calculation of price of international linked commodities traded on mcx and ncdex

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Introduction to Commodity

• What is Commodity?

� In economics, a commodity is the generic term for any marketable item

produced to satisfy wants or needs. Economic commodities comprise

goods and services

� The more specific meaning of the term commodity is applied to goods only. It

is used to describe a class of goods for which there demand is, but which is

supplied without qualitative differentiation across a market.

� In contrast, one of the characteristics of a commodity good is that its price is

determined as a function of its market as a whole. Well-established physical

commodities have actively traded spot and derivative markets. Generally, these

are basic resources and agricultural products such as iron ore, crude

oil, coal, salt, sugar, coffeebeans, soybeans, aluminum, copper, rice, wheat, gol

d, silver, palladium, and platinum. Soft commodities are goods that are grown,

while hard commodities are the ones that are extracted through mining.

� There is another important class of energy commodities which includes

electricity, gas, coal and oil.

� Commodities available for Trading on MCX Platform

• Bullions

1. Gold

2. Gold Guinea

3. Gold M

4. Gold Petal

5. Gold Petal (New Delhi)

6. Platinum

7. Silver

8. Silver M

9. Silver Micro

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10. Silver 1000

• Metal

1. Aluminum

2. Aluminum Mini

3. Copper

4. Copper Mini

5. Iron Ore

6. Lead

7. Lead Mini

8. Mild Steel Ingot, Billets

9. Nickel

10. Nickel Mini

11. Tin

12. Zinc

13. Zinc Mini

• Energy

1. ATF

2. Brent Crude Oil

3. Crude Oil

4. Gasoline

5. Heating Oil

6. Imported Thermal Coal

7. Natural Gas

• Oil & Oil Seeds

1. Crude Palm Oil

2. Kapasia Khalli

3. Refined Soya Oil

4. Soya Bean

• Cereals

1. Barley

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2. Wheat

3. Maize-Feed / Industrial Grade

• Plantations

1. Rubber

• Weather

1. Carbon (CER)

2. Carbon (CFI)

• Fiber

1. Kapas

2. Cotton (29mm)

• Spices

1. Cardamom

2. Coriander

• Pulses

1. Chana

• Others

1. Almond

2. Gaur Seed

3. Melted Menthol Flakes

4. Mentha Oil

5. Potato (Agra)

6. Potato (Tarkeshwar)

7. Sugar M

• Commodities available for Trading on NCDEX Platform

• Agricultural Commodities

1. Cereals and Pulses

a) Barley

b) Chana

c) Maize – Feed/Industrial Grade

d) Wheat

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2. Fibres

a) V – 797 Kapas

b) Shankar Kapas

3. Guar Complex

a) Guar Seed

b) Guar Gum

4. Plantation Products

a) Rubber

5. Others

a) Potato

6. Oil and Oil Seeds

a) Castor Seeds

b) Cotton Seed Oilcake

c) Soy Bean

d) Refined Soya Oil

e) Mustard Seed

f) RBD Palmolein

g) Soybean Meal

7. Soft

a) Sugar

b) Gur

8. Spices

a) Pepper

b) Turmeric

c) JEERA

d) Chilli

e) Coriander

• Non Agriculture Commodities

1. Metals

a) Steel

b) Copper

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2. Energy

a) Crude Oil

b) Brent Crude Oil

3. Precious Metals

a) Gold

b) Gold (100 gms)

c) Gold International

d) Silver

e) Silver (5 Kg)

f) Silver International

So, there are 52 products are available in commodities on MCX trading platform for

trading and 35 products are available in commodities on NCDEX trading platform for

trading.

International Linked Commodities traded on MCX and NCDEX

trading Platform

International Linked based Commodities are those commodities whose

value is derived and affected by international quotation of that commodity

and USD /INR rate factor. There are following international linked based

commodities traded on MCX and NCDEX trading Platform:-

1. Gold

2. Silver

3. Crude Oil

4. Natural Gas

5. Aluminum

6. Copper

7. Lead

8. Nickel

9. Zinc

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Calculation of Price of Gold and Silver on

MCX/NCDEX

MCX’s / NCDEX’s Gold price is quoted in INR for 10 grams and Silver is quoted in 1

kilogram respect. International Gold / Silver are quoted on troy ounce.

For MCX / NCDEX Gold and Silver price is dependent on the following factors:-

� International price for Gold & Silver

� USD to INR rate conversion

� Quoted unit for Gold and Silver

� Troy ounce to Grams conversion

� Supply and Demand for Gold and Silver in MCX / NCDEX Trading

How to Calculate Gold Price:-

� Quoted unit for Gold in MCX / NCDEX = 10 grams

� International unit for Gold in COMEX = 1 Troy Ounce

� 1 Troy Ounce = 31.1035 grams

� So 1 Gram = 1/31.1035 = 0.03215 Troy Ounce

� Gold Price Calculation formula for 1 gram = (International Gold

Price) x (USD to INR rate conversion) / (Troy Ounce to Gram

Conversion)

How to Calculate Silver Price:-

� Quoted unit for Silver in MCX / NCDEX = 1 Kg

� International unit for Silver in COMEX = 1 Troy Ounce


� So 1 Gram = 1/31.1035 = 0.03215 Troy Ounce

� Silver Price Calculation formula for 1 gram = (International Silver

Price) x (USD to INR rate conversion) / (Troy Ounce to Gram

Conversion)

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Example for Gold Price Calculation:-

� International Gold price on COMEX @ $1697.85

� USD to INR rate conversion @ 54.81


� Gold price in INR for 1 Gram = ($1697.85 * 54.81) / (31.1035) = Rs.

2991.91 Per 1 Gram

� For 10 grams Rate = 2991.91 * 10 = Rs. 29919 Per 10 Grams

Example for Silver Price Calculation:-

� International Silver Price on COMEX @ $32.35



� Silver Price in INR for 1 Gram = ($32.35 * 54.81) / (31.1035) = Rs.

57.006 Per 1 Gram

� For 1 Kg or 1000 Grams Rate = 57.006 * 1000 = Rs. 57006 Per 1 Kg

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Calculation of Price of Crude Oil and Natural Gas

on MCX/NCDEX

MCX’s / NCDEX’s Crude Oil is quoted in INR for 100 Barrels and Natural Gas on

NCDEX is quoted in INR for 1250 MMBTU (Million Metric British Thermal Units).

For MCX / NCDEX Crude Oil and Natural Gas price is dependent on the following

factors:-

� International price for Crude Oil and Natural Gas


� Quoted unit for Natural Gas and Crude Oil

� Inventory from United States

� Global Economic Data

� Supply and Demand for Crude Oil and Natural Gas in MCX / NCDEX Trading

How to Calculate Crude Oil Price:-

� Crude Oil Price Calculation formula = (International Crude Oil

Price) x (USD to INR rate conversion)

Example for Crude Oil Price Calculation:-

� International Crude Oil Price on NYMEX @ $88.09


� Crude Oil Price in INR = ($88.09 * 54.81) = 4828

How to Calculate Natural Gas Price:-

� Natural Gas Price Calculation formula = (International Natural gas

Price) x (USD to INR rate conversion)

�

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Example for Crude Oil Price Calculation:-

� International Natural Gas Price @ $3.329


� Natural Gas Price in INR = ($3.329 * 54.81) = INR 182.46

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Calculation of Price of Aluminum, Copper, Lead,

Nickel and Zinc on MCX/NCDEX

Quoted unit for Base Metals like Aluminum, Copper, Lead, Nickel and Zinc on

London Metal Exchange (LME) is 1 Metric Ton. In MCX it is quoted for 1 Kilogram.

Only Copper is traded in both platforms.

For MCX Aluminum, Copper, lead, Nickel and Zinc and NCDEX Copper price is

dependent on the following factors:-

� International price for Aluminum, Copper, Lead, Nickel and Zinc on LME


� Quoted unit

� Metric ton to kilogram conversion

� Global Economic Data

� Supply and Demand in Trading

How to Calculate Price for Aluminum, Copper, Lead, Nickel and Zinc:-

� Metric ton to kilogram conversion = 1 Metric ton = 1000 kilograms =

1/1000 of metric ton

� USD to INR rate Conversion

� Calculation formula for all metals mentioned above = (International

Price) * (USD to INR rate conversion) / (Metric ton to kilogram

Conversion) INR

Example for Aluminum, Copper, Lead, Nickel and Zinc Price Calculation:-

� For Aluminum: ($2105 * 54.78) / 1000 = (115375.05) / 1000 = 115.37

INR For 1 Kilogram

� For Copper: ($7987 * 54.78) / 1000 = (437527.86) / 1000 = 437.52 INR

For 1 Kilogram

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� For Lead: ($2333 * 54.78) / 1000 = (127801.74) / 1000 = 127.80 INR

For 1 Kilogram

� For Nickel: ($17860 * 54.78) / 1000 = (978370.80) / 1000 = 978.37 INR

For 1 Kilogram

� For Zinc: ($2084 * 54.78) / 1000 = (114161.52) / 1000 = 114.61 INR

For 1 Kilogram

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Guidelines before Participating in the Commodity

Futures Market

Please seek Answers to the following questions before participating in the Commodity

Futures Market:-

1. Why am I participating in the Commodity Futures Market?

(As a Hedger, Trader or Arbitrageur?)

2. What should be my extent of participation?

3. Would it make any difference if I do not participate?

4. What is my risk bearing capacity?

5. How long should I hold my position?

6. Have I read the Commodity Contract fully and understood its

implication on my position?

7. How liquid is the contract I wish to participate in?

8. What would be my exit cost / Can I close out my position whenever I

want? (i.e., Is the contract liquid enough to permit easy exit?

9. Do I have adequate access to information about the fundamentals of

the commodity that I wish to trade?

10. Does the product on the exchange serve my purpose of trading in

the market?

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Do’s and Don’ts while dealing in Commodity

Futures

DO’S DON’TS

1. Read the FMC/ Exchange guidelines 1. Do not fall prey to market rumors

and circulars available on the websites and tips of the Exchanges

2. Refer to Forward Contracts 2. Do not act based on bull/bear run of

(Regulation) Act {FC(R)A}, 1952 market sentiment in the market.

before dealing in futures trading in

commodities.

DO’S DON’TS 3. Go through all rules, regulations, 3. Do not go by any explicit/ implicit bye-laws and circulars issued by the promise made by analysts/ advisors/ Exchange available on the websites of experts/ market intermediary until the respective exchange. convinced.

4. Read commodity contract 4. Do not go by the reports/ predictions specifications and the concerned made in various print and electronic circulars carefully including recent media without verification.

modifications, if any .

5. Understand the commodity and 5. Do not trade in any commodity price impacting parameters before without knowing the risk and rewards participating in commodity futures. associated with it.

6. Study hstorical and seasonal price 6. Do not deal with any intermediary movement. not registered with the exchange on

which you wish to trade. 7. Keep track of Government Policy 7. Do not trade based on long-term announcements price prospects of the commodity

without understanding your short-term risk bearing capacity 8. Be aware of the risks associated with 8. Do not let risks against your your positions in the market and your positions accumulate in the market ability to respond to margin calls on beyond your capacity to bear them.

them as unfavourable price movements

result into higher margin requirement.

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DO’S DON’TS

9. Collect/pay mark-to- market margins 9. Do not miss on keeping track of your on your futures position on a daily basis financial and contractual obligations from/to your Trading Member as per against your positions

the Exchange rules and regulations

10. Understand the Delivery and

Settlement Procedure.

11. Comply with taxation and other

state regulatory issues relating to sale/

delivery and stamp duty.

12. Apply your own prudent judgment

while trading in a commodity.

13. In case of any doubt/problem

contact the Exchange help desk.

14. Participate in the commodity

derivatives markets after analyzing the

facts and doing due diligence. Please

reflect your own price views while

participating in these markets and not

of the others.

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Do’s and Don’ts while dealing with the Member

(Commodity Broker) of the Commodity Exchanges

DO’S DON’TS 1. Trade only through Exchange 1. Do not undertake off-market Registered Member and always insist transactions in commodities. It is both on contract note against a confirmed risky and illegal.

trade.

2. Insist on filling up a ‘Know Your 2. Do not deal with unregistered Client’ (KYC) Form and on getting a intermediaries. Ask for/Know about Unique Client ID. their regulatory approval reference

(UMC) before trading through the intermediary. The list of Members is available on the website of the respective Exchanges.

DO’S DON’TS 3. Insist on reading and signing a ‘Risk 3. Do not get carried away by alluring Disclosure Agreement’. advertisements, rumours, hot tips or the

promise of assured returns by the Member. As the Portfolio Management Schemes (PMS) are not available in commodity markets, the promise of returns by any Member is illegal.. 4. Go through details of Client 4. Do not start trading before reading Member Trading Agreement to know and understanding the Risk Disclosure your rights and duties vis-à-vis those of Agreement.

Member-Brokers.

5. Ask all relevant questions and clear 5. Do not neglect to confirm in wirting, your doubts with your Member before orders for higher value given over transacting. phone

6. Pay required margin in time and 6. Do not forget to take note of risks understand the consequences of non involved in the commodity trading. . .

payment.

7. Obtain receipt for collateral security 7. Do not delay payment/ deliveries of deposited with Trading Member (TM) commodities to Member.

towards margin.

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8. State clearly to the Member who 8. Do not give authority to the Member will be placing orders on your behalf. of the Exchange to make ‘sale’ and

‘purchase’ decisions on your behalf and also do not surrender the right of receiving contract notes on a daily basis. Portfolio Management Schemes (PMS) are not allowed in commodity market.

DO’S DON’TS

9. While trading through an 9. Do not accept unsigned/ duplicate Authorized Person ensure that a duly contract note/ confirmation memo.

signed contract note has` been issued

by the Member for every executed

trade, highlighting the details of the

trade along with your Unique Client-

ID. FMC’s circular dated 28.7.2010 on

Authorised Persons maybe referred for

details.

10. Ensure that the Contract Note 10. Do not accept contract note/ contains all the relevant information, confirmation memo signed by any such as Member Registration Number, unauthorized person.

Order No., Order Date, Order time,

Trade No., Trade Rate, Quantity,

Arbitration Clause.

11. Insist on a bill for every

settlement.

12. Insist on periodical statement of

your ledger account.

13. Reconcile the statement of

transactions from the Member and the

holding statement of Depository

Participant after every transaction..

14. Deliver the commodities in case of

sale or pay the money in case of

purchase within the time prescribed.

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DO’S DON’TS

15 Cross check the genuineness of the

trades carried out through trade

verification facility available on the

website of the respective Exchange.

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BEWARE OF THE FOLLOWING

� Any person who promises you high returns in a

short span of time. No schemes for assured

returns are allowed in commodity markets.

� Dabba’ (Bucket Shops). Dabba trading (trading

outside the exchange platform) is illegal,

punishable under law and highly risky.

� Advices through television or print media. They

are not the opinion of the channel or publisher

but of the the individual speaker/writer.

� SMS’s/Emails/rumours/and trading tips. Please do not

be lured by such sources of information promising quick

gains and unrealistic high returns.

� Advice available on Websites/Blogs/astrology predictions or

/Newspaper. Use of such unconfirmed information exposes one to

undue risk.

Bibliography

My term Project entitled

Price Based Commodities traded on MCX/NCDEX

which I have received and fetched was immensely contribute th

reference of these following

below.

http://www.mcxindia.com/

19

Project entitled “Calculation Methodology of International

Price Based Commodities traded on MCX/NCDEX” got the support

which I have received and fetched was immensely contribute th

reference of these following organizations and their web sites

http://www.fmc.gov.in

http://www.lme.com/

http://www.mcxindia.com/

http://ncdex.com

Calculation Methodology of International

got the support

which I have received and fetched was immensely contribute through the

organizations and their web sites given

calculation of price of international linked commodities traded on mcx and ncdex

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