
been given by 80 respondents.
B. Different types of investors with RCL

Small investor 48 60%
Long term investor 20 25%
Dealers 12 15%
~ 43 ~
Inference: Survey has been conducted to know the satisfaction of the customers. In the study,
only those respondents are taken who belong to the RCL. Out of 80 respondents, 60% customers
are small investors and 25% customers are long term investors and rest people are dealers.
C. Most Important Factor to be considered while investing money

Return Benefits 51 64%
Risk 16 20%
Safety 13 16%
~ 44 ~
Inference: 64% of the respondents invest in the RCL to get the higher return, 20% invest
because they have risk taking abilities and rest people invest for safety in their investment, in
comparison to equity market, in the RCL. That mean customers have different perception
regarding investing their money.
D. Customer’s’ first source of awareness

Through RCL 27 34%
Newspaper/ magazine 10 12%
Brokers 11 14%
Agents 27 34%
Others 5 6%
~ 45 ~
Inference: There are majority of customers whose first source of information is RCL itself i.e
34% and 34% respondents from Agents. And the remaining customers have first source of
information newspaper, brokers and other source like different sites on the internet. These
sources help the customers to take the decision regarding investment i.e which commodity would
be beneficial.
E. How a customer trades in commodity market

Online Trading 43 54%
Trading through telephone 22 28%
Both 15 18%
~ 46 ~
Inference: 54% respondents who trade through online sitting at home can avail the any
opportunity without any interruption, 28% through telephonic and rest trade with both of the
methods of trading. The customers feel that if they trade online, they can avail the opportunities
to earn profits. In telephonic trading there are chances of losing the opportunity because of busy
line in trading house.
F. Customers’ satisfaction with trading facility provided by the

RCL

Most Satisfied 14 17%
Satisfied 41 52%
Neutral 16 20%
Unsatisfied 7 9%
Most Unsatisfied 2 2%
~ 47 ~
Inference: There are 52% of the respondents who are satisfied with the trading facility
provided by the RCL. 20% are mostly satisfied. So it is reffered that RCL customers are getting
benefit of trading provided by the RCL and employees can able to solve the queries of the
customers.
G.Customers’ preference over other depository services in RCL.
Attributes No. of persons

Most Satisfied Satisfied Neutral Unsatisfie Most
d Unsatisfied
Quality 40 26 6 8 0
Service
Vast variety of 34 22 11 10 3
services
Reach 22 42 8 5 3
~ 48 ~
Safety 16 34 15 11 4
Inference: The study, about the customer satisfaction, reveals that most of the customers are
satisfied with the different services provided by the RCL i.e Quality service 50%, Reach 52%,
Safety and Vast variety of services. There are other factors that show the customers are fully
satisfied with RCL. Thus, it shows competitive advantage over other companies like Share khan,
India infoline etc.
H. The problems faced by the respondents in the RCL
Attributes No. of persons

Very Frequently Less Least
Frequently Frequently Frequently
Frequent reminders 2 9 15 54
are given to RCL for
update of the
information
Irregular receipt of 3 10 19 48
Holding / Transaction
statements
Improper attention 3 8 25 44
given to the enquiries
~ 49 ~
Margin Money 4 20 26 30
Problem
Inadequate 2 12 21 45
information
Inference: There are 80 respondents who deal with RCL. Out of total, there are very less
people who are facing the above problems very frequently i.e less than 4%, Approx 12%
respondents frequently face these types of problems at RCL. There are around 60% respondents’
who face very less frequently these problems.
I. Which commodity to buy in the current economic situation

Agro Commodities 22 27%
Metals 33 41%
Energy 25 32%
~ 50 ~
Lucrative Commoditiesin the near
future
32% 27%
Agro Commodities
Metals
41%
Energy
Inference: Here, 41% of the respondents say that they will invest in metals like gold, copper,
silver etc. because turnover is very high in metals and customers can earn high profits. 32%
respondents say that they will invest in energy sector like natural gas; power etc and remaining
will invest in agro commodities.
J. Will you suggest other person to open an account with RCL?
Favourable word of mouth publicity
18%
YES NO
82%
Inference: Here 82% customers say that they will advise to other person to trade with RCL
because they are satisfied with the provided services and they face very less problems in Religare
~ 51 ~
as comparison to other brokerage house and rests deny advising because they are not satisfied
with the service provided by the RCL.
~ 52 ~
FINDINGS
1) The investors are satisfied with the services provided by Religare Commodities Limited
i.e. margin money facility, proper advises about investing etc. in dealing with the
Religare. Holding securities in electronic form gives some far-reaching advantages to the
investors.
~ 53 ~
2) Religare Enterprises Ltd offers a wide choice of products for investing in the stock
market & commodities market. It allows investing in shares, mutual funds and other
financial products. With RCL one can manage own de-mat & trading account
independently.
3) The Religare Commodities Limited is providing trading facility with registered

commodities exchanges like NCDEX, MCX, NBOT and NMCE. Any investor can trade
with these exchanges by opening their account with RCL.
4) Religare Commodities Limited provides the facility of online trading.
5) Transaction details for the traders are available online.
6) Survey reveals that most of the customers are ready to the give reference of other
potentials customer.
7) Customers in the commodity market can trade with the margin money i.e 30%-40% of
total money required.
LIMITATIONS
1) Sample might not be the true representative of the population because sample size is very
small and taken in a very limited region by using the convenience sampling.
2) People were reluctant in disclosing the details of their investment distribution.
3) There might be chances of biasness.
CONCLUSION
~ 54 ~
Commodities market, contrary to the beliefs of many people, has been in existence in
India through the ages and still has to go a long way ahead. Perceptions of investors towards
commodity trading might change quite a lot with time.
The project reveals that commodity market works in future and derivative in which investors
invest money through the contracts given i.e 2 months contacts, 3 months contracts which
expires last Thursday of every month. The future market also provide the benefits for the traders
who want investment but they don’t have enough money at particular time they can invest with
margin money in commodities and pay later to earn profits. The investors can avail the benefits
by opting different options, forward contracting, apply hedging to minimize the loss if occur in
the commodity market. It also provides the facility of the hedging in the commodity market by
which a customer can minimize the losses which he is facing and ultimately save the principle
amount for future investment.
Religare Commodity Ltd has the quality staff which helps in retaining the customers for trading
and the employees provide the advice about the most beneficial commodities and provide the
solution to the queries of the customers. Thus, it is referred that employees is providing the
important role in satisfaction of the customers.
The project explains about satisfaction of the customers who are trading with the Religare
Commodities Limited on the services provided by the RCL which is essential to smooth
functioning of the trading. The firm is able to satisfy their customers by providing quality
services and earning the higher profits in the market.
At last, it can be concluded that most of the customers are satisfied with services provided by the
Religare Commodities Limited and they are ready to give advice of potential customers.
~ 55 ~
SUGGESTION
~ 56 ~
1) The company should provide demo of online commodities trading in the office to the
customers of Religare Enterprise Ltd to make aware about how to trade in the commodity
market to increase the market share of the company. They will be able to understand the
commodity market and start trading in the market.
2) Normal tendency of the customer is to prefer equity as compared to commodities. So

Religare Commodities Ltd should create the ‘sessions of trading’ online for the customers
related to the commodity derivative trading in which a customer will see the benefit as
well as the risk involved with this which help in generating the trust for commodity
market.
3) After getting the printouts of the contract note, dispatch of the same should be taken place
with no delay and this can be cross verified with the sender (dispatch section).
4) The firm should motivate the customers to trade online to grab the market by making
them understood the use of computer because there are customers who don’t know how
to trade online and sometimes drop the chances of earning money because of facing
overcrowding telephone lines.
5) Customers are facing overcrowding, non-availability of telephone lines, so the firm

should increase the telephone lines and recruit the new employees to make smooth
functioning.
6) The RCL official should conduct regular seminars on commodities trading to attract the
investors who invest in the equity market at Religare Enterprise Limited.
7) Most of the securities companies like Religare, Indiabulls, India infoline mainly focus on
equity market because the customer’s more focus towards the security market. So, the
firm should focus towards the commodity market and provide the benefits to the
customers in commodity market.
BIBLIOGRAPHY
~ 57 ~
• George Kleinman, Trading Commodities and Financial Futures:
A Step by Step guide to Mastering the Market
• Johan C. Hull, Options, Futures and Other Derivatives
• http://www.commodities.in
• http://www.finance.indiamart.com/markets/commodity/
• http://hr.religare.in/adrenalin/help/commodity.pdf
• http://www.commoditiescontrol.com
• http://www.mcxindia.com
• http://www.ncdex.com
• http://www.investmentz.co.in
• http://www.trade.indiainfoline.com
~ 58 ~
ANNEXURE
TERMS AND DEFINITIONS RELATED TO COMMODITY MARKET: -
• Accruals:- Commodities on hand ready for shipment, storage and manufacture

• Arbitragers: - Arbitragers are interested in making purchase and sale in different
markets at the same time to profit from price discrepancy between the two markets.
• At the Market: - An order to buy or sell at the best price possible at the time an order
reaches the trading pit.
• Bear: - A person who expects prices to go lower.
• Bid: - A bid subject to immediate acceptance made on the floor of exchange to buy a
definite number of futures contracts at a specific price.
• Breaking: - A quick decline in price.
• Bulging: - A quick increase in price.
• Bull: - A person who expects prices to go higher.
• Buy on Close: - To buy at the end of trading session at the price within the closing range.
• Buy on opening: - To buy at the beginning of trading session at a price within the
opening range.
• Call: - An option that gives the buyer the right to a long position in the underlying
futures at a specific price, the call writer (seller) may be assigned a short position in the
underlying futures if the buyer exercises the call.
• Cash commodity: - The actual physical product on which a futures contract is based.
This product can include agricultural commodities, financial instruments and the cash
equivalent of index futures.
• Close: - The period at the end of trading session officially designated by exchange during
which all transactions are considered made “at the close”.
• Closing price: - The price (or price range) recorded during the period designated by the
exchange as the official close.
• Day orders: - Orders at a limited price which are understood to be good for the day
unless expressly designated as an open order or “good till canceled” order.
~ 59 ~
• Delivery: - The tender and receipt of actual commodity, or in case of agriculture
commodities, warehouse receipts covering such commodity, in settlement of futures
contract. Some contracts settle in cash (cash delivery). In which case open positions are
marked to market on last day of contract based on cash market close.
• Delivery month: - Specified month within which delivery may be made under the terms
of futures contract.
• Delivery notice: - A notice for a clearing member’s intention to deliver a stated quantity
of commodity in settlement of a short futures position.
• Derivatives: - These are financial contracts, which derive their value from an underlying
asset. (Underlying assets can be equity, commodity, foreign exchange, interest rates, real
estate
• or any other asset.) Four types of derivatives are trades forward, futures, options and
swaps. Derivatives can be traded either in an exchange or over the counter.
• Exchange: - Central market place for buyers and sellers. Standardized contracts ensure
that the prices mean the same to everyone in the market. The prices in an exchange are
• determined in the form of a continuous auction by members who are acting on behalf of
their clients, companies or themselves.
• Forward contract: - It is an agreement between two parties to buy or sell an asset at a
future date for price agreed upon while signing agreement. Forward contract is not traded
on an
• Futures Contract:- It is an agreement between two parties to buy or sell a specified and
standardized quantity and quality of an asset at certain time in the future at price agreed
upon at the time of entering in to contract on the futures exchange. It is entered on
centralized trading platform of exchange. It is standardized in terms of quantity as
specified by exchange. Contract price of futures contract is transparent as it is available
on centralized trading screen of the exchange. Here valuation of Mark-to-Mark position
is calculated as per the official closing
• Futures commission merchant: - A broker who is permitted to accept the orders to buy
and sale futures contracts for the consumers.
~ 60 ~
• Futures Funds: - Usually limited partnerships for investors who prefer to participate in
the futures market by buying shares in a fund managed by professional traders or
commodity trading advisors.
• Futures Market:-It facilitates buying and selling of standardized contractual agreements
(for future delivery) of underlying asset as the specific commodity and not the physical
commodity itself. The formulation of futures contract is very specific regarding the
quality of the commodity, the quantity to be delivered and date for delivery. However it
does not involve immediate transfer of ownership of commodity, unless resulting in
delivery. Thus, in futures markets, commodities can be bought or sold irrespective of
whether one has possession of the underlying commodity or not. The futures market trade
in futures contracts primarily for the purpose of risk management that is hedging on
commodity stocks or forward buyers and sellers. Most of these contracts are squared off
before maturity and rarely end in deliveries.
• Hedging: - Means taking a position in futures market that is opposite to position in the
physical market with the objective of reducing or limiting risk associated with price.
• In the money: - In call options when strike price is below the price of underlying futures.
In put options, when the strike price is above the underlying futures. In-the-money
options are the most expensive options because the premium includes intrinsic value.
• Index Futures: - Futures contracts based on indexes such as the S & P 500 or Value Line
Index. These are the cash settlement contracts.
• Investment Commodities: - An investment commodity is generally held for investment
purpose. e.g. Gold, Silver.
• Limit: - The maximum daily price change above or below the price close in a specific
futures market. Trading limits may be changed during periods of unusually high market
activity.
• Limit order: - An order given to a broker by a customer who has some restrictions upon
its execution, such as price or time.
• Liquidation: - A transaction made in reducing or closing out a long or short position, but
more often used by the trade to mean a reduction or closing out of long position.
• Margin: - Cash or equivalent posted as guarantee of fulfillment of a futures contract (not
a down payment).
~ 61 ~
• Margin call: - Demand for additional funds or equivalent because of adverse price
movement or some other contingency.
• Market to Market: - The practice of crediting or debating a trader’s account based on
daily closing prices of the futures contracts he is long or short.
• Market order: - An order for immediate execution at the best available price.
• Nearby: - The futures contract closest to expiration.
• Net position: - The difference between the open contracts long and the open contracts
short held in any commodity by any individual or group.
• Offer: - An offer indicating willingness to sell at a given price (opposite of bid).
• On opening: - A term used to specify execution of an order during the opening.
• Open contracts: - Contracts which have been brought or sold without the transaction
having been completed by subsequent sale, repurchase or actual delivery or receipt of
commodity.
• Open interest: - The number of “open contracts”. It refers to unliquidated purchases or
sales and never to their combined total.
• Option: - It gives right but not the obligation to the option owner, to buy an underlying
asset at specific price at specific time in the future.
• Out-of-the money: - Option calls with the strike prices above the price of the underlying
futures, and puts with strike prices below the price of the underlying futures.
• Over the counter: - It is alternative trading platform, linked to network of dealers who
do not physically meet but instead communicates through a network of phones &
computers.
• Premium: - The amount by which a given futures contract’s price or commodity’s
quality exceeds that of another contract or commodity (opposite of discount). In options,
the price of a call or put, which the buyer initially pays to the option writer (seller).
• Price limit: - The maximum fluctuation in price of futures contract permitted during one
trading session, as fixed by the rules of a contract market.
• Purchase and sales statement: - A statement sent by FMC to a customer when his
futures option has been reduced or closed out (also called ‘P and S”)
• Put: - In options the buyer of a put has the right to continue a short position in an
underlying futures contract at the strike price until the option expires; the seller (writer)
~ 62 ~
of the put obligates himself to take a long position in the futures at the strike price if the
buyer exercises his put.
• Range: - The difference between high and low price of the futures contract during a
given period.
• Ratio hedging: - Hedging a cash position with futures on a less or more than one-for-one
basis.
• Settlement price: - The official daily closing price of futures contract, set by the
exchange for the purpose of setting margins accounts.
• Short: - (1) The selling of an option futures contract. (2) A trader whose net position in
the futures market shows an excess of open sales over open purchases.
• Speculator: - Speculator is an additional buyer of the commodities whenever it seems
that market prices are lower than they should be.
• Spot Markets:-Here commodities are physically brought or sold on a negotiated basis.
• Spot price: - The price at which the spot or cash commodity is selling on the cash or spot
market.
• Spread: - Spread is the difference in prices of two futures contracts.
• Striking price: - In options, the price at which a futures position will be established if the
buyer exercises (also called strike or exercise price).
• Swap: - It is an agreement between two parties to exchange different streams of cash
flows in future according to predetermined terms.
• Technical analysis (charting): - In price forecasting, the use of charts and other devices
to analyze price-change patters and changes in volume and open interest to predict future
market
~ 63 ~
~ 64 ~
~ 65 ~
QUESTIONNAIRE
Name --------------------------------------
Contact No. --------------------------------------
Gender Male ( ) Female ( )
Age 20-30 ( ) 30-40 ( )

40-50 ( ) >50 ( )
Educational Status Metric ( ) Sr.

Secondary ( )
Graduate ( ) Post
Graduate ( )
Occupation Business ( ) Service

( ) Retired ( )
Income <Rs. 100,000 ( ) Rs. 100,000 –200,000(

)
Rs. 200,000 – 300,000 ( )
>Rs.300000 ( )
1. Where would you like to invest?
Equity Commodity
Both None
2. In which category do you belong?
Short term Investor Long term Investor
Dealer
3. What is the purpose of investing in the Market?
High return Risk
Safety
4. From where you get the information about the market?
Through RCL News paper /Magazines

Broker Agents
~ 66 ~
Others
5. How do you get information about the new services provided by RCL?
Through RCL News paper /Magazines
Broker Agents
Others
6. How do you trade in the commodity market?

Online trading Telephonic trading
Both
7. Are you satisfied with trading provided by RCL?

Satisfied Mostly Satisfied
Neutral MostlyUnsatisfied
Unsatisfied
8. On which basis do you prefer over other depository services in Religare

commodities Ltd.
Mostly Satisfied Satisfied Neutral Unsatisfied Mostly Unsatisfied
Quality Service
Safety
Reach
Vast variety of Service
Nothing in Particular
9. Are you satisfied when dealing with the problems through RCL.
1. Frequent reminders are given to RCL for update of the information.

2. Irregular receipt of Holding / Transaction statements.
3. Improper attention given to the enquiries.
4. Margin Money Problem.
5. Inadequate information.
10. Which commodity to buy in the current economic situation?
Agro Commodities Metals

Energy
11. Will you suggest other person to open an account with RCL?
Yes No
~ 67 ~
~ 68 ~

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ACKNOWLEDGEMENT

Date: 30-08-09 Signature: RAKESH KUMAR

A. OBJECTIVE OF THE STUDY 6

6 INDIAN COMMODITY MARKET 14

C. HISTORY OF COMMODITY MARKET 18

D. FACTORS AFFECTING COMMODITY 20

8 DERIVATIVE & FUTURE TRADING IN COMMODITY 28

9 DATA ANALYSIS AND INTERPRETATION 38

10 FINDINGS AND CONCLUSIONS 52

OBJECTIVES OF THE STUDY

• To understand the commodity market and future trading.

SCOPE OF THE STUDY:

1. RESEARCH DESIGN OF THE STUDY

1) POPULATION: (universe) customers of Religare Enterprise Ltd.

ABOUT RELIGARE & ITS GROUP COMPANIES

Religare Religare Religare

Religare RELIGARE SECURITIES LTD. Religare

RELIGARE ENTERPRISES LIMITED IS THE HOLDING COMPANY &

2. RELIGARE COMDEX LIMITED

Registered with the Forward Market Commission (FMC) as a commodity broker.

3. RELIGARE FINVEST LIMITED

4. RELIGARE INSURANCE BROKING LIMITED (“RIBL”)

Registered with the Insurance Regulatory Development Authority (IRDA) as a composite

RETAIL INSTITUTIONAL WEALTH SPECTRUM

1. Equity and 1. Wealth Advisory 1. Institutional Equity

COMPETITIVE ADVANTAGES OF RELIGARE

CLEARING MEMBERSHIP ON CAPITAL & DERIVATIVES SEGMENTS: It has

DEPOSITORY PARTICIPANTS WITH NSDL & CDSL: Religare is the depository

LEADING PRIVATE SECTOR BANK AS PARTNER: Religare’s banking partner is HDFC

RESEARCH CAPABILITIES: Religare have a dedicated team of analysts in their Bombay

TECHNICAL ANALYSIS: Religare has in-house technical analyst, who is a recognized

HISTORY OF COMMODITY TRADING

The Act envisages (imagine) three-tier regulation:

STRUCTURE OF COMMODITY MARKET

PLANTATIONS Arecanut, Cashew Kernel, Coffee (Robusta), Rubber

PULSES Chana, Masur, Yellow Peas

PETROCHEMICALS HDPE, Polypropylene(PP), PVC

FACTORS AFFECTING COMMODITY MARKET

• INFLATION: - It directly affect the functioning of the commodity market. If there is

LEADING COMMODITY MARKETS OF INDIA

S.NO. COMMODITY MARKET IN INDIA

1 MULTI COMMODITY EXCHANGE (MCX), MUMBAI

2 NATIONAL COMMODITY AND DERIVATIVE EXCHANGE LTD (NCDEX),

3 NATIONAL BOARD OF TRADE (NBOT), INDORE

COMMODITY EXCHANGES IN INDIA:

I. MULTI-COMMODITY EXCHANGE (MCX)

II. NATIONAL COMMODITY & DERIVATIVES EXCHANGE

TURNOVER OF INDIAN COMMODITY EXCHANGE

Indian Commdity Future Market (Rs Crores)

• OPTION – Right without obligation to exercise the contract.

SIMPLE BINOMIAL MODEL USED FOR PRICING CALL OPTION

Current share price = 100 today

b. EUROPEAN OPTION: - an option that is exercisable only on expiry date, is called

TYPES OF FUTURES TRADERS

1) EXCHANGE TRADE DERIVATIVES

EXCHANGE TRADE DERIVATIVE

OVER- THE- COUNTER DERIVATIVES

2) There are no formal centralized limits on individual positions, leverage, or margining.

3) There are no formal rules for risk and burden-sharing.

COMMODITY FUTURES TRADING IN INDIA

FUTURES TRADING SYSTEM

GUIDELINES FOR ALLOTMENT OF CLIENT CODE

CONTRACT SPECIFICATIONS FOR COMMODITY FUTURES