Multi-Commodity Exchange (MCX) As An Investment Alternative

A STUDY ON MULTI-COMMODITY EXCHANGE (MCX) AS AN INVESTMENT
ALTERNATIVE
INDEX
Sr No. Chapter Page No.
Executive Summary 1-2
1. Introduction To Research Work 3-18
2. Review Of Literature 19-21
3. Need Of Commodity Futures Market 22-35
4. Multi-commodity Exchange (MCX) In Detail 36-47
5. Role Of MCX In Investment And Trading 48-52
6. Sources Of Finance For MCX 53-55
7. Research Analysis 56-64
8. Findings, Conclusion, Suggestion and Recommendations. 65-69
Annexure 70-73
Bibliography 74-74
0
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ALTERNATIVE
MCX
Indias No.1 Commodity Exchange
m
a
k
er
s
Executive Summary in
d
e
This decade is termed as Decade of
v
Commodities. Prices of all commodities are heading
el
upwards due to rapid increase in demand for
o
commodities. Developing countries like India are
pi
voraciously consuming the commodities. Thats why
globally commodity market is bigger than the stock n
market. g
c
India is one of the top producers of large o
number of commodities and also has a long history of u
trading in commodities and related derivatives. The nt
Commodities Derivatives market has seen ups and ri
downs, but seems to have finally arrived now. The es
market has made enormous progress in terms of ,
Technology, transparency and trading activity. th
Interestingly, this has happened only after the at
Government protection was removed from a number of pr
Commodities, and market force was allowed to play ic
their role. This should act as a major lesson for policy in
g and price risk management should be left to the
market forces rather than trying to achieve these
through administered price mechanisms. The
management of price risk is
Page 1
ALTERNATIVE
going to assume even greater importance in future with the promotion of

free trade and removal of trade barriers in the world.
As majority of Indian investors are not aware of organized

commodity market; their perception about is of risky to very risky investment.
Many of them have wrong impression about commodity market in their
minds. It makes them specious towards commodity market.

Now-a-days it has become very simple to trade in Multi-
Commodity Market and even a Layman provided he has its DEMAT
account in MCX can trade in any of the commodity available in MCX. He
can trade by himself or can order to his broker to initiate the trade.
The technology has advanced in this field to the extent that

Even by your Mobile (Internet) you can buy/sell any commodity
listed in MCX
For Example Gold Future, Silver Future, Crude Future etc.
Multi-Commodity Exchange (MCX) will always be favorable

for those investors who look to invest in Precious metals for immediate
profits and not in jewellery form to store it for a long period of time. Even if a
person does not attempt to trade in MCX he will also be benefited by getting
quotes regarding present market prices in the physical market.
2Page
ALTERNATIVE
Chapter 1 - INTRODUCTION TO RESEARCH WORK.
1.1 Introduction To Research
People are majorly concerned regarding their money matters.

They basically earn money through their primary occupation. They spend such
earned money on their basic consumption requirements. They are left with
surplus money called as savings. The very next concern is about where to invest
this surplus money in order to get higher returns as savings will not result in
capital appreciation since they are just kept aside for their future use.
Simultaneously they analyze all the risk factors involved in investment options.
Research have been conducted on Multi-Commodity Market [MCX] as an
investment option which will help people to get high rate of return by
making minimum investment with comparatively low risk. But investment

in MCX will depend on the investors goals. Investors goal comprises of two
types
1) Profit Maximization (Short-Term) and
2) Wealth maximization (Long-Term).
Accordingly they invest in different options available which

yields them with higher returns with lowest possible risk. Risk is inevitable
part in any investment. This gave rise to Portfolio management as a concept
which helps investor to divide his risk and this concept believes in
Not to put all Eggs in a Single Basket.

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ALTERNATIVE
It means that we should invest in different investment options

available and affordable for us to obtain risk-minimizing exposure.
The following are the Investment Options that are available for the
common man
1) Bank Deposits which includes Saving Account, Recurring Deposits, Fixed

Deposits.
Here Investment is reasonably safe and secured with adequate
liquidity.
The return on the investment (3.5 to 4%) is not adequate even to
protection against the present inflation rate (8 to 9%) in the country and
even capital appreciation is not possible in bank investment.
2) Investment In Equity Shares which includes ownership of securities.

Equity shareholders get income in the form of dividend. Profitable
and stable companies offer good reward to their investors in the form of high
rate of dividend. Shares are easily transferable and this facilitates easy transfer
of ownership at the option of the shareholders (investor). It also brings liquidity
to the investment in shares. The return as regards investment in shares is
uncertain as it is linked with the profitability of the company.
3) Investing in Mutual Fund which is effective for an investor as professional

and experienced fund managers handle the investors money. Here all funds
charge administrative fees to cover their day-to-day expenses.
4) Taking Life Insurance Policy is of most important for all the people.
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ALTERNATIVE
It provides protection to family members through financial

support in the case of death of policyholder. Investment in life insurance also
provides comfortable and financially independent life after retirement.
5) Investing in Postal Savings Schemes encourages savings amongst people.

Investing in such scheme is safe but it provides reasonably less rate of interest
on deposits. Also the time horizon is long that is 15 years.
6) Investment in Real Estate Properties has given the highest returns since
past years. There is a capital appreciation of residential buildings particularly in
the urban areas. But investment in real estate properties is normally
substantial. Due to huge investment in one item, the benefits of diversification
of investment are not available.
7) Investing in Gold Gold is considered as a Safe Heaven Investment.

Majority of the people in India has invested in gold in small amounts. Again it
requires more cash to invest in Gold.
When we have an overview of all the above investment option we derive
that
Where the risk is low, there is very low returns on investment which is also
less than rising inflation rates and where there is more or heavy risk the
returns are very high but it demands heavy investment.
5Page

ALTERNATIVE
Both the situations are not favorable for middle class people.
Now research lies in this context that how to make minimum investment to
get high rate of return with comparatively low risk.
Multi Commodity Exchange of India Ltd (MCX) is a leading commodities

exchange in India based on value of commodity futures contracts traded. MCX
has a permanent recognition from the Government of India for setting up a
nationwide, online (electronic multi-commodity marketplace, offering
"unlimited growth and opportunities" to market participants. MCX, a
nationwide multi-commodity exchange, is an independent and demutualized
exchange since inception. The exchange would be accountable not only to
FMC
(Forward Market Commission) but also SEBI (Securities Exchange Board
Of India).
Investment Return Analysis by comparing Commodities and
stock market for last 5 years -
(Source Infomine.com)
6
Page
ALTERNATIVE
Source Infomine.com
7Page
ALTERNATIVE
1.2 OBJECTIVES OF STUDY
MCX
METAL & ENERGY
Trade With Trust.
To Guide about how to start trading on MCX and relevant Processes

involved in starting Commodity future trading.
To Encourage common man to invest in commodity futures and trade

in Indias No.1 commodity exchange where Trading is done with
Trust. There are no counter-party risks.
To study and help make Multi-commodity Exchange a Part of total

investment portfolio of general investors.
To make people Aware about this Emerging Market.
To simultaneously make potential investors aware about Risks

involved MCX.
To Utilize opportunities available in this emerging market by investing

in the Futures market.
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ALTERNATIVE
To introduce the concept of Hedging in Physical commodity market

and merging it with future market.
To make personal investment more Diversified and risk free.
To help Bullion traders and Company to Hedge against huge losses

expected to occur in future due to price fluctuations.
To study Investors behavior towards different attributes such as risk,

return, liquidity etc. of investment in Commodities Futures.
To maintain Liquidity in persons investment where locking of funds

will be avoided.
To get Quotes on market price of the commodities and their

fluctuations.
To encourage common man who cannot afford in buying physical Gold

to invest his savings on Gold Futures as a Safe Heaven Asset.
To help investors to Sub-diversify their investments into Physical and

Future commodities investment. This will even help them to hedge
against loss from both physical and futures commodities trading.
Diversifying investment in future commodity market will also give
them benifits of Leverages where just by depositing a refundable
margin of 5 % they can hold any commodity contract.
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ALTERNATIVE
1.3 BACKGROUND OF STUDY
A Base for Multi-commodity Exchange [MCX]
2003 : MCX and NCDEX Established.
2001 : Silver and Gold Future Trading started.
1980 : Wheat, Rice, Sugar Futures Started.
1955 : Silver and Gold Future Trading Banned.
1953 : Forward Market Commission Established (FOMC).
1952 : Ban on Cotton Futures removed.
1939 : Cotton Derivative Banned by Government.
1920 : Gold and Silver Futures Trading Started in Bombay.
1875 : Bombay Cotton Trade Association Established.
(Source - Commodity Markets Operations, Instruments and

Applications.
- By Dr. NITI NANDINI CHATNANI.)

0Page1
ALTERNATIVE
Development of Commodity Derivatives in India
The history of organized commodity derivatives in India started

when derivatives trading started in oilseed in Bombay (1900), raw jute and
jute goods in Calcutta (1912), Wheat in Hapur (1913) and Bullion in Bombay
(1920).
The parliament passed the Forward Contracts (Regulation) Act,
1952, which regulated contracts in Commodities all over the India. The act
prohibited options trading in Goods along with cash settlement of forward
trades, rendering a crushing blow to the commodity derivatives market.
Under the act only those associations/exchanges, which are granted
reorganization from the Government, are allowed to organize forward trading
in regulated commodities.
After Liberalization and Globalization in 1990, the Government
set up a committee (1993) to examine the role of futures trading. The
Committee (headed by Prof. K.N. Kabra) recommended allowing futures
trading in 17 commodity groups. It also recommended strengthening Forward
Markets Commission, and certain amendments to Forward Contracts
(Regulation) Act 1952.

It brings a price transparency and risk management in the vital
market. Since 2002, the commodities future market in India has experienced
an unexpected boom in terms of modern exchanges, number of commodities
allowed for derivatives trading as well as the value of futures trading in
commodities, which crossed $ 1 trillion mark in 2006.
1Page1
ALTERNATIVE
In India there are three national level multi-commodity exchanges.
The three exchanges are:
National Commodity & Derivatives Exchange Limited (NCDEX) Mumbai,
Multi Commodity Exchange of India Limited (MCX)
Mumbai and National Multi-Commodity Exchange of India Limited

(NMCEIL)
Multi Commodity Exchange of India Limited (MCX)
MCX started of trade in November 2003 and has built strategic alliance
with Bombay Bullion Association, Bombay Metal Exchange, Solvent
Extractors Association of India and pulses Importers Association
Commodities Futures Traded at MCX is as follows:-

Bullions:-
Gold, Gold Mini, Silver, Silver Mini, Silver Micro,
Metals:-
Aluminum, Copper, Nickel, Iron/steel, Tin, Zinc, Lead
Energy:-
Brent Crude Oil, Crude Oil, Natural Gas.
Agricultural Commodities:-
Mentha oil, Potatoes, Palm oil, Pepper, Red Chili, Jeera, Cardamom,
Cinnamon, Clove, Ginger, Chana, Masur, Tur, Urad, Rice/ Basmati
12
Rice, Wheat, Maize, Bajara, Barley, Kapas, Gaur seed and Guargum,
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Gur and Sugar and Potato.

ALTERNATIVE
1.4 SIGNIFICANCE OF STUDY
MCX
METAL & ENERGY
Trade With Trust.
m
e
a
Global Institutional investor interest in n
commodity trading has increased significantly over the past s
few years. This, in part, reflects powerful cyclical and
o
structural forces working in favor of commodity markets,
f
while, also the realization of the need to diversify personal
investments into upcoming of this financial products. The p
areas covered includes o
r
Liquidity: t
f
Unlike investment vehicles like real estate, investments in o
commodity futures offer high liquidity. It is equally easy l
to both buy and sell futures and an investor can easily i
liquidate his position whenever required. It enhances o
liquidity because there is no lock-in of funds. When client
d
clears his position the margin money is again deposited in
i
his account. Again hi profits will also be deposited in his
v
account. He can withdraw his profits just after the clearing
e
of his transaction. r
s
Diversification:
i
f
Investments in commodity markets are an excellent
ication. For example, gold prices have historically
shown a low
13
Page
A STUDY ON MULTI-COMMODITY EXCHANGE (MCX) AS AN d
INVESTMENT
ALTERNATIVE i
f
correlation with most other asset prices (such as
equities) and thus offer an excellent means for portfolio f
diversification. e
r
Inflation Hedge: e
n
As the commodity prices determine price levels and
c
consequently inflation, investing in commodity futures
e
can act as a hedge against inflation.
i
Physical Gold:
n
Physical Gold is a product by which retail and high net
p
worth investors can take investment positions in
r
dematerialized physical gold using the futures market. In
this product, the investor can hold physical gold, in a i
safe deposit vault approved by the exchange, which is c

e
reflected in the investor's demat account. o

Corporate Hedge:
f
MCX has enabled the Indian corporate sector, small & t
medium enterprises (SMEs) and micro, small & medium h
enterprise (MSMEs) to hedge against price volatility by e
providing more than 95% price correlation with global
markets. c
o
Benchmark Pricing : m
MCX enables an investor as well as non-investor to get m
expose to prices of commodities on an international level. o
It attempts to explain that there will not be any major d
ities between any two or more countries in the world.
Example: Silver price per KG
= 60,000 Rupees Therefore
Silver price per Ounce = 1,875
Rupees.
Now in terms of Dollars Silver Price per ounce is trading at

34 Dollars (Approx) Note: Here, 1 Dollar = 55 Rupees.
14
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ALTERNATIVE
1.5 LIMITATIONS OF STUDY
Since Multi-Commodity Exchange is a Comprehensive market it is
difficult to study the overall behavior of market and their respective

trader and members.
India has many reputed Brokers/Members of MCX some of which
includes ANGEL BROKERS, Motilal Oswal, Karvy Commtrade, India

Infoline, SMC Global, Paradigm Commodities, Kotak Commodities,
Sharekhan and many more. All brokers have different view on
commodity marker. There study reveals different proportion of
investment in commodity futures. Hence it will be difficult to study
investing option of different brokers individually.
Both Primary and Secondary data are used. Secondary data may not be
fully reliable. The primary data is collected from the traders to
maintain reliability of the data regarding their Investment.
Samples are collected only for some Traders and reputed Brokers like
ANGEL Brokers, Sharekhan, and India Infoline.
It is impossible to collect data from all most all traders as they are in large
Volumes. Therefore, survey of some investors is done in minority. Data

have been collected regarding investment information from the
investors to maintain reliability of data. On the other hand data collected
from broking firms are REGISTERED MEMBERS of MCX.
Unknown persons may not give or reveal true information about their
investment portfolio and hence sample has avoided collecting answers
15
and surveys to maintain reliability of data.

Page
ALTERNATIVE
The priority of MCX may change in the minds of investors due to

underperformance of this market as compared to Share Market, Currency
market, Mutual Funds, Bank Deposits and so on. For long term this
study may not be applicable as a whole.
There are 60 commodities traded in MCX. Some of the commodities with

low volumes and Agricultural commodities are ignored. Commodities of
study includes
Precious Metals - Gold and Silver.
Base Metals - Copper, Nickel, Zinc, Lead, Aluminum.
Energy - Crude Oil.
The survey is done of traders situated in city Mumbai.

Therefore trading behavior and strategy of farmers in MCX is not
studied because they operate in Village or town areas.
Similarly, the fundamentals and present scenario of Agro-

Commodities is not studied since it is majorly traded by Farmers and
not by people living in the Mumbai city.
6Page1
ALTERNATIVE
1.6 RESEARCH METHEDOLOGY
1. Primary Data:
This Data has been collected by me by first-hand .This Data has not been
published yet and is more reliable and authentic .Its validity is greater than
secondary data.
Interview: I have had a face-to-face conversation with -

Javed Merchant Channel Partner, ANGEL BROKING Private
Limited.
This has enabled me to draw conclusions easily based on

investment exposure of clients to MCX in views of Sub-Brokers and
Experienced Trader. Again I came across with views of Javed Merchant Sir
which has contributed greatly to my research and findings.
Questionnaire: I have prepared a common questionnaire for

conducting a survey. It contains a set of questions which has given me the
relevant information on investment behavior of the income earning
people. This questionnaire is only prepared for educational purpose.
Note: Questionnaire is only given to Income Earning groups that

are people with age above 26 years of age.
7Page1
ALTERNATIVE
2. Secondary Data:
This includes Data collected by me from a source that has already been
published in any form. The review of literature is based on secondary data. Data
is from books, newspaper, Research Reports, Technical charts, Research
Journals. It can be less valid but its importance is still there. It was difficult to
obtain Primary data in all respect so I preferred Secondary data over primary
data.
Published Printed Sources:
Books: Professors and Commodity Market Experts have published many
Books on Future Commodity market. The concepts and applications of
MCX are referred from various books
Research Reports by ANGEL BROKING: Research Report of Angel

and MCX India are reliable when compared to others as far as data
collection is concerned. The reason is that journals provide up-to-date
information which at times books cannot and secondly, journals can give
information on the very specific topic on which you are researching
rather talking about more general topics.
Newspapers: Various Articles relating to MCX are referred from

newspaper which includes The Economic Times, DNA, Times Of
India, Hindustan Times, Business Standard, Business Line etc.
Magazines - I have referred data published in CAPITAL MARKET

Magazine. It is a Fortnight (15 Days).
8Page1
ALTERNATIVE
Chapter 2 REVIEW OF LITERATURE

A Book on -
Commodity Markets Operations, Instruments and Applications.
By Dr. NITI NANDINI CHATNANI.
(Commodity Market Expert)

CAPITAL MARKET Magazine.
It is a Fortnight (15 days) magazine which displays monthly and
weekly technical charts of Precious Metals, Base Metals and Crude Oil. It also
suggests trading levels of commodity futures.

Press Reports by MCX India -
(Updated on
www.mcxindia.com)
It keeps on updating its members regarding Volumes of

Trade per day, change in margin money requirements, offering Limits to
Clients, Terms and Conditions of Settlement of Delivery and trade.

Mr. P.K Singhal, Deputy Managing Director, MCX, said, We
are proud to be the worlds 6th largest commodity futures
19
exchange. We owe this success to our regulators, members,

Page
ALTERNATIVE
shareholders and participants of the commodity market ecosystem.

We are committed to make MCX the best commodity exchange in
the world.Metals and Energy segments are the key contributors
to our success and these have enabled us to become the 6 th largest
exchange in World.
- Announcement made on 15th January

2011
Table 2: Futures volume (JanDecember 2010)
Commodity Contracts traded Global Ranking
Silver 28.51 million I
Gold 30.42 million II
Copper 29.60 million II
Natural Gas 11.12 million II
Crude Oil 41.09 million III
&
C
E
O,
M
MCX to launch an innovative contract
Business Standard C
X.
March 26th 2012.
Silver 1000 is a deliverable 1-kg silver contract. Silver
1000 is expected to cater to the needs of small jewellers and retail
investors who wish to take physical delivery of a 1-kg silver bar in
demat or physical form.
Silver 1000 will meet the needs of physical market
participants and retail investors. It will enable them to take delivery
of 1-kg silver bar at lower margins, compared to the hitherto 30-kg
bars, said Shreekant Javalgekar, MD
0Page2
ALTERNATIVE

MCX launches membership drive, to target smaller cities
Under the introductory offer, entry-level membership would be Rs 25
lakh
Business Standard September 5th,
2012.
MCX offers attractive membership schemes to all Brokers for

promoting Commodity Futures Market in MCX.

Commodity rally losing steam post QE3
DNA September 14th 2012.
The rally in commodity prices seems to be losing steam after the

announcement of a third round of quantitative easing (QE3) by the US Federal
Reserve in the middle of this month. Prices were already up before the
announcements and once the news was out, follow-up buying from real
sectors didnt happen due to growth concerns.

Gold to ease to Rs 30,500 level on rising rupee: Analysts
Business Line September 30th 2012.
This article reveals that Gold prices are under pressure when Indian
Rupee is stronger as compared to dollar.
1Page2
ALTERNATIVE
Na
tur
Chapter 3- NEED OF COMMODITY al

FUTURES MARKET Ga
s),
an
3.1 INTRODUCTION da
nu
m
Multi Commodity Exchange of India Ltd be
(MCX)
r
(BSE: 534091) is an independent commodity exchange based of
in India. It was established in 2003 and is based in Mumbai. ag
Promoted by Financial Technologies (India) Limited and ric
has introduced an online digital exchange for commodities ult
trading in the country. Subsequent to this, the exchange would
ur
be accountable not only to FMC (Forward Market
al
Commission) but also SEBI
co
(Securities Exchange Board Of India).The company received m
permanent recognition from the Government of India on m
September 26, 2003, to facilitate nationwide online trading, od
clearing and settlement operations of commodities futures iti
transactions. Multi Commodity Exchange of India Ltd was es
originally incorporated as a private limited company under (m
the Companies Act, 1956, on April 19, 2002 as Multi ent
Commodity Exchange of India Private Limited. ha
Subsequently, the company was converted into a public oil
limited company and consequently the name was changed to ,
Multi Commodity Exchange of India Limited on May 16, car
2002. MCX offers futures trading in Bullion (Gold, Silver), da
Metals (Copper, Zinc, Lead, Aluminum) Energy (Crude Oil, m
om, potatoes, palm oil and others).
Globally, MCX ranks number 1 in Silver,
number 2 in Gold, number 3 in Copper in futures
trading. MCX now reaches out to about 800 cities and
towns in India.
Page 22
ALTERNATIVE
Table 1: Performance Ranking (JanuaryDecember 2010)
Performanc % Change
e Commodity Futures Exchange JanDec 2009 Jan-Dec 2010 2009
Rankings in Volume Volume
Jan- (Million (Million vs. 2010
Dec 10 Contracts) Contracts)
1 Shanghai Futures Exchange 140.26 434.86 210.03%
CME Group (includes CBOT &

2 NYMEX) 513.42 420.66 18.07%
3 Dalian Commodity Exchange 319.16 416.78 30.59%
4 Zhen Zhou Commodity Exchange 222.56 227.11 2.05%
Intercontinental Exchange
5 (includes 198.67 207.23 4.31%
U.S., U.K. and Canadian
Markets)
6 MCX 94.31 161.17 70.90%
7 London Metal Exchange 105.86 106.46 0.57%
Mumbai, February 22, 2011: MCX, Indias No. 1 commodity

exchange, has become the 6th largest and amongst the fastest growing
commodity futures exchange in the world in terms of the number of
contracts traded during the period January to December 2010.
With a vision to be amongst the top commodity futures

exchange in the world, MCX will celebrate 2011 as a Year of Metal and
Energy. The logo has been redesigned to reflect the special status given to
metal and energy segments.
23Page
ALTERNATIVE
3.2 FEATURES OF MULTI-COMMODITY EXCHANGE
Organized:
Commodity Futures contracts always trade on an organized
exchange and it is approved by the Government of India.
Standardized:
Commodity Futures contracts are highly standardized with
the quality, quantity, and delivery date, being predetermined.
Eliminates Counterparty Risk:

Commodity Futures exchanges use clearing houses to
guarantee that the terms of the futures contract are fulfilled. The Clearing
House guarantees that the contract will be fulfilled, eliminating the risk of any
default by the other party.
Facilitates Margin Trading:

Commodity Futures traders do not have to put up the
entire value of a contract. Rather, they are required to post a margin that is
roughly 4 to 8% of the total value of the contract (this margin varies across
exchanges and commodities). This facilitates taking of leveraged positions.
Regulated Markets Environment:

Commodity Futures contracts are highly standardized
with the quality, quantity, and delivery date, being predetermined.
4Page2
ALTERNATIVE
Physical Delivery:
Actual delivery of the commodity can be made or
taken on expiry of the contract. Physical delivery requires the member to
provide the exchange with prior delivery information and completion of all
the delivery related formalities as specified by the exchange.
Leverage:
Leverage refers to having control over large cash value of
a commodity with comparatively small levels of capital. In other words, with
a relatively small amount of cash, one can enter into futures contract that is
worth much more than what has to be paid initially. A small change in futures
market can translate into huge gain or loss. The initial margins are set by the
exchange. It may vary from 5% to 8% of total cash value.
Regulation:
In order to avoid any unfair advantages, the regulator and
the commodity futures exchange impose limits on the total amount of
contracts or units of the commodity in which any single person can invest.
These are known as Position limits, and they ensure that no one person can
control the Market Price for a particular commodity. It is regulated by SEBI as
well as FMC.
Inflation Hedge:
As the commodity prices determine price levels and

consequently inflation, investing in commodity futures can act as a hedge
against inflation.
5Page2
ALTERNATIVE
3.3 FACTORS AFFECTING COMMODITIES SCRIPTS IN

MCX
GOLD
Global and Demand and Supply Scenario

Gold demand in 2010 reached a 10-year high of 3,812.2 tonnes, worth
US$150billon, as a result of;
o strong growth in jewellery demand;
o strong momentum in Chinese gold demand and
China was the world's largest gold producer with 340.88 tonnes in
2010, followed by the United States and South Africa.
In 2010, India was the world's largest gold consumer with an annual
demand of 963 tonnes.
Mumbai is under India's liberalized gold regime.
New York is the home of gold futures trading.
Zurich is a physical turntable.
Istanbul, Dubai, Singapore, and Hong Kong are doorways to
important consuming regions.
Indian Scenario
India is the largest market for gold jewellery in the world. 2010 was a
record year for Indian jewellery demand. In local currency terms, Indian
jewellery demand more than doubled in 2010.
A 20% rise in the rupee price of gold combined with a 69% rise in the
volume of demand, pushed up the value of gold demand by 101% to
1,342 billion. 26Page

ALTERNATIVE
The rising price of gold, particularly in the latter half of 2010, created a
'virtuous circle' of higher price expectations among Indian consumers,
which fuelled purchases, thereby further driving up local prices.
Silver

Demand for coins and medals surged yet higher from 2008, rising by
20.7% to reach a new record high of 2,447 tonnes in 2009 on the back of
strong investment demand.
Scrap supply continued to decrease in 2009 by almost 6% despite a strong
recovery in prices over the year.
Silver is predominantly traded on the London Bullion Market Association
(LBMA) and COMEX in New York.
Silver is invariably quoted in the US dollars per troy ounce.
Indian Scenario
India's silver demand averages 2500 tonnes per year, whereas the
country's production was around 206.95 tonnes in 2010.
Nearly 60% of India's silver demand comes from farmers and rural India,
who store their savings in silver bangles and coins.
Factors Influencing the Market
Economic events such as national industrial growth, global financial
crisis, recession, and inflation affect metal prices.
Commodity-specific events such as the construction of new production
facilities or processes, unexpected mine or plant closures, or industry
27
restructuring, all affect metal prices.

Page
ALTERNATIVE
Silver demand is underpinned by the demand from jewellery and

silverware, industrial applications, and overall industrial growth.
In India, silver demand is also determined to a large extent by its price

level and volatility.
Copper

Copper mine production was up nearly 2%, from 15.805 million MT
in 2009 to16.099 million MT in 2010.
While Chile accounts for 34% of the total world copper mine
production, Peru, USA, China, Australia and Indonesia, together are
responsible for around 32%.
Growth in refined copper usage has been especially strong in Asia,
where demand has expanded more than five-fold in less than 30
years.
Major refined copper exporting countries are Chile, Zambia, Japan,
Russia and Peru, while major refined copper importing countries
are China, USA, Germany, Italy and Taiwan.
Indian Scenario
India's production of refined copper is approximately around 4% of
the total world production and in terms of figures it is around 600,000
MT when it comes to India's consumption of refined copper per
annum it is around 535,000 MT, which accounts for only 3% of the
world copper market.
Sterlite Industries, Hindalco, and Hindustan Copper are three major
28
producers of copper in India. India is emerging as net exporter of

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ALTERNATIVE
copper from the status of net importer on account of rise in

production by these three companies.
Two major state-owned telecommunications service providers - BSNL
and MTNL, consume 10% of the country's copper production.
Aluminium
The global aluminium market was in surplus by 577,000 MT in 2010,

though down from 1.901 million MT in 2009.
Major aluminium exporting countries are Germany, Russia and
Canada, while major aluminium importing countries are USA,
Germany and China.
Indian Scenario
Currently,India is the fifth largest producer of aluminium in the
world with a production capacity of 1.6 million MT per annum.
India's primary aluminium consumption in 2009 grew by 7.1% to 1.4
million MT. Its per capita consumption of the metal is 1.3 kg.
Indian aluminium industry consists of four primary producers:
Hindalco, NALCO (a Government of India enterprise), BALCO, and
Vedanta Aluminium.
9Page2
ALTERNATIVE
Lead

Global refined lead production over 2010 was 9.311 million MT, up
from 8.802 million MT in 2009.
Major refined lead producing countries are China, USA and Europe,
while major refined lead consuming countries are China, USA and
India.
Major refined lead exporting countries are Australia, Germany and
Canada, while major refined lead importing countries are USA,
United Kingdom and India.
Indian Scenario
In 2009, refined lead production was around 207,000 MT, up from
165,000 MT in 2008.
India's refined lead consumption in 2009 increased by 3% year on
year to 187,000 MT, up from 181,000 MT in 2008.
Indiaimported 125,000 MT of lead in 2009, an increase of 20%
compared with lead imports in 2008.
The main producers of lead are Hindustan Zinc Limited (HZL) and
Indian Lead Limited (ILL).
0Page3
ALTERNATIVE
Nickel
Characteristics of World Nickel Market

More than 54% of world total supply comes from only
few companies.
Global nickel consumption is growing by an average 3.1 per cent a
year.
Supply and Demand

Major producers of Nickel are Russia, followed by Australia, Canada,
New Caledonia and Indonesia, which represents over 65% of total
world production.
Nickel world market is characterized by rising demand and
constrained supply.
World primary nickel consumption is about 1 million tons.
Consumption centers are Japan 2 lakh tons and European Union 3.74
lakh tons.
Rapid expansion of global stainless steel production is fuelling
demand for primary nickel.
Factors Influencing Nickel Markets

Above ground supply from scrap .
New mines discovery .
Nickel demand is derived demand thus the situation in the various
industries.
Growth in consumption of Stainless steel.
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ALTERNATIVE
India meets its Nickel Requirement through import.
Zinc

The rise in world zinc mine production in 2010 (8.8% compared
with 2009) was primarily influenced by higher output in Australia,
China, India, Mexico and the Russian Federation.
After a sharp decline in 2009 caused by the economic crisis, world
usage of refined zinc metal rebounded by 15.6% in 2010,
surpassing 12 million MT for the first time.
Major refined zinc exporting countries are Canada, Australia and
Rep. of Korea, while major refined zinc importing countries are
China, USA and Germany.
Indian Scenario
India's refined zinc production was 646,000 MT in 2009, an increase
of around 8%-9% from the previous year.
Consumption of refined zinc in India reached 512,000 MT in 2009,
an increase of 20.8% from 2008. lndia's per capita zinc
consumption is at a meager O.4 kg, among the lowest in the world.
Factors Influencing the Base Metal Market (Copper, Zinc, Nickel,

Lead, Aluminium)
All Base metal prices in India are fixed on the basis of the rates that
rule on the international spot market, and Rupee and US Dollar
32
exchange rates.
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ALTERNATIVE
Economic events such as national industrial growth, global financial

crisis, recession, and inflation affect commodity-specific events such
as the metal prices.
Construction of new production facilities or processes, new uses or
the discontinuance of historical uses, unexpected mine or plant
closures (natural disaster, supply disruption, accident, strike, and so
forth), or industry restructuring, all affect metal prices.
Governments set trade policy (implementation or suspension of
taxes, penalties, and quotas) that affect supply by regulating
(restricting or encouraging) material flow.
Geopolitical events involving governments or economic
paradigms and armed conflict can cause major changes.
There is also a national economic growth factor. Societies, as they
develop, demand metals in a way that depends on their current
economic position.
Crude Oil
Global Scenario
Oil accounts for 40 per cent of the world's total energy demand.
The world consumes about 76 million bbl/day of oil.
United States (20 million bbl/d), followed by China (5.6 million
bbl/d) and Japan (5.4 million bbl/d) are the top oil consuming
countries.
Balance recoverable reserve was estimated at about 142.7 billion
33
tones (in 2002), of which OPEC was 112 billion tones.

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ALTERNATIVE
OPEC
OPEC stands for 'Organization of Petroleum Exporting Countries'. It is an

organization of eleven developing countries that are heavily dependent on
oil revenues as their main source of income. The current Members are
Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia,
the United Arab Emirates and Venezuela.
OPEC controls almost 40 percent of the world's crude oil.
Its exports represent 55 per cent of the oil traded internationally.
Indian Scenario
India ranks among the top 10 largest oil-consuming countries.
Oil accounts for about 30 per cent of India's total energy
consumption. The country's total oil consumption is about 2.2 million
barrels per day. India imports about 70 per cent of its total oil
consumption and it makes no exports.
India faces a large supply deficit, as domestic oil production is
unlikely to keep pace with demand. India's rough production was
only 0.8 million barrels per day.
The oil reserves of the country (about 5.4 billion barrels) are located
primarily in Mumbai High, Upper Assam, Cambay, Krishna-
Godavari and Cauvery basins.
Government has permitted foreign participation in oil exploration, an
activity restricted earlier to state owned entities.
Indian government in 2002 officially ended the Administered Pricing
Mechanism (APM). Now crude price is having a high correlation
34
with the international market price. As on date, even the prices of

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ALTERNATIVE
crude bi-products are allowed to vary +/- 10% keeping in line with
international crude price, subject to certain government laid down
norms/ formulae.
Disinvestment/restructuring of public sector units and complete
deregulation of Indian retail petroleum products sector is under way.
Market Influencing Factors

OPEC output and supply.
Terrorism, Weather/storms, War and any other unforeseen
geopolitical factors that causes supply disruptions.
Global demand particularly from emerging nations.
Dollar fluctuations.
Refinery fires
Funds buying.
OPEC meetings in case crude oil prices are not in its range of past 5
years.
Recently, Agitation in Libya had enormous effects on crude

oil prices. It went from 4600 Rs. Per Barrel to 5200 Rs. Per Barrel. Further
when Libya King Gaddafi was killed the prices of crude were stabilized at
around 4800.
The prices of crude highly depend on the Exchange rates
of Dollar. When the Dollar was at new highs (55/Indian Rupee) then crude
oil prices were at the bottom (4750 Rs./barrel)
5Page3

ALTERNATIVE
CHAPTER 4 MULTI-COMMODITY EXCHANGE (MCX) IN
DETAIL
4.1 Beginners Guide to Commodities Futures Trading in India
Indian markets have recently made open a new avenue for retail
investors and traders to participate in commodity derivatives. For those
who want to diversify their portfolios beyond shares, insurance and real
estate, commodities are the best option.
However, with the setting up of three multi-commodity exchanges in
the country, retail investors can now trade in commodity futures without having
physical stocks. Commodities Futures actually offer immense potential to
become a separate asset class for market-savvy investors and speculators.
Retail investors, who claim to understand the equity markets, may find
commodities as an interesting 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.
Like any other market, the one for commodity futures plays a
valuable role in information pooling and risk sharing. The market mediates
between buyers and sellers of commodities, and facilitates decisions related
to storage and consumption of commodities.
36
Page

ALTERNATIVE
4.2
Explanation on how a retail investor can get started:
BASIC
With whom investor can transact a business?

An investor can transact a business with the approved clearing member of
previously mentioned Commodity Exchanges. The investor can ask for the
details from the Commodity Exchanges about the list of approved members.
What is Identity Proof?

When investor approaches Clearing Member, the member will ask for identity
proof. For which Xerox copy of any one of the following can be given
a) PAN card Number
b) Driving License
c) Vote ID
d)
Passport
What statements should be given for Bank Proof?

The front page of Bank Pass Book and a canceled cheque of a concerned
bank. Otherwise the Bank Statement containing details can be given.
What are the particulars to be given for address proof?

In order to ascertain the address of investor, the clearing member will
insist on Xerox copy of Ration card or the Pass Book/ Bank Statement where
the address of investor is given.
What are the other forms to be signed by the investor?

The clearing member will ask the client to sign
a) Know your client form
37
Page

ALTERNATIVE b)
Risk Discloser Document
The above things are only procedure in character and the risk involved
and only after understanding the business, he wants to transact business.
What aspects should be considered while selecting a commodity

broker?
While selecting a commodity broker investor should ideally keep
certain aspects in mind to ensure that they are not being missed in any which
way. These factors include
Net worth of the broker of brokerage firm.
The clients.
The number of franchises/branches.
The market credibility.
The kind of service provided- back office functioning being most
important.
Credit facility.
The research team.
These are amongst the most important factors to calculate
the credibility of commodity broker.
Commodity Broker is the member of Commodity Exchange, having direct
connection with the exchange to carry out all trades legally. He is also known
as the authorized dealer.
Exchange for trading in commodity futures
You have three options the National Commodity and Derivative

Exchange, the Multi Commodity Exchange of India Ltd and the National
Multi
38
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ALTERNATIVE
Commodity Exchange of India Ltd. All three have electronic trading and
settlement systems and a national presence.
Choosing broker
Several already-established equity brokers have sought membership with

NCDEX and MCX. The likes of Angel Broking, SSKI (Sharekhan) and
ICICIcommtrade (ICICIdirect), ISJ Comdesk (ISJ Securities) and Sunidhi
Consultancy are already offering commodity futures services. Some of them
also offer trading through Internet just like the way they offer equities.
Condition to start trading in commodity futures
A potential commodity investor will need only one bank account. He/She will
need a separate commodity demat account from the Multi-Commodity
Exchange Ltd to trade on the MCX just like in stocks.
Other requirements at broker level
You will have to enter into a normal account agreements with the broker. These
include the procedure of the Know Your Client format that exist in equity
trading and terms of conditions of the exchanges and broker. Besides you will
need to give you details such as PAN no., bank account no, etc.
Brokerage and transaction charges
The brokerage charges range from 0.05-0.25 per cent of the contract
value. The brokerage will be different for different commodities. It will
also differ based on trading transactions and delivery transactions. In
case of a contract resulting in delivery, the brokerage can be 0.25 1
per cent of the contract value. The
39Page
ALTERNATIVE
brokerage cannot exceed the maximum limit specified by the exchanges.
Information on commodities
Daily financial newspapers carry spot prices and relevant news and articles
on most commodities. Besides, there are specialised magazines on Bullions
and metals available for subscription like Capital Market. Brokers also
provide research and analysis support. But the information easiest to access is
from websites. Though many websites are subscription-based, a few also
offer information for free.
The regulator
The exchanges are regulated by the Forward Markets Commission. Unlike the
equity markets, brokers dont need to register themselves with the regulator.
The FMC & SEBI deals with exchange administration and will seek to
inspect the books of brokers only if foul practices are suspected or if the
exchanges themselves fail to take action. In a sense, therefore, the commodity
exchanges are more self-regulating than stock exchanges. But this could
change if retail participation in commodities grows substantially.
Margin Money applicable in the commodities market?
Normally it is between 5 per cent and 9 per cent of the contract value.
The margin is different for each commodity. Just like in equities, in commodities
also there is a system of initial margin and mark-to-market margin. The margin
keeps changing depending on the change in price and volatility.
0Page4
ALTERNATIVE
Is delivery mandatory in futures contract trading?
The provision for delivery is made in the Byelaws of the Associations so as to

ensure that the futures prices in commodities are in conformity with the
underlying. Delivery is generally at the option of the sellers. However,
provisions vary from Exchange to Exchange. Byelaws of some Associations
give both the buyer and seller the right to demand/give delivery.
What are the commodities suitable for futures trading ?
All the commodities are not suitable for futures trading and for conducting futures
trading. For being suitable for futures trading the market for commodity should be
competitive, i.e., there should be large demand for and supply of the commodity
no individual or group of persons acting in concert should be in a position to
influence the demand or supply, and consequently the price substantially. There
should be fluctuations in price. The market for the commodity should be free from
substantial government control. The commodity should have long shelf-life and be
capable of standardisation and gradation.
How professionals predict prices in futures?
Two methods generally used for predicting futures prices are fundamental
analysis and technical analysis. The fundamental analysis is concerned with
basic supply and demand information, such as, weather patterns, carryover
supplies, relevant policies of the Government and agricultural reports. Technical
analysis includes analysis of movement of prices in the past. Many participants
use fundamental analysis to determine the direction of the market, and technical
analysis to time their entry and exist.
1Page4
ALTERNATIVE
How is it possible to sell, when one doesnt own commodity?
One doesnt need to have the physical commodity or own a contract for the
commodity to enter into a sell contract in futures market. It is simply agreeing
to sell the physical commodity at a later date or selling short. It is possible to
repurchase the contract before the maturity, thereby dispensing with delivery of
goods.
Long position
In simple terms, long position is a net bought position.
Hedging
Hedging is a mechanism by which the participants in the physical/cash markets

can cover their price risk. Theoretically, the relationship between the futures and
cash prices is determined by cost of carry. The two prices therefore move in
tandem. This enables the participants in the physical/cash markets to cover their
price risk by taking opposite position in the futures market.
Hedger
Hedger is a user of the market, who enters into futures contract to manage the
risk of adverse price fluctuation in respect of his existing or future asset.
Day-traders
Day traders are speculators who take positions in futures or options contracts
and liquidate them prior to the close of the same trading day.
2Page4
ALTERNATIVE
Why does Exchange collect margin money?
The aim of margin money is to minimize the risk of default by either counter
party. The amount of initial margin is so fixed as to ensure that the probability
of loss on account of worst possible price fluctuation, which cannot be met by
the amount of ordinary/initial margin is very low. The Exchanges fix rates of
ordinary/initial margin keeping in view need to balance high security of
contract and low cost of entering into contract.
Initial/ordinary margin
It is the amount to be deposited by the market participants in his margin account

with clearing house before they can place order to buy or sell a futures
contracts. This must be maintained throughout the time their position is open
and is returnable at delivery, exercise, expiry or closing out.
Mark-to-Market margin
Mark-to-market margins are payable based on closing prices at the end of each
trading day. These margins will be paid by the buyer if the price declines and by
the seller if the price rises. This margin is worked out on difference between the
closing/clearing rate and the rate of the contract (if it is enterned into on that
day) or the previous days clearing rate. The Exchange collects these margins
from buyers if the prices decline and pays to the sellers and vice versa.
3Page4
ALTERNATIVE
Example of Trading in MCX
Assuming Current date is 10th October 2012
- Gold contract = 1 Kg (1,000 Gms)
Gold Mini Contract = 100 Gms
Gold Mini Contract December 2012 Future Price in MCX = 31,250 / 10 Gms
th
A client buys Gold Mini December Futures on 10 October 2012 in 31,250.
Therefore Margin required in this case = 31,250 x (10) x 12% = 37,500.
Say he holds his position up to 1st November and Gold December Futures
Price as on 1st November is 31,000.

In this case he is currently in loss which is = 31250 31,000 x (10) = 2,500.
Say if he holds his position till 27th December and as on this day the
Gold December Price is 32,000.
In this case he is in Profit which will be as follows 32,000-31,250 x (10)
= 7,500.
Since it was a December Future Contract it will end on 31st December and
client will be advised to clear his position as he is in profit of 7,500.
His investment was 37,500 and the percentage return in this case
= 7,500 x 100 / 37,500 = 20 %

4Page4

ALTERNATIVE
Cli
ent can even carry forward his pending position say in January, February or
March Contract but in this case the client will be charged 6 % of the margin
money he has paid.
In the above case 37,500 x 6%
= 2,250 will be charged against carry forward of the

contract which will be non-refundable. It means that client will not be given
such money in contract winding.
Hence client will have in total 37,500 + 7,500
= 45,000 in his MCX account.
(Note: As per market Volatility a safety margin is kept by the broker as per
the Direction of SEBI which may range from 2 8 %.
This mechanism is common for each and every commodity.
In case of Silver
Silver Contract = 30 Kgs
Silver Mini Contract = 5 Kgs
Silver Micro Contract = 1 Kg.
In Case of Copper
Copper Contract = 1,000 Kgs
Copper Mini Contract = 250 Kgs.
In Case of Zinc
Zinc Contract = 5,000 Kgs
Zinc Mini Contract = 1,000 Kgs
45
Page
ALTERNATIVE
In Case of Lead
Lead Contract = 5,000 Kgs
Lead Mini Contract = 1,000 Kgs.
In Case of Aluminium
Aluminium Contract = 5,000 Kgs
Aluminium Mini Contract = 1,000 Kgs.
In Case of Nickel
Nickel Contract = 1,000 Kgs
Nickel Mini Contract = 250 Kgs.
In Case of Crude
Crude Contract = 100 Barrels.
Hence, here calculation of margin money required will be as follows
Copper Contract consist of 1000 Kg. Therefore value of the contract will
be = 1,000 x 430 (Future Price) = 4,30,000.
Therefore Margin Money = 4,30,000 x 5 %
= 21,500.
Additional Safety Margin and volatility margin may be required which will
range from 2 4% of the total contract value.
6Page4
ALTERNATIVE
MCX Daily Margin Requirement As On Oct 01 2012
Script with Expiry Date Price Multiplier Value (Rs.) Margin (Rs.)
ALUMINI Nov 30 2012 111.65 5000 Kgs 111650.00 5582.50
ALUMINIUM Nov 30 2012 111.60 1000 Kgs. 558000.00 27900.00
COPPER Nov 30 2012 441.05 1000 Kgs. 441050.00 22052.50
COPPERM Nov 30 2012 441.20 250 Kgs. 110300.00 5515.00
CRUDEOIL Nov 15 2012 4915 100 Br. 491500.00 24575.00
GOLD Dec 5 2012 31535 1000 Kgs. 3153500.00 126140.00
GOLDM Nov 5 2012 31413 100 Kgs. 314130.00 12565.20
LEAD Nov 30 2012 119.95 5000 Kgs. 599750.00 29987.50
LEADMINI Nov 30 2012 119.95 1000 Kgs. 119950.00 5997.50
NICKEL Nov 30 2012 984.50 250 Kgs. 246125.00 14767.50
NICKELM Nov 30 2012 984.60 100 Kgs. 98460.00 5907.60
SILVER Dec 5 2012 62780 30 Kgs. 1883400.00 94170.00
SILVERM Nov 30 2012 62795 5 Kgs. 313975.00 15698.75
SILVERMIC Nov 30 2012 62797 1 Kgs. 62797.00 3139.85
ZINC Nov 30 2012 111.05 5000 Kgs. 555250.00 27762.50
ZINCMINI Nov 30 2012 111.50 1000 Kgs. 111100.00 5555.00

7Page4
ALTERNATIVE
CHAPTER 5 ROLE OF MCX IN INVESTMENT AND

TRADING
5.1 INTRODUCTION
Commodity exchanges provide investors and traders with

the opportunity to invest in commodities by trading futures contracts.
Although independent traders can and do trade the futures
markets, the majority of players in the futures markets are large commercial
entities who use the futures markets for price hedging purposes.
For example, Sterlite Industry is an active participant in

Copper futures because it wants to hedge against the price risk of Copper, a
primary input for making copper wires and other copper related products. If
we decide to trade Copper futures contracts, one should remember that theyre
up against some large and experienced market players.
At the end of the day, the commodity futures exchanges is our
gateway to the futures markets; in fact, they are the commodity futures markets.
One must have a rock solid understanding of the market fundamentals to invest
in commodity future market.
Commodity futures exchanges serve a very important role in

establishing global benchmark prices for crucial commodities such as crude oil,
gold, copper and silver. The exchanges are crucial for both producers and
consumers of commodities. Producers, who use commodities as inputs to create
finished goods, want to shelter themselves from the daily fluctuations of global
commodity prices.
8Page4
ALTERNATIVE
MCX has a strongly established growth path with its aim to offer:
Liquidity - Introduce new Commodities/Members.

Expansion - Enroll Institutional & other classes of Members.
Leadership -To be a Commodity Exchange of Choice.
Information - Providing commodity information.
Technology - Continue technological leadership for cost effective

expansion.
Knowledge - Create & Share-pool of commodity knowledge.
Training - Industry & Professionals on Commodity Markets, Operations,

Risk Man.
Trading strategies such as hedging underlying exposures using
commodity futures.
The Role of MCX is as follows
Hedging with the objective of transferring risk related to the possession

of physical assets through any adverse movements in price.
Liquidity and Price discovery to ensure base minimum volume in trading

of a commodity through market information and demand-supply factors
that facilitates a regular and authentic price discovery mechanism.
Price stabilization along with balancing demand and supply position.

Futures trading leads to predictability in assessing the domestic prices,
which maintains stability, thus safeguarding against any short-term
49
adverse price movements. Liquidity in the contracts of the commodities

Page
ALTERNATIVE
traded also ensures in maintaining the equilibrium between demand and

supply.
Flexibility, certainty and transparency in purchasing commodities

facilitate bank financing. Predictability in the prices of commodity would
lead to stability, which in turn would eliminate the risks associated with
running the business of trading commodities. This would make funding
easier and less stringent for banks to commodity market players.
Based on inputs regarding specific market information, the demand and
supply equilibrium, weather forecasts, expert views and comments,

inflation rates, Government policies, market dynamics, hopes and fears,
buyers and sellers conduct trading at futures exchanges. This transforms
in to continuous price discovery mechanism. The execution of trade
between buyers and sellers leads to assessment of fair value of a
particular commodity that is immediately disseminated on the trading
terminal.
Hedging is the most common method of price risk management. It is
strategy of offering price risk that is inherent in spot market by taking an

equal but opposite position in the futures market. Futures markets are
used as a mode by hedgers to protect their business from adverse price
change. This could dent the profitability of their business. Hedging
benefits who are involved in trading of commodities like farmers,
processors, merchandisers, manufacturers, exporters, importers etc.
The exporters can hedge their price risk and improve their
50Page
competitiveness by making use of futures market. A majority of traders

ALTERNATIVE
which are involved in physical trade internationally intend to buy

forwards. The purchases made from the physical market might expose
them to the risk of price risk resulting to losses. The existence of futures
market would allow the exporters to hedge their proposed purchase by
temporarily substituting for actual purchase till the time is ripe to buy in
physical market. In the absence of futures market it will be meticulous,
time consuming and costly physical transactions.
The manufacturers can smooth out the influence of changes in their input
prices very easily. With no futures market, the manufacturer can be
caught between severe short-term price movements of oils and necessity
to maintain price stability, which could only be possible through
sufficient financial reserves that could otherwise be utilized for making
other profitable investments.
Price instability has a direct bearing on farmers in the absence of futures

market. There would be no need to have large reserves to cover against
unfavorable price fluctuations. This would reduce the risk premiums
associated with the marketing or processing margins enabling more
returns on produce. Storing more and being more active in the markets.
The price information accessible to the farmers determines the extent to
which traders/processors increase price to them. Since one of the
objectives of futures exchange is to make available these prices as far as
possible, it is very likely to benefit the farmers. Also, due to the time lag
between planning and production, the market-determined price
information disseminated by futures exchanges would be crucial for their
51
production decisions.
Page
ALTERNATIVE
The absence of proper risk management tools would attract the marketing
and processing of commodities to high-risk exposure making it risky
business activity to fund. Even a small movement in prices can eat up a
huge proportion of capital owned by traders, at times making it virtually
impossible to pay back the loan. There is a high degree of reluctance
among banks to fund commodity traders, especially those who do not
manage price risks. If in case they do, the interest rate is likely to be high
and terms and conditions very stringent. This posses a huge obstacle in
the smooth functioning and competition of commodities market.
Hedging, which is possible through futures markets, would cut down the
discount rate in commodity lending.
The existence of warehouses for facilitating delivery with grading

facilities along with other related benefits provides a very strong reason
to upgrade and enhance the quality of the commodity to grade that is
acceptable by the exchange. It ensures uniform standardization of
commodity trade, including the terms of quality standard: the quality
certificates that are issued by the exchange-certified warehouses have the
potential to become the norm for physical trade.
2Page5
ALTERNATIVE
Chapter 6 SOURCES OF FINANCE FOR MCX
In February 2012, MCX had come out with a public issue

of 6,427,378 Equity Shares of Rs. 10 face value in price band of 860 - 1032
Rs. per equity share to raise around 66,33,054,096 Rupees. It is the first ever
IPO by an Indian exchange.
Key Shareholders of MCX
Financial Technologies (India) Ltd.

Union Bank of India.
Industrial Finance Corporation Of India Limited [IFCI Limited]
State Bank of India.
Allahabad Bank
Axis Bank
Bank of Baroda
Bank of India
Corporation Bank
HDFC Bank.
Bank of India.
Bank of Baroda.
Punjab National Bank.
53Page
ALTERNATIVE
Accordingly, the shareholding Pattern as on September 30, 2012 of MCX-

SX is as follows: (Source: MCX Press Release - www.mcxindia.com)
SR. No. Name of Shareholder (Institutional) Percentage holding

1. Allahabad Bank 4.60
2. Andhra Bank 4.60
3. Axis Bank 1.84
4. Bank of Baroda 4.60
5. Bank of India 4.60
6. Corporation Bank 4.60
7. Financial Technologies (India) Ltd. 5.00
8. HDFC Bank 2.21
9. IFCI Limited 13.23
10. IL & FS Financial Services Ltd. 5.00
11. Indian Bank 4.60
12. Indian Overseas Bank 4.60
13. MCX Stock Exchange ESOP Trust 1.00
14. Multi Commodity Exchange of India Ltd. 5.00
15. Oriental Bank of Commerce 4.60
16. Punjab & Sind Bank 0.92
17. Punjab National Bank 9.20
18. State Bank of India 1.84
19. Syndicate Bank 2.30
20. UCO Bank 0.46
21. Union Bank of India 11.50
22. United Bank of India 1.84
23. Vijaya Bank 1.84
TOTAL 100
4Page5
ALTERNATIVE
The Total Number of Shares of MCX = 48, 831,720. Out of which -
4, 24, 04,342 Shares are hold by Institutional investors as mentioned above and
64, 27,378 are held by Non-Institutional investor which involves individuals.
4, 88, 31,720 = Total Shares.
Investors
Institutional
NonInstitutional
Here the Percentage Mix of Share holding is as follows
Institutional Investors 86 %
Non-Institutional Investors 14%
Total 100%
5Page5
ALTERNATIVE
Chapter 7. RESEARCH ANALYSIS
Survey was conducted across clients of Angel Brokers,

Sharekhan and India Info line to judge the awareness of peoples regarding
investment in Commodity Market. The survey was conducted across 50 MCX
investors.
List of questions and their respective quantitative and qualitative analysis

is as follows -
1. Have you done any investments?

A. YES B. NO
Investment
22
Yes=39
No=11
78
6Page5
ALTERNATIVE
Investment Plans: - Majority of the people (78% / 39) is exposed to

investment which indicates high exposure to various investment alternatives.
It gives a positive base for investment alternatives. However only (22% / 11)
have no investment plans and the reason may be that they want greater
liquidity and want to hold cash even in the future.
2. If, yes, where have you invested your money?

A. Bank F.D. B. Share Market C. Commodity Market D. Other
(specify)
Other=4
18% 11%
Share Market=13
31%
40% Bank F.D.=16
Commodity Futures
Market=6
Out of 39 investors many investors (31% / 13)

have invested their money in Share Markets and those who
cannot afford to take risk (40% / 16) and are satisfied with
lower-return investment avenues and prefer to keep deposits
(Fixed, Recurring Deposits) with Banks. While a very few
percentage of investors (18% / 6) have invested in Commodity
Futures market because of perception that Commodity future
markets are very risky and speculative. Only few investors (6)
prefer investment in commodity markets which gives higher
returns and
7Page5
ALTERNATIVE
simultaneously are more risky. That is why majority (40% / 16 of sample)

of people have investments in Bank Fixed Deposits.
But Very less number of people (only 18% / 6) showed their

interest in investment in commodity market. Main reason for this is lack
of awareness and non-availability of complete information about
commodity market as compared to share market.

Investment Prefrences specified in other category
0%
Real Estate=0
Jewellary=4
100%
Out of 4 people all the 4 of them have invested in

precious metal GOLD in jewellery form.
Note : All the 50 people have invested in Insurance (Life

Insurance) and hence such investment is not considered in this
survey.
3. Why you prefer specific investment?
Reasons For Investing
29 20 Less Risky=8
Stable Returns=20
51 Less Investment
requirements=11
8Page5
ALTERNATIVE
Investors choose their investments based on minimum amount to be

invested (29% / 11), Risk involved (20% / 8) and most importantly the stable
returns from such investments (51% / 20).
4. If no, why?
A. Not aware about invest avenues B. Cash Liquidity C. Other
(specify)
Reasons For Not Investing

0
27 27
Lack Of awarness=3
Cash Liquidity=5
Risky=3
Present Needs=0
46
Out of 11 people majority of the people (46% / 5) have not

invested money because they prefer to keep cash in hand for future
requirements. Again (27% / 3) people has no exposure to investment due
to lack of knowledge in investments alternatives. While few (27% / 3)
consider investment in stock and commodity futures market as risky.
5. Are you aware about online Commodity Market [MCX]?

A. YES B. NO.
9Page5
ALTERNATIVE
46% Know=23
54%
Dont Know=27
In this case, Majority of the people as well as investors (54% / 27)

are not aware about MCX online commodity future market. The reason
behind this is mainly because of the lack of advertisement efforts and
even lack of investor awareness programmes. Very few people (46% / 23)
heard of commodity future market market. Vast/ majority of people are
unaware about Commodity Market.
6. Are you willing to invest in Commodity Market?

(If in Q. 2 Commodity Market, skip this question)
A. If YES, why?
B. If NO, why?
Interested= 16
30%
70%
Not Interested=7
0Page6
ALTERNATIVE
Out of 23 people majority of the people (70% / 16) who are aware
about about future commodity market are ready to invest in MCX because of
Leverages, Physical trade hedging, speculation, potentials of commodity futures
to enable investor to earn higher profits as compared to other investment
alternatives within a very short period of time.
But due to the high risks and highly volatile nature of almost every
commodity, some people (30% / 7) are not willing to invest in commodity
markets.
7. In which Commodities you will prefer to Invest? And why?

a. Bullion b. Agricultural c. Metals d. Fossils/Energy
Commodity Market Investors Preferences:-
13%
4% Bullion=14
19% Metals=4
64%
Agricultural=1
Energy=3
Out of 22 people majority of commodity investors (64% / 14) like to

invest in Bullion (Gold & Silver). Bullion is most preferred commodity for
investment because one can expect maximum returns from such investment
due to rapidly increasing prices of bullion in market.Very few people prefer
to invest in metals, energy and agro-commodities futures.
1Page6
ALTERNATIVE
8. Do you trade/Invest with stoploss? How much importance does you

give to Stoploss in trading as well as Investment?
Keeping Stoploss
32
Yes = 14
No=5
74
Stoploss Ratings
1) Not Important 2) Least Important 3) Important 4) Most

Important
Ratings For Stoploss
16
47 11
1=3
2=2
3=5
26 4=9
2Page6
ALTERNATIVE
Out of 19 investors who have already invested in stock and commodity

futures market majority of the people (47% / 9) prefer to keep stoploss and
they consider stoploss as most important in every trade. Further it is good to
trade with stoploss and almost all the analyst recommend to trade or invest
with stoploss. Very few investors (27% / 5) do not trade with stoploss
because they may have longer time horizon and comparatively more risk-
bearing capacity and ( 26% / 5) investors places stoploss occasionally.
9. What is your perception about Commodity Market?

A. Less Risky B. Risky C. Very Risky
Less Risky=6
21%
48%
Risky=9
31%
Very
Risky=14
Perception about Commodity Market:-
Here out of 29 people majority of people (48% / 14) has a

perception that investment in commodity market is very risky. This
may be because such peoples objective will be to maximize profits in
short term and they may enter in future markets trading many lots and
for one to two days time on account of speculation. However, such
Future markets are less risky for the one who makes investments in
MCX for medium to long term. Here only intraday traders trading
more lots in limits will lose money and as a result MCX will be very
risky for them. But for investors (21% / 6) buying/selling small units
of lot for
3Page6
ALTERNATIVE
medium to short-term will definitely make profits and if they happen to make
loss it will be very small as compared to traders.
10. Do you think Commodity futures Market Advertisements

(hoardings, prints etc) are explanatory enough to give needed useful
information?
A. YES B. NO
Informative=14
28%
72%
Not Informative=36
Commodity futures market Advertisements should be more

informative and it is the failure of commodity markets advertisement
campaign to attract peoples attention; as majority of people (72% /
36) are not aware about commodity market.
We will find majority of the MCX hoardings only at

Mumbai Zaveri Bazzar. It is a place where people buy and sell
physical bullion commodity which includes Gold, Silver, and
Platinum. Hence when people arrive at Zaveri Bazzar they come
across just with the name of MCX. They are not provided with the
details regarding commodity futures and such details are given by
Brokers of MCX but here people have to take initiatives.
MCX Stock Exchange Ltd.

Exchange Square,
CTS No. 255, Suren Road,
Chakala, Andheri (E),
Mumbai 400093,
India.
4Page6 A STUDY ON MULTI-COMMODITY EXCHANGE (MCX) AS AN per
INVESTMENT
ALTERNATIVE for
ma
nc
Chapter 8. FINDINGS, RECOMMENDATIONS e
AND
of
CONCLUSION
ma
ny
The reason why MCX stands apart from other short to co
medium term investments alternatives is the leverages it offers to the mp
investors. It is better in comparison with other speculative investment ani

alternatives. es
list
In case of stock futures margin money ranges from 15 to 20 ed
in
% of the total value of the contract.
sto
For Example - Say Pantaloon Retail November Future Contract is trading
ck-
at 220 Rs. Per share. In Pantaloon Future contract it is mandatory to
ma
buy/sell 2,000 shares per lot. Therefore in this case the total value of the
rke
contract = 220 x 2,000
ts
= 4, 40,000 Rs. is
un
Therefore Margin Money in this case = 4, 40,000 x 20% = 88,000 Rs.
rel
In case of MCX, take for instance Crude oil November iab
Future Contract is trading at 4800. In Crude Future Contract it is le.
mandatory to trade 100 Barrels per lot. Therefore in this case the total
W
value of the contract = 4800 x 100 he

n it
= 4, 80,000 Rs.
co
Therefore Margin Money in this case = 4, 80,000 x 5 % = = 24,000 Rs. me
s
The other Reason is that the
to Gold, Silver, Crude and base metals their performance is quite
reliable as history is the proof. Commodities have shown a stable
upwards climbing curve.
65
Page
A STUDY ON MULTI-COMMODITY EXCHANGE (MCX) AS AN ALTERNATIVE

INVESTMENT
When we consider stock market it is most volatile and its bull trend
is not sustainable to gain investors confidence. Majority of the
company listed in stock exchange has not shown satisfactory
performance and hence their share has not given desirable returns to
its shareholders even in case of long time horizon.
Hence owing to the reasons mentioned above I

conclude that if any investor has investment duration of short to
medium term say 1 month to 3 months Commodity Futures Markets
will be more beneficial as compared to stock market and even stock
futures market.
Similarly I do not recommend investing whole of

your money in commodity futures market. Before investing in
commodity Future market one must simultaneously invest in share
markets (not in Futures and Options) , Insurance, Bank Fixed Deposits,
Mutual Funds and must have the capacity to take delivery of
commodity traded in futures in MCX by paying full value of the
contract at the time of contract expiry. One has to hold cash in case if he
has investments in commodity futures because he may be asked to pay
additional money in case of shortages of margin money occurs.
Shortage of Margin Money
Say a client has 60,000 in his MCX account.
In case he buys 2 crude Future lots @ 4800. Here margin money in

total will be 48,000 Rs. (4800 x 200 = 9, 60,000 x 5 %).
In case the crude oil price in similar contract falls to 4700. Then he
will incur loss of 20,000 Rs.
Therefore Margin + Loss = 48,000 + 20,000 Rs.

66
= 68,000 Rs.
Page
ALTERNATIVE
Here, a client is at deficit of 8,000 that is his loss which has exceeded
his total money in his account. In this case the broker will ask for additional
money which will be more than 8,000 Rs. as per the volatility in the price
of crude oil.
Hence, a client has to have certain cash with him in addition to his
investment in MCX account or he has to have a reasonable bank balance.
Note : There is no physical delivery of Crude Oil.
By this research it is recommend investing in Gold and Silver rather

than only investing in Stock Market, Bank Fixed Deposits, and Mutual Funds
and so on.
When an investment gives returns it also brings itself with many

risks. Hence, the concept of hedging has emerged to minimize or eliminate such
risk. If you have physical gold or silver you can hedge by selling a future
contract so that you get the profits even if the price falls.
Note: In MCX clients can sell the commodities futures even if they do not own
them that are before they buy such commodity Futures contract and it is known
as short-sell. If any client initiates a short-sell he must keep a strict stoploss or
otherwise he will face unlimited risk. The other thing in MCX is that never
Trade in LIMITS provided by brokers.
The Media has played a significant role in making MCX investors

aware of the markets and in giving valuable advice by broadcasting various
financial experts and analysts. The sources from which an investor can get
advice are as follows
Various Business Channels like ZEE BUSINESS, CNBC AWAAZ,

67
ET NOW, NDTV PROFIT, CNBC TV 18 and BLOOMBERG TV offer

advice to its viewers regarding commodities futures.
Page

ALTERNATIVE
MANDI LIVE This is the Indias Number One commodity show
which comes on ZEE BUSINESS from Monday to Friday at 5.30
PM.
COMMODITY UPDATES is another such programme on CNBC

AWAAZ which gives updates to its viewers regarding commodity
futures.
Almost every newspaper will have a separate content regarding MCX

in it. Capital Market is the most popular magazine which publishes
both stock and commodity futures updates.
With intense competition, all brokers offer advice to their MCX clients
and they are many time available in their respective web-sites. Also
MCX through their online press release has take efforts to make investors
aware about current market conditions, risks involved and opportunities.
This is the era of commodity Markets. Prices of most of the

commodities like Gold, Silver, Copper, Zinc, Lead, Aluminium has reached
new heights. Growing inflation is one major reason why prices of the
commodities are rising. Common people may not have sufficient money to buy
Precious commodities. Hence here, future commodity markets like MCX
serves as the only option where just by paying 5 to 8% margin a retail investor
can buy or sell a future contract. With the development of the concept of
PORTFOLIO MANAGEMENT investing in commodity futures serves as a
better investment option. Similarly I do not recommend investing whole of
your money in commodity futures market. Past trend shows that when
Commodity Markets outperforms then Stock markets goes in the Bearish Trend
and vice-versa. Investing in commodity will not only help an investor to hedge
against the physical trades in commodities but will also serve as the hedge
against
68Page
ALTERNATIVE
INFLATION and STOCK MARKET. The Principles of investing in MCX are

same as the basic principles of investment. One must research before he invest
and not after. The Physical commodities prices as well as Futures commodities
prices are largely affected or influenced by Global Scenario and Global news.
Hence, an investor has to keep themselves updated so that he takes a correct
position in the future markets. For this he should have exposure to Business
News Channels, Newspapers, Various trusted online sites including sites of
renowned Brokers.
By investing in MCX you will make your portfolio more

diversified and risk-free. I strongly recommend investing in commodity Futures
and not trading on account of speculation. Traders may have to face losses as
market trend is not determined by mere one or two weeks. Again short-selling
any commodities may increase risks.
So, if you have sufficient knowledge and are ready to invest

approximately 50,000 Rs. Start your investment in MCX as there is
NO WRONG TIME TO DO A RIGHT THING

9Page6
ALTERNATIVE
ANNEXURE
Questionnaire for Investors -
NAME -------------------------------------------------------------------------
1. Have you done any investments?

A. YES B. NO
(If no please move to question no. 4)
2. If, yes, where have you invested your money?

A. Bank F.D. B. Share Market C. Commodity Market D. Other
(specify)
3. Why you prefer specific investment?
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
4. If no, why?
A. Not aware about invest avenues B. Cash Liquidity C. Other
(specify)
-----------------------------------------------------------------------------------------
5. Are you aware about online Commodity Market [MCX]?

A. YES B. NO
(If no please move to question no 12)
0Page7
KES SHROFF COLLEGE OF ARTS AND COMMERCE TY.B.M.S

ALTERNATIVE
6. Are you willing to invest in Commodity Market? (If

in Q. 2 Commodity Market, skip this question)
A. If YES, why?
-----------------------------------------------------------------------------------------
B. If NO, why? ------------------------------------------------------------------------------------------
(If no please move to the Question no.10)
7. In which Commodities you will prefer to Invest? Why?

A. Bullion B. Agricultural C. Metals D. Fossils/Energy
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
8.Do you trade/Invest with stoploss? How much importance do you

give to Stoploss in trading as well as Investment?
A. Yes B. No
Stoploss Ratings
1) Not Important 2) Least Important 3) Important
4) Most Important.
9. What is your perception about Commodity Market?

A. Less Risky B. Risky C. Very Risky
10.Do you think Commodity Market Advertisements (hoardings, prints

etc) are explanatory enough to give needed/useful information?
A. YES B. NO
1Page7

A STUDY ON MULTI-COMMODITY EXCHANGE (MCX) AS AN INVESTMENT ALTER
-----
-----
Questionnaire for Broker NAME - ---------------------------------------------- -----
-----
1. What is the difference between spot market and futures market? -----
-----
-----
----------------------------------------------------------------------------------------------- -----
- -----
----------------------------------------------------------------------------------------------- -----
- -----
-----
----------------------------------------------------------------------------------------------- -----
- -----
-----
-----
2. What is the minimum investment required for MCX Demat Account? -----
-----
----------------------------- -----
-
3. Do you think that commodity futures are better than

buying/selling Physical Commodity
? (Yes/No) Why? KES
SHR
OFF
COL
----------------------------------------------------------------------------------------------- LEG
- E OF
ART
---------------------------------------------------------------------------------------------- S
AND
COM
MER
CE
4. What do you understand by margin money with respect to TY.B.
M.S
commodity futures?
-----------------------------------------------------------------------------------------------
-
-----------------------------------------------------------------------------------------------
-
5. What is Stoploss? Is it necessary to trade with stoploss?
-----------------------------------------------------------------------------------------------
-
Page
72
ALTERNATIVE
6. According to your view is MCX best for Trading or Investment?
------------------------------------------------------------------------------------------------
7. Can a client get physical delivery of a commodity when he has open

position on such commodity until the expiry of the contract?
------------------------------------------------------------------------------------------------
8. What are the Benefits from Commodity Futures Trading?
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
9. What is the margin requirement that the investor has to comply with
while trading in different commodities in MCX?
------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
10. What are the new developments expected in the commodity market?
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
3Page7

ALTERNATIVE
Bibliography
www.mcxindia.com
www.futuresinvesting.com
www.onlinetradingconcepts.com
www.commodities.about.com
www.investopedia.com
www.commoditycentral.com
www.thefinancials.com
www.commodityonline.com
www.angelbroking.com
www.moneycontrol.com
www.commodityliveresearch.com
www.tradingarticles.com
www.indiainfoline.com
www.kotakcommodities.com
Commodity Markets Operations, Instruments

and Applications - Dr. Niti Nandini Chatnani.
Indian Commodity Future Markets - Velmurugan
A Traders Guide to Indian Commodities Futures Market
- Vijay L Bhambwani.
4Page7

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A STUDY ON MULTI-COMMODITY EXCHANGE (MCX) AS AN INVESTMENT

Sr No. Chapter Page No.

Executive Summary 1-2

1. Introduction To Research Work 3-18

2. Review Of Literature 19-21

3. Need Of Commodity Futures Market 22-35

4. Multi-commodity Exchange (MCX) In Detail 36-47

5. Role Of MCX In Investment And Trading 48-52

6. Sources Of Finance For MCX 53-55

7. Research Analysis 56-64

8. Findings, Conclusion, Suggestion and Recommendations. 65-69

going to assume even greater importance in future with the promotion of

As majority of Indian investors are not aware of organized

minds. It makes them specious towards commodity market.

The technology has advanced in this field to the extent that

Multi-Commodity Exchange (MCX) will always be favorable

Chapter 1 - INTRODUCTION TO RESEARCH WORK.

1.1 Introduction To Research

People are majorly concerned regarding their money matters.

making minimum investment with comparatively low risk. But investment

2) Wealth maximization (Long-Term).

Accordingly they invest in different options available which

Not to put all Eggs in a Single Basket.

It means that we should invest in different investment options

1) Bank Deposits which includes Saving Account, Recurring Deposits, Fixed

2) Investment In Equity Shares which includes ownership of securities.

3) Investing in Mutual Fund which is effective for an investor as professional

It provides protection to family members through financial

5) Investing in Postal Savings Schemes encourages savings amongst people.

on deposits. Also the time horizon is long that is 15 years.

of investment are not available.

7) Investing in Gold Gold is considered as a Safe Heaven Investment.

When we have an overview of all the above investment option we derive

A STUDY ON MULTI-COMMODITY EXCHANGE (MCX) AS AN INVESTMENT

Multi Commodity Exchange of India Ltd (MCX) is a leading commodities

1.2 OBJECTIVES OF STUDY

To Guide about how to start trading on MCX and relevant Processes

To Encourage common man to invest in commodity futures and trade

To study and help make Multi-commodity Exchange a Part of total

To make people Aware about this Emerging Market.

To simultaneously make potential investors aware about Risks

To Utilize opportunities available in this emerging market by investing

To introduce the concept of Hedging in Physical commodity market

To make personal investment more Diversified and risk free.

To help Bullion traders and Company to Hedge against huge losses

To study Investors behavior towards different attributes such as risk,

To maintain Liquidity in persons investment where locking of funds

To get Quotes on market price of the commodities and their

To encourage common man who cannot afford in buying physical Gold

To help investors to Sub-diversify their investments into Physical and

1.3 BACKGROUND OF STUDY

A Base for Multi-commodity Exchange [MCX]

2003 : MCX and NCDEX Established.

2001 : Silver and Gold Future Trading started.

1980 : Wheat, Rice, Sugar Futures Started.

1955 : Silver and Gold Future Trading Banned.

1953 : Forward Market Commission Established (FOMC).

1952 : Ban on Cotton Futures removed.