DCX on B-School

FUTURES AND DERIVATIVE MARKET (FUNDAMENTAL SESSION )

Derivative and Commodity Exchange Nepal Ltd.

New Baneshwor, Kathmandu
www.dcxnepal.com
info@dcxnepal.com

DCX Nepal Tips and Tools for Future Market Trading and Investment
 What are Derivatives ?

• Derivative - how the prices of the contract

are derived from the price of underlying
security, commodity or indices.
• Derivative Instrument – something backed
up e.g. loans, assets, interest rates, currency
exchange, stock trade or commodity
transactions.
Introduction
 A derivative (or derivative security) is a financial instrument whose value
depends upon the value of other, more basic, underlying variables.

 Derivatives Products
 Forwards
 Futures
 Options
 Swaps
 Warranties
 Industry Factsheet

· Total Number of Exchange in Operation 6

· Total Number of Registered Brokers 200 Plus

· Total Number of Active Brokers 70 Plus

· Total Number of Clearing Members 6

· Total No of contracts Launched by Exchanges 20 commodities contract

· Major Traded Commodities Gold, Silver, Crude oil & Copper

· Total Number of Lots per day 3000 lots

· Total Number of Places the Platform is available 30 Districts, 5 Platforms

· Total Number Investors registered in this market 20000

· Total Number Active Investors (In a month) 12000

 Commodities Exchanges in Nepal

Exchange Abbreviation ESTD

Commodities and Metal Exchange Ltd. COMEN 2006

Mercantile Exchange Nepal Ltd. MEX 2009

Nepal Derivative Exchange Ltd. NDEX 2010

Wealth Exchange Ltd. WEX 2010

Derivative and Commodities Exchange Ltd. DCX 2011

Commodities Futures Exchange Ltd. CFX 2011

 Hierarchy of Futures Trading Market

Future Market
Commission/Securities Board

Exchange

Clearing Member Clearing Member

Non- Non-Clearing Broker

Clearing Trading Member
Member Member
Sub-Broker/Account
Executive
Client
Client Client
Client
Stock Market and Futures Market Comparison
 Automated Online Trading
 24 hours trading
 Global Reach and Proximity
 Two Way Trading
 Low Margin Requirement
 Direct Client Trading Terminal Available
 Faster Trading, Settlement and Withdrawal
Stock Market and Futures Market Comparison

 Pricing Structure
 Limited Life Span
 Time Frame is Much Shorter
 Less Reliance on Market Averages and Indicators
24 Hours Commodities Trade
• 5:45 pm to • 2:45 am to
2:45 am 11:45 am

New Sydney
York

London Tokyo
• 12:45 pm • 5:45 am to
to 9:45 2:45 pm
pm
International Market Timing
Trading
Trading:
 Buying or selling different products

Physical Trading:

 Buying or selling physical commodities where actual physical delivery is

possible
 Traders always buy at lower price and sell at higher price.
 Actual delivery of goods
Paper Trading

Paper based trading:

 Trading of contract of commodity for price difference.
 Value of the contract is derived from the value of underlying
asset that may be financial asset or commodity
 Selling at higher price first and then buying at lower price
is possible
Futures Trading
Bullish Market

A bull market is one in which prices of a certain group of securities

are rising or are expected to rise. In such times, investors have
faith that the market will continue to rise in the long term. Bull
markets can happen as a result of economic recovery, an economic
boom, or investor psychology.

Characteristics of a Bullish Market

 Economic Growth
 Less volatility
 Reasonably amount of certainty
 Strong market breadth
 Strong corporate balance sheets
 Bearish Market
A bear market is characterized by falling prices and an
expectation that they will continue falling. When the
market is bearish, it leads to a slow down of economy
together with a rise in unemployment and inflation.

Characteristics of a Bearish Market:

 Economic contraction or slowing

 Uncertainty is high
 Fear is high
 Trust in the system is low
 Broad based selling pressure
 Futures Trading : Two-way trading

 Buy ---- Sell

 Sell ---- Buy
 FUTURES TRADING MECHANISM

Buyer 1 Seller 1
Buyer 2
NCM
CLEARING HOUSE NCM
Seller 2
Buyer 3 Seller 3

•Agree to buy standard • Matches particular buyer • Agree to sell standard

quantity and quality of with appropriate seller quantity and quality of
asset in fixed future depending on contract asset in fixed future
time in a predetermined commodity, quality, quantity time in a predetermined
price and price price
Benefits of Future Trading
 Price risk management
 Trader can benefit from the price fluctuation
 Price discovery
 High financial leverage
 Commodities as an asset class for diversification of portfolio risk
 Commodity derivatives markets are extremely transparent
 Useful to the producer
 Useful for the consumer
 Corporate entities can benefit by hedging
 Useful to exporters
 Improved product quality
 Credit accessibility
TOP MOST COMMODITIES EXCHANGE IN WORLD

 Chicago Board of Trade (CBOT)

 Chicago Mercantile Exchange (CME)
 New York Mercantile Exchange (NYMEX)
 New York Board of Trade (NYBOT)
 London Metal Exchange (LME)
Futures Exchanges in Nepal
 Derivative and Commodity Exchange Nepal Ltd.
 Nepal Derivative Exchange Nepal Ltd.
 Mercantile Exchange Nepal Ltd. (MEX)
 Commodities and Metal Exchange Nepal Ltd.
(COMEN)
LISTED COMMODITIES
 GOLD  CRUDE OIL
 SILVER  NATURAL GAS
 COPPER  HEATING OIL
 ZINC  WHEAT
 COTTON  SOYABEAN
 CRUDE SOYA OIL
 COFFEE
Margin Requirements (DCX)
 Margin Requirements (DCX)

Contract Code Initial Margin Commission Overnight Equity

to be Held
! s]=hL= GC %),))) !,))) !,)),)))
!)) u|fd MGC %,))) !)) !),)))
#) s]=hL= SLV %),))) !,))) !,)),)))
% s]hL SLVM %,))) !)) !),)))
! 6g CU %),))) !,))) %),)))
% 6g ZN %),))) !,))) %),)))
%)) u|fd SGC @%,))) %)) %),)))
Settlement
 Mark to the Market(MTM) Facility
 Final Settlement
Benefits of futures trading
 Hedging
 Risk minimizing mechanism
 One position covers the loss of other position
 Speculation
 Takes position without having exposure in the physical mar k et, with the sole
intention of earning profit.
 Arbitraging
 Traders can get benefit from two different market price differentiation in two
different market enables trader to buy in one market and sell from other market or
vice versa for e.g. Traders can buy in one exchange and sell from other
exchange
Factors affecting these commodities
 Fundamental factors like :

Demand & Supply Equation

Inflationary pressures
Money supply
Exchange rates fluctuation
Taxes
Transportation costs
Political events
Weather
Data announcements
Performance of key commodities
Technological changes
Volatility etc.
Factors affecting these commodities

 Technical factors
Charts, Trend lines, Technical indicators: The study of historical
price patterns backed by scientific calculations to help forecast
futures prices.
 Market sentiments and Investor Psychology
 Most traded commodities
Useful Information Sources
 Television
 Websites
 Magazines
 Books
 Investment Professionals
 Web Resources
 www.marketwatch.com  www.bloomberg.com
 www.kitco.com  www.cmegroup.com
 www.gold-seek.com  www.forexfactory.com
 www.bullionvault.com
 www.mcxindia.com
 www.futurespros.com
 www.nepalsharemarket.com
 www.morningstar.com.np
and more….
 www.dcxnepal.com
 Thank You
Derivative and Commodity Exchange Nepal Ltd.
Your Trading Bank
 Questions and Answers
Open Discussion
 Contact Details

Derivative and Commodity Exchange Nepal Ltd.

Mid Baneshwor Kathmandu, Nepal
Phone: 014782056/4782075

Reaching for the highest Standard

 If you can see it, You can Do it

Investment Test
(Should appear
circular)

Thank You !!!

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