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Introduction
Since 1995 Steel City Securities Limited is leading in retail stock broking in Southern
India. Steel City Securities Limited is the pioneers and prime leaders in introducing the
Franchisee model to extend our business potential in urban and rural areas of Andhra Pradesh.
We also have business operations in Tamil Nadu, Karnataka, Orissa, Chattisgarh and
Maharashtra (Mumbai). In 1998 the company has achieved phenomenal growth in all aspects.
The workforce has been given top priority to meet and enhance our endless support and
services. In 2004 Steel City Commodities (P) Ltd. has become the subsidiary of parent
company to provide a business platform to trade in Commodity market segment. The working
nature of this company is with full of dedication and trustworthy.
Milestone
Steel City Securities Limited was established in 1995 with strong platform in providing
Share Broking Facilities through VSATs at various locations in Andhra Pradesh as well as
neighboring States. Steel City Securities Limited has the pioneers & prime leaders in providing
retail share broking services in Andhra Pradesh. Steel City Securities Limited have highest
number of VSAT based connected centers with dedicated trading terminals each for a group of
5 to 6 clients.
In 1998the company has achieved the phenomenal growth in all aspects. The workforce
has been given top priority to meet and enhance our endless support and services. The working
style of this company is with full of dedication and trustworthy. As of today the company is
having very high-end reputation, good-will and confidence in the financial markets.
In 2002 Steel City Securities Limited also approved as a Depository Participant of
Central Depository Services Limited, subsidiary of the Bombay Stock Exchange. Having this
facility, it has greater advantage to our valuable customers to avail Intra-depository facility.
Very few Trading members are having this facility as an end-to-end service provider.
In 2008 Steel City Securities Limited entered in Currency Derivative Market Segment
with the Membership of NSE and MCX-SX.
In 2012 Steel City Securities Limited subsidiary company have become a corporate
agent with all leading Life, Health and General Insurance companies to improve our client base
and also will give additional strength to our core business.
In 2016 Steel City Securities Limited has been authorized to act as an Empanelment
Agency of UIDAI.
Steel City Securities Limited strong base line of this business tempo is, Steel City Securities
Limited have high-end management solutions for the business promotion and expansion. Steel
City Securities Limited have the best track record of in time pay-in of funds and securities to
our valuable customers everywhere every time. Steel City Securities Limited strictly follows
the guidelines of SEBI/NSE/BSE/MSE/NCDEX/MCX/NSDL/CDSL to have healthy and
wealthy business environment.
Business network
Steel City Securities Limited has foot print of 420 locations (70 branches and 350 sub-
brokers) across India with 1600+ terminal licenses being connected to the Central Location.
Their business is being extended to the remote locations where, we have created awareness for
all categories of business people to plan their investments in these growing financial markets
of Equity, Derivatives and Commodities. Apart from this we also have web clients from both
Equity and Commodity market segments. Steel City Securities Limited has well experienced
team to market our products and capture more clients of respective business segments.
Strength
Steel City is having memberships in national level Exchanges of NSE, BSE, MCX,
NCDEX and MCX-SX for Stock, Derivative, Commodity and Currency segments. Steel City
Securities Limited is recognized as POP by PFRDA (Pension Fund Regulatory and
Development Authority, Govt. of India) to promote pension schemes for the well-being of
Indian citizens. Steel City Securities Limited has high-end risk management tools for all market
segments to maintain a healthy business relationship with all our valuable investors and clients.
As of today the company is having very high-end reputation, goodwill and confidence in the
market. Steel City Securities Limited has our own Software development team to develop
application and
Implement for the Back-office operations of all Segments of different Exchanges. Steel
City Securities Limited strong base line of this business tempo is, we have high-end
management solutions for the business promotion and expansion. Steel City Securities Limited
has the best track record of in-time clearing of funds and securities to our valuable customers
everywhere every time. Steel City Securities Limited are ISO 9001:2015 certified company to
maintain the quality and services to the customer satisfaction. The brand “Steel City” means
“confidence as strong as steel”.
Services
Steel City Securities Limited are providing a trading platform of Capital Market,
Futures & Options, Commodities and Currency Derivatives of NSE, BSE, MCX, MSE
(Formerly known as MCX-SX), and NCDEX. Steel City Securities Limited is also a depository
participant of NDSL and CDSL having our own trading clients more than 2 laces to serve more
transparently. Steel City Securities Limited has distribution of Mutual funds and IPO with
smart advisory team members to reach every potential investor and to encourage their
investments and growth plans. Promote pension schemes through PFRDA for the retirement
benefits of both employees and business people. Steel City Securities Limited is also a
corporate Agent with SBI Life Insurance and channel partner with other leading insurance
companies. Steel City Securities Limited has NBFC services to provide Personal loans, Gold
loans and Loans against securities. Steel City Securities Limited also serve e-governance
products like PAN, TAN, e-TDS, AIR, Form 24G, and change requests of PAN, TAN, through
TIN-FC locations across the country. Steel City Securities Limited has Our Research and
Analysis team to focus on market movements for investment opportunities towards business
growth and also to minimize the risk. Our online Back-office application is available on 24/7
basis to get the required information instantly.
Objectives
Steel City Securities Limited are planning to start our business operations in North and
Western parts of India to spread our brand and services. Steel City Securities Limited also
wanted to come up with more financial products like Wealth Management and Merchant
Banking Services. Steel City Securities Limited are looking for tie-ups with leading corporate
to execute software development projects and e-governance. Steel City Securities Limited aim
is to attract more retail business to gain substantial growth in the upcoming years.
Fact sheet
Company Name : Steel City Securities Limited
Executive Chairman : Mr. K. Satyanarayana
Managing Director : Mr. Satish Kumar Arya
Chief Financial Officer : Mr. Ramu Naraharasetti
SEBI Permanent Regd. No : IN-DP-231-2016
Segments SEBI Regd. No : INB 230806132, INB 010806132, INB 260806139,
INF 230806132 INF 011156438, INF 260806139,
INE 230806132, INE 260806132.
Head Office Address : Regd. & Corporate Head Office: 49-52-5/4,
Shanthipuram,
Visakhapatnam - 530 016.
Email : investorrelations@steelcitynettrade.com
Website : www.steelcitynettrade.com
Compliance office details
Compliance Officer : Mr. K. Suthakar
Contact No : 9848940251, 9944791659
Address : Steel City Securities Limited,
2nd floor MPM shopping complex, Sripuram,
Tirunelveli – 627001.E - mail ID : sudhakar.k steelcitynettrade.com Commodities analysis
ORGANIZATION CHART
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senior manager senior manager senior manager
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Industry profile
An Introduction to Stocks and the Stock Market
Wouldn't you love to be a business owner without ever having to show up at work?
Imagine if you could sit back, watch your company grow, and collect the dividend checks as
the money rolls in! This situation might sound like a pipe dream, but it's closer to reality than
you might think.
As you've probably guessed, we're talking about owning stocks. This fabulous category
of financial instruments is, without a doubt, one of the greatest tools ever invented for building
wealth. Stocks are a part, if not the cornerstone, of nearly any investment portfolio. When you
start on your road to financial freedom, you need to have a solid understanding of stocks and
how they trade on the stock market.
Despite their popularity, however, most people don't fully understand stocks. Much is
learned from conversations around the water cooler with others who also don't know what
they're talking about. Chances are you've already heard people say things like, "Bob's cousin
made a killing in XYZ company, and now he's got another hot tip..." or "Watch out with stocks-
-you can lose your shirt in a matter of days!" So much of this misinformation is based on a get-
rich-quick mentality, which was especially prevalent during the amazing dotcom market in the
late '90s. People thought that stocks were the magic answer to instant wealth with no risk. The
ensuing dotcom crash proved that this is not the case. Stocks can (and do) create massive
amounts of wealth, but they aren't without risks. The only solution to this is education. The key
to protecting yourself in the stock market is to understand where you are putting your money.
The Definition of a Stock Plain and simple, stock is a share in the ownership of a
company. Stock represents a claim on the company's assets and earnings. As you acquire more
stock, your ownership stake in the company becomes greater. Whether you say shares, equity,
or stock, it all means the same thing.
Risk
It must be emphasized that there are no guarantees when it comes to individual stocks.
Some companies pay out dividends, but many others do not. And there is no obligation to pay
out dividends even for those firms that have traditionally given them. Without dividends, an
investor can make money on a stock only through its appreciation in the open market. On the
downside, any stock may go bankrupt, in which case your investment is worth nothing.
There are two main types of stocks: common stock and preferred stock.
Common Stock
Common stock is, well, common. When people talk about stocks they are usually
referring to this type. In fact, the majority of stock is issued is in this form. We basically went
over features of common stock in the last section. Common shares represent ownership in a
company and a claim (dividends) on a portion of profits. Investors get one vote per share to
elect the board members, who oversee the major decisions made by management.
Preferred Stock
Preferred stock represents some degree of ownership in a company but usually doesn't
come with the same voting rights. (This may vary depending on the company.) With preferred
shares, investors are usually guaranteed a fixed dividend forever. This is different than common
stock, which has variable dividends that are never guaranteed. Another advantage is that in the
event of liquidation, preferred shareholders are paid off before the common shareholder (but
still after debt holders). Preferred stock may also be callable, meaning that the company has
the option to purchase the shares from shareholders at anytime for any reason (usually for a
premium).
Investing in Stocks is not as hard as people take it to be, with a little help and useful
resources, learning to invest in the stock market can be understood by just about anyone.
Stock Brokers:-
To start investing, the first thing you have to do is go out and find a stock broker. A
stock broker is a person or company that does the actual buying and selling of your shares on
the stock market. When you find a stock broker, the first thing you must do is open a trading
account such as you would at a Bank. The difference is this account will not only hold your
money but it will also hold other investments such as Stocks, bonds and mutual funds. When
you buy shares of a company, money will be taken out of your account and changed over to
company shares. When you're selling company shares the opposite will occur, your company
shares will be changed over to money. Before this sounds confusing, you should know that
there are two types of Stock Brokers: discount and full service brokers.
Full Service Stock Brokers:-
Full service brokers will give you advice and investment recommendations. But there
is a price to pay for these recommendations, they do have quite high commission fees and are
usually only suitable for investors who have a great deal of money to invest and who do few
trades. If you're more into the excitement of Penny Stock investing which by the way is our
specialty, then full service brokers will probably be too expensive for you, you might end up
paying the broker most of your profits. You may be required to pay as much as $100 or more
to have your full service broker buy you some shares, and just as much again when you sell.
Floor Broker/Trader: an individual who trades commodity contracts on the floor of
a commodities exchange. When executing trades on behalf of a client in exchange for a
commission he is acting in the role of a broker. When trading on behalf of his own account, or
for the account of his employer, he is acting in the role of a trader. Floor trading is conducted
in the pits of a commodity exchange via open outcry. A floor broker is different than a "floor
trader" he or she also works on the floor of the exchange, makes trades as a principal for his or
her own account
A firm or individual that solicits or accepts orders for commodity contracts traded on
an exchange and holds client funds to margin, similar to a securities broker-dealer. Most
individual traders do not work directly with a FCM, but rather through an IB or CTA
firm or individual that solicits or accepts orders for commodity contracts traded
on an exchange. IBs do not actually hold customer funds to margin. Client funds to margin are
held by a FCM associated with the IB.
A firm or individual that, for compensation or profit, advises others, on the trading of
commodity contracts. They advise commodity pools and offer managed futures accounts. Like
an IB, a CTA does not hold customer funds to margin; they are held at a FCM. CTAs exercise
discretion over their clients' accounts, meaning that they have power of attorney to trade the
clients account on his behalf according to the client's trading objectives. A CTA is generally
the commodity equivalent to a financial advisor or mutual fund manager
A firm or individual that operates commodity pools advised by a CTA. A commodity pool
is essentially the commodity equivalent to a mutual fund
Registered Commodity Representative (RCR)/Associated Person (AP):
An employee, partner or officer of a FCM, IB, CTA, or CPO, duly registered and
licensed to conduct the activities of a FCM, IB, CTA, or CPO. This is the commodity equivalent
to a registered representative
Broking Insights
The Indian broking industry is one of the oldest trading industries that have been around
even before the establishment of the BSE in 1875. Despite passing through a number of changes
in the post liberalization period, the industry has found its way towards sustainable growth.
With the purpose of gaining a deeper understanding about the role of the Indian stock broking
industry in the country’s economy, we present in this section some of the industry insights
gleaned from analysis of data received through primary research.
For the broking industry, we started with an initial database of over 1,800 broking firms
that were contacted, from which 464 responses were received. The list was further short listed
based on the number of terminals and the top 210 were selected for profiling. 394 responses,
that provided more than 85% of the information sought have been included for this analysis
presented here as insights. All the data for the study was collected through responses received
directly from the broking firms. The insights have been arrived at through an analysis on
various parameters, pertinent to the equity broking industry, such as region, terminal, market,
branches, sub brokers, products and growth areas.
Some key characteristics of the sample 394 firms are:
On the basis of geographical concentration, the West region has the maximum
representation of 52%. Around 24% firms are located in the North, 13% in the South and 10%
in the East
3% firms started broking operations before 1950, 65% between 1950-1995 and
32% post 1995
On the basis of terminals, 40% are located at Mumbai, 12% in Delhi, 8% in
Ahmadabad, 7% in Kolkata, 4% in Chennai and 29% are from other cities
From this study, we find that almost 36% firms trade in cash and derivatives
and 27% are into cash markets alone. Around 20% trade in cash, derivatives and
commodities
In the cash market, around 34% firms trade at NSE, 14% at BSE and 52% trade
at both exchanges. In the derivative segment, 48% trade at NSE, 7% at BSE and
45% at both, whereas in the debt market, 31% trade at NSE, 26% at BSE and
43% at both exchanges
Majority of branches are located in the North, i.e. around 40%. West has 31%,
24% are located in South and 5% in East
In terms of sub-brokers, around 55% are located in the South, 29% in West,
11% in North and 4% in East
Trading, IPOs and Mutual Funds are the top three products offered with 90%
firms offering trading, 67% IPOs and 53% firms offering mutual fund
transactions
In terms of various areas of growth, 84% firms have expressed interest in
expanding their institutional clients, 66% firms intend to increase FII clients and
43% are interested in setting up JV in India and abroad
In terms of IT penetration, 62% firms have provided their website and around
94% firms have email facility
Commodities
Any product that can be used for commerce or an article of commerce which is
traded on an authorized commodity exchange is known as commodity. The article should be
movable of value, something which is bought or sold and which is produced or used as the
subject or barter or sale. In short commodity includes all kinds of goods. Indian Forward
Contracts (Regulation) Act (FCRA), 1952 defines “goods” as “every kind of movable property
other than actionable claims, money and securities”.
In current situation, all goods and products of agricultural (including plantation),
mineral and fossil origin are allowed for commodity trading recognized under the FCRA. The
national commodity exchanges, recognized by the Central Government, permits commodities
which include precious (gold and silver) and non-ferrous metals, cereals and pulses, ginned
and un-ginned cotton, oilseeds, oils and oilcakes, raw jute and jute goods, sugar and gur,
potatoes and onions, coffee and tea, rubber and spices. Etc.
Commodity exchange
A commodity exchange is an association or a company or any other body corporate
organizing futures trading in commodities for which license has been granted by regulating
authority.
History of Evolution of commodity markets
Commodities future trading was evolved from need of assured continuous supply of
seasonal agricultural crops. The concept of organized trading in commodities evolved in
Chicago, in 1848. But one can trace its roots in Japan. In Japan merchants used to store Rice in
warehouses for future use. To raise cash warehouse holders sold receipts against the stored
rice. These were known as “rice tickets”. Eventually, these rice tickets become accepted as a
kind of commercial currency. Latter on rules came in to being, to standardize the trading in rice
tickets. In 19th century Chicago in United States had emerged as a major commercial hub. So
that wheat producers from Mid-west attracted here to sell their produce to dealers &
distributors. Due to lack of organized storage facilities, absence of uniform weighing & grading
mechanisms producers often confined to the mercy of dealers discretion. These situations lead
to need of establishing a common meeting place for farmers and dealers to transact in spot
grain to deliver wheat and receive cash in return.
Gradually sellers & buyers started making commitments to exchange the produce for
cash in future and thus contract for “futures trading” evolved. Whereby the producer would
agree to sell his produce to the buyer at a future delivery date at an agreed upon price. In this
way producer was aware of what price he would fetch for his produce and dealer would know
about his cost involved, in advance. This kind of agreement proved beneficial to both of them.
As if dealer is not interested in taking delivery of the produce, he could sell his contract to
someone who needs the same. Similarly producer who not intended to deliver his produce to
dealer could pass on the same responsibility to someone else. The price of such contract would
dependent on the price movements in the wheat market. Latter on by making some
modifications these contracts transformed in to an instrument to protect involved parties against
adverse factors such as unexpected price movements and unfavorable climatic factors. This
promoted traders entry in futures market, which had no intentions to buy or sell wheat but
would purely speculate on price movements in market to earn profit.
Trading of wheat in futures became very profitable which encouraged the entry of
other commodities in futures market. This created a platform for establishment of a body to
regulate and supervise these contracts. That’s why Chicago Board of Trade (CBOT) was
established in 1848. In 1870 and 1880s the New York Coffee, Cotton and Produce Exchanges
were born. Agricultural commodities were mostly traded but as long as there are buyers and
sellers, any commodity can be traded. In 1872, a group of Manhattan dairy merchants got
together to bring chaotic condition in New York market to a system in terms of storage, pricing,
and transfer of agricultural products. In 1933, during the Great Depression, the Commodity
Exchange, Inc. was established in New York through the merger of four small exchanges – the
National Metal Exchange, the Rubber Exchange of New York, the National Raw Silk
Exchange, and the New York Hide Exchange.
The largest commodity exchange in USA is Chicago Board of Trade, The Chicago
Mercantile Exchange, the New York Mercantile Exchange, the New York Commodity
Exchange and New York Coffee, sugar and cocoa Exchange. Worldwide there are major
futures trading exchanges in over twenty countries including Canada, England, India, France,
Singapore, Japan, Australia and New Zealand. India and the commodity market
Categories of Steel: -
Steel market is primarily divided in to two main categories- flat and long. A flat carbon
steel product is a plate product or a (hot or cold) rolled strip product. Plate products vary in
dimensions from 10 mm to 200 mm and thin flat rolled products from 1 mm to 10 mm. Plate
products are used for ship building, construction, large diameter welded pipes and boiler
applications. Thin flat products find end use applications in automotive body panels, domestic
‘white goods’ products, ‘tin cans’ and the whole host of other products from office furniture to
heart pacemakers. Plates, HR coils and HR Sheet, CR Sheet and CR coils, GP/GC (galvanized
plates and coils) pipes etc. are included in this category.
A long steel product is a road or a bar. Typical rod product are the reinforcing rods
made from sponge iron for concrete, ingots, billets, engineering products, gears, tools, etc.
Wiredrawn products and seamless pipes are also part of the long products group. Bars, rods,
structures, railway materials, etc are included in this category.
Sponge Iron/ Direct reduced iron (DRI): This is a high quality product produced
by reducing iron ore in a solid state and is primarily used as an iron input in electric arc furnace
(EAF) steel making process. This industry is an integral part of the steel sector. India is one of
the leading countries in terms of sponge iron production. There are a number of coal-based
sponge iron/DRI plants (in the eastern and central region) and also three natural gas based
plants (in western part of the country) in the country.
Global Scenario: -
The total output of the word crude steel in 2006 stood at 945 million tons, resulting in a
growth of 6.7% over the previous year.
China is the word’s largest crude steel producer in the year 2006 with around 220.12
million tons of steel production, followed by Japan and USA. USA was largest importer of
steel products, both finished and semi finished, in 2005, followed by China and Germany.
The words largest exporter of semi-finished and finished steel was Japan in 2005,
followed by Russia and Ukraine.
China is the largest consumer now and consumption of steel by China is estimated to
increase by 12-13% in 2007.
Indian Scenario: -
India is the 8th largest producer of the steel with an annual production of 36.193 million
tons, while the consumption is around 30 million tons.
Iron & steel can be freely exported and imported from India. India is a net exporter of
steel.
The Government of India has taken a number of policy measures, such as removal of
iron & steel industry from the list of industries reserved for public sector, deregulation of price
and distribution of iron & steel and lowering import duty on capital goods and raw materials,
since liberalization for the growth and development of Indian iron & steel industry.
After liberalization India has seen huge scale addition to its steel making capacity. The
country faces shortage of iron and steel materials.
Factors Influencing Demand & Supply of Steel Long and Steel Flat: -
The demand for steel is dependent on the overall health of the economy and the in
fracture development activities being undertaken. The steel prices in the Indian market
primarily depend on the domestic demand and supply conditions, and international prices.
Government and different producer and consumer associations regularly monitor steel prices.
The duty imposed on import of steel and its fractions also have an impact on steel prices.
The price trend in steel in Indian markets has been a function of World’s economic activity.
Prices of input materials of iron and steel such as power tariff, fright rates and coal prices, also
contribute to the rise in the input costs for steel making.
Title
“Study of Commodity Market with commodity analysis.” at STEEL CITY SECURITY
LIMITED.
Objectives of the Study
To study and analyze the commodity market of selected non-agricultural product
To analyze the price fluctuation of selected commodities
. To analyze fluctuated on gold price with comeparision us dollar
The commodity market is still new and growing in India and it has a bright scope to
develop, on that view this research study is taken.
The Research main intention is to know the various price drivers that determine the price of
commodity. The main problem in the commodity market is the prediction of future price of
commodity; especially prediction of price of global metals (gold, silver and other commodity)
is very difficult. The future prediction will be made on the basis of the past response of
commodity market to various price drivers. Especially this research on Gold and silver because
these two commodities have global market with high volatility. The price of gold and silver
are highly affected by the various factors happening in and around the world. In order to know
behavior of this to commodity to that factor, researcher referred past reacts of commodity
market.
Need for the Study
Commodity markets are where raw or primary products are exchanged. Commodity
market is of two types i.e., Hard (Non-Agricultural) and Soft (Agricultural) commodities. Here
Hard commodities are typically Nonagricultural or natural resources (Gold, Silver, Copper,
Natural Gas) and Soft Commodities are the agricultural commodities (Coffee, Corn, Wheat,
Sugar). The problem faced by the participants in the market is to predict the price movement
of the commodity and to take the right decision when to enter and exit the market to make a
maximum profit. As Gold Commodities are more.
Tools and indicators used
Simple Moving Averages
Relative Strength Index
Time series analysis
Limitations of the Study
Study is confined only to the commodity market in Indian context.
The study of this analysis was mainly based on historical data.
The study is covers a period of five years (20011-2015)
Non-agricultural commodities
The non-agricultural commodities selected for the present study are as follows:
Crude oil
Aluminum
Copper
Lead
Zinc
Gold
Silver
REVIEW OF LITERATURE
Introduction
Research is made in order to inform people with new knowledge or discovery. Every
piece of ongoing research needs to be connected with the work already done, to attain an overall
relevance and purpose. The review of literature thus becomes a link between the research
proposed and the studies already done. It tells the reader about aspects that have been already
established or concluded by other authors, and also gives a chance to the reader to appreciate
the
evidence that has already been collected by previous research. Usually every individual
research
project only adds to the plethora of evidence on a particular issue. Unless the existing work,
conclusions and controversies are properly brought about, most research work would not
appear
relevant.
S Poornima, and Deepthy K (2015) the study is “Commodity Market in India”
investigated the
Commodity market has a great potential to become a separate asset class for market savvy
investors, arbitrageurs and speculators. The retail investors should understand the risk and
advantages before entering into commodity market. The study attempts to throw light on
commodity market in India and to find out the impact of the SEBI-FMC merger and also to
analyze future growth prospects and challenges of Indian commodity markets
. Sathya S. (2015) in his study “A Comparative Study on Equity, Commodity, Currency
Derivatives in India - Evidence from Future Market with special reference to BSE Ltd,
Mumbai”
examine that the Derivatives are financial contracts whose value is derived from some
underlying asset. These assets can include equities and equity indices, bonds, loans, interest
rates, exchange rates, commodities. The contracts come in many forms, but the more common
ones include options, forwards/futures and swaps. The results shows negatively correlated with
equity, commodity, and currency returns.
M.Thirumagal vijaya and D. Suganya (2015) in his study titled Marketing of
Agricultural
Products in India Selling on any agricultural products depends on some couple of factors like
the
demand of the product at that time, availability of storage etc. The task of distribution system
is
to match the supply with the existing demand by whole selling and retailing in various points
of
different markets like primary, secondary or terminal markets. Most of the agricultural products
in India are sold by farmers in the private sector to moneylenders or to village traders.
Sathya S (2015) in his study “A Comparative Study on Equity, Commodity, Currency
Derivatives in India - Evidence from Futures Market with special reference to BSE Ltd,
Mumbai” examine that the Derivatives are financial contracts whose value is derived from
some
underlying asset. These assets can include equities and equity indices, bonds, loans, interest
rates, exchange rates, commodities. The contracts come in many forms, but the more common
ones include options, forwards/futures and swaps. The results shows negatively correlated with
equity, commodity, and currency returns.
Panda Rajesh (2014) in his study “Soybean Price Forecasting in Indian Commodity
Market:
An Econometric Model” examine that the Econometric analysis of the data for the seed prices
of
soybean helped in understanding the underlying pattern in the data. After analyzing the data of
160 observations, it’s apparent that proposed model of ARIMA (1,1,0) with additive
seasonality
predicts the nature of fluctuation and explains the underlying seasonality. This model can be
used by traders, harvesters to minimize the scope for speculation and assume the change in
prices
of soybean seed for near future. They found that the model can also be used by regulators to
predict the future prices and minimize the role of speculators who may otherwise destabilize
the
market pricing mechanism.
In fact, Moving Averages form the basis of several other well-known technical analysis tools
such as the Bollinger Bands and the MACD. There are different types of Moving Averages
which all take the same basic premise and add a variation. Most notable are the Simple Moving
Average (SMA), the Exponential Moving Average (EMA), the Weighted Moving Average
(WMA) and the Hull Moving Average (HMA).
definition
Moving Average (MA) is a price based, lagging (or reactive) indicator that displays the
average price of a security over a set period of time. A Moving Average is a good way to
gauge momentum as well as to confirm trends, and define areas of support and resistance.
Essentially, Moving Averages smooth out the “noise” when trying to interpret charts. Noise is
made up of fluctuations of both price and volume. Because a Moving Average is a lagging
indicator and reacts to events that have already happened, it is not used as a predictive indicator
but rather an interpretive one, used for confirmations and analysis. In fact, Moving Averages
form the basis of several other well-known technical analysis tools such as Bollinger
Bands and the MACD. There are a few different types of Moving Averages which all take the
same basic premise and add a variation. Most notable are the Simple Moving Average (SMA),
the Exponential Moving Average (EMA) and the Weighted Moving Average (WMA)
The basics
Moving Averages takes a set of data (closing prices over a specified time period) and
outputs their average price. Now, unlike an oscillator, Moving Averages are not restricted to a
number within a band or a set range of numbers. The MA can move right along with price.
The timeframes or periods used can vary quite significantly depending on the type
of technical analysis being done. One fact that most always be remembered however, is that
Moving Averages have lag inherently built into them. What this means is actually pretty
simple. The longer the timeframe being used, the more lag there will be. Likewise, the shorter
the timeframe, the less lag there will be. Basically, Moving averages with shorter timeframes
tend to stay close to prices and will move right after prices move. Longer timeframes have
much more cumbersome data and their moves lag behind the market’s move much more
significantly. As for what time frames should be used, it really is up to the trader’s discretion.
Typically any period under 20 days would be considered short term, anything between 20 and
60 would be medium term and of course anything longer than 60 days would be viewed as long
term
Inverse relationship
As the above chart shows, there’s an inverse relationship between the trade-weighted
U.S. dollar and the price of gold. Trade-weighted value shows how the U.S. dollar is gaining
or losing purchasing power—compared to its trading partners. However, this inverse
relationship isn’t as precise as it used to be under the gold standard. Even though the gold
standard is gone, there’s still a psychological tilt towards gold whenever the value of the U.S.
dollar decreases. The inverse relationship remains because:
A falling dollar increases the value of other countries’ currencies. This increases the demand
for commodities including gold. It also increases the prices.
When the U.S. dollar starts to lose its value, investors look for alternative investment sources
to store value. Gold is an alternative.
However, it’s important to understand that it’s possible for the U.S. dollar and gold price to
increase at the same time. This can occur because of a crisis in some other country or region.
This would cause investors to flock to safer assets—the U.S. dollar and gold. The U.S. dollar
is also driven by many factors—like monetary policy and inflation in the U.S. vs. other
countries. It’s also driven by economic prospects in the U.S. vs. other countries. Investors need
to consider all of these factors.
It’s important to get a sense of the direction that gold prices will take. Gold stocks like Goldcorp
Inc. (GG), Barrick Gold Corp. (ABX), Newmont Mining Corporation (NEM), Agnico-Eagle
Mines (AEM), Yamana Gold (AUY), and exchange-traded funds (or ETFs) like the SPDR
Gold Trust (GLD) and the Gold Miners Index (GDX) are connected to gold prices.
Theory
Commodity Market
Trading in commodity futures has a long history. The roots of modern trade in commodity
futures go back to the 17th century in Osaka, Japan. But it is possible that a form of futures
trading in commodities existed in China some 6,000 years earlier. Organised trading on an
exchange, however, started only in 1848 with the establishment of the Chicago Board of Trade
(CBOT).
India has a 125-year-old history of organised trading in commodities. The formation of the
Bombay Cotton Trade Association in 1875 was a milestone in this regard. Trade in commodity
futures continued to flourish for many years. But it was discontinued in the mid-1960s due to
war, natural calamities, and consequent shortages in the supply of commodities.
Recent developments in India
After initiating economic reforms in the 1990s, India realised the importance of
commodity trading. By the beginning of 2002, there were about 20 commodity exchanges in
India. These traded in 42 commodities. A few commodities also traded internationally.
Commodity futures contracts and the exchanges they trade in are governed by the
Forward Contracts (Regulation) Act, 1952. The regulator is the Forward Markets Commission
(FMC). In September 2015, the FMC merged with the Securities and Exchange Board of India
(SEBI).
In 2002, the government allowed the reintroduction of commodity futures. The FMC
approved the setting up of three commodity exchanges. These exchanges were screen-based.
They allowed trading of multiple commodities nationwide.
Commodity exchanges in India
Currently, there are 24 commodity exchanges in India. The following are the three main
national-level exchanges.MCX is India’s largest commodity exchange. Established as a public
company in 2003, MCX is based in Mumbai. It offers futures trading in bullion, non-ferrous
metals, energy, and a number of agricultural commodities. This exchange was originally
promoted by Financial Technologies, a software company in the capital markets space. At
present, Kotak Mahindra Bank, Blackstone GPV Capital Partners Mauritius, and IDFC Premier
Equity Fund are some of its key shareholders.
National Commodity & Derivative Exchange(NCDEX)
NCDEX was founded as a public limited company in 2003. It too is based in Mumbai. It
offers futures trading in 31 commodities. Trading in agricultural commodities is especially
popular on this exchange. Its key shareholders are ICICI Bank, National Stock Exchange
(NSE), National Bank for Agriculture and Rural Development (NABARD), and Life
Insurance Corporation of India (LIC).
National Multi Commodity Exchange of India(NMCE)
This exchange was originally promoted by trader Kailash Gupta and Central Warehousing
Corporation (CWC) in 2002. It has its headquarters in Ahmedabad. NMCE offers trade in 44
different commodities. These range from copra to menthol. NMCE is especially popular for
trading in spices and plantation crops, especially those from Kerala.
History often repeats itself, and you can continue the rich tradition in the commodities market
by investing in Commodities Futures. First, though, you should have the necessary knowledge
about Commodity Futures for that is one of the ways to reduce any risks involved. So, in the
next chapter, you can learn all about the basics of commodity futures contract and its various
features.
Advantages of Investing in Commodity Market
Many investors regard trading in commodities as risky. The complexity and volatility
of commodity markets deter people from investing here. But a well-planned commodity
investment can be beneficial for your portfolio. It also offers a host of benefits. Here’s a look:
Diversification
Commodities can diversify a portfolio. Commodity returns usually have low or
negative correlations with the returns of other major asset classes. So often, when bonds and
stocks fall, commodities rise. Sometimes, there may not be any connection between the returns
at all. Factors that affect returns on stocks and bonds, for example, do not affect returns on
commodities in the same manner. Besides, commodities may react differently from other assets
in various economic and geopolitical situations. For example, the prices of stocks may fall
during a financial crisis. But gold prices may rise as demand for this safe asset increases. A
diversified portfolio with a low correlation between its assets tends to have less volatile returns.
Thus, investing in commodities ensures diversification and improves risk-adjusted returns.
Inflation protection
Inflation has a different impact on commodities than financial assets like stocks and
bonds. This is because inflation causes currency to depreciate. This erodes the real value of
financial assets like stocks and bonds. Commodities, however, maintain their value and price
even during high inflation. In this environment, investors can turn to hard assets such as gold
and other precious metals.
Liquidity
Unlike investment in assets like real estate, investment in commodity futures offers
high liquidity. It is easy to buy and sell commodity futures. An investor can liquidate his
position whenever required.
Trading on lower margin
An investor in commodity futures needs to deposit a certain amount as a margin with
the broker. The margin can be close to 5–10% of the total value of the contract. This is much
lower than the margin required for other asset classes. Thus, the investor can take larger
positions while investing less capital. This also helps increase the potential for high profits.
High returns
Commodity markets are volatile. They can experience huge swings in prices. For
example, war in a major oi l-producing country like Iraq can cause oil prices to shoot up.
Smart investors can take advantage of these price swings to make gains. Well-planned
commodity investments can provide higher returns than investments in other assets.
Inverted market
In an inverted market, the prices of futures contracts decrease with maturity. The
contract with the nearest contract month is priced the highest and the contract with the most
distant contract month is priced the lowest.
Example : Let us assume an inverted futures market with contracts maturing in each month
from July 2016 to December 2016. Since the market is ‘inverted’, contract prices will broadly
decrease as we move from a July maturity to a December maturity. The contract maturing in
July will normally have the highest price and the contract maturing in December will have the
lowest price. If you plot a curve of monthly contract prices, you willgetadownward-
slopingcurve.
The market for a commodity is inverted when a short-term supply disruption creates a shortage
of the commodity in the market. The temporary shortage pushes up the commodity’s short-
term prices. It also affects the futures prices of nearby months. If the supply is expected to
recover over a longer period, the prices of longer-term contracts remain unaffected.
Online Commodity Trading
At Commodities, it is our constant endeavor to bring to you the exemplary products
and services to serve you better. In today’s time, the commodity market offers wide range of
trading opportunities. To unlock these opportunities for our clients, we have internet based
trading account where our clients can execute their trades independently through various
platforms.