mk commodity

7/31/2019 MK Commodity

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MANGAL KESHAV

MK COMMODITYBROKERS LTD.


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Snapshot of Indian CommodityMarket


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Two Major Commodities Exchange inIndia

MCX (Multi Commodity Exchange)

NCDEX (National Commodities &Derivatives Exchange)


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Commodities traded on the exchangesAgri Products:

Jeera

Pepper

Chilli

Turmeric

Guar Seed

Guar Gum

Soya bean

Sugar

Maize

Precious Metals:

Gold

Silver

Platinum


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Commodities traded on the exchanges

Base Metals:

Copper

NickelLead

Zinc

AluminumTin

Energy:

Crude oil

Natural Gas


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Other Information

Exchange Timings

Agri Products: 10:00 AM To 5:00 PM

Other Commodities: 10:00 AM To 11:30 PM

Instrument Traded: Futures Contract

Expiry of Contracts : Different for differentcommodities


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What are Commodity futures?

A Financial Contract

The underlying commodity is bought or sold at afuture date

A tool used by Investors, Hedgers, Arbitrageurs,

Day Traders


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Why futures trading in Commodities?Portfolio diversification and risk management

Additional investment opportunity

Low cost business

No Transportation, storage, insurance, securitycharges

Low Margins High leverageIntrinsic value of the commodity

Domain knowledge of industry

Hedging/ Arbitrage


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Purpose of Futures MarketsMeet the needs of three groups of future market

users

Those who wish to discover information aboutfuture prices of commodities (suppliers)

Those who wish to speculate (speculators)

Those who wish to transfer risk to some otherparty (hedgers)

Those who want to take advantage of pricedifference in different markets (Arbitrageurs)


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Commodity Futures Market ParticipantsHedgers

Producers Farmers

Consumers Refineries, Food processing companies

Speculators

Institutional proprietary traders

Brokerage houses

Spot Commodity traders

Arbitrageurs

Brokerage houses

Investors


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Exchange vs. Bilateral TradingExchange Bilateral trading

Common platform for all traders Restricted access

Price transparency Traded prices unknown to otherplayers

Low transaction costs High cost and time consumingnegotiations

Absence of counter party creditrisk Counter party credit risk

Market prices available to widerworld

Difficulty in price dissemination


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Risks encountered by industryPrice volatility depends on International marketmovement

Results in higher procurement cost reducing

operational marginsNo options or tools were available earlier

Directionless market

No control measuresCounter party Risk

Credit risk especially during periods of volatile prices

Quantity risk during shortages

Quality Risk


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BenefitsInvestor:

Portfolio diversification and risk management

Additional investment opportunity

Physical trader:

Low cost business

No Transportation, storage, insurance, security ChargesDomain knowledge of industry

Traders:

Low Margins High leverage

No balance-Sheet, P&L, EBITDA

Hedging/ Arbitrage


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HedgingPurposeAvoid risk of adverse market movements

Rationale

Cash and Futures prices tend to move in tandemConverge at close to expiry

Types of HedgesLong Hedge, Short Hedge

AdvantagesLock in a price and margin in advance

Disadvantages

Limits opportunities if prices move favorably


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Types of HedgingLong Hedge

Hedges that involve taking a long position in futurescontract

Appropriate when a company plans to owns certainasset in the future

Short Hedge

Hedges that involve taking a short position in futurescontract

Appropriate when the hedger already owns the assetor likely to own the asset and expects to sell it in

future


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Short Hedge - ExampleSuppose:-

COPPER producer wants to sell COPPER in future.

There is an equal chances of price going up or down.

There is a risk if price goes down.

Copper ProducerStock

Expecting/having stock 50000 Kg (50MT) of Copper

Case

If price goes up by Re. 1 Gain Rs. 50000/-

If price goes down by Re. 1 Loss Rs. 50000/-


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Short Hedge- Example contdDate Spot Future

30th Nov Rs. 280/Kgs Rs. 295/Kgs

30th Nov Buy/Hold Sell

With Hedge (You rule out a loss)

30th Dec Spot Future Net Result

Case 1 -Rs. 270/Kgs

LossRs. 10/Kgs

ProfitRs. 25/Kgs

ProfitRs. 15/Kgs

Case 2 -

Rs. 305/Kgs

Profit

Rs. 25/Kgs

Loss

Rs. 10/Kgs

Profit

Rs. 15/Kgs

Without Hedge

Case 1 -Rs. 270/Kgs

LossRs. 10/Kgs

-- LossRs. 10/Kgs

Case 2 -Rs. 305/Kgs

ProfitRs. 25/Kgs

-- ProfitRs. 25/Kgs


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Long Hedge- ExampleScenario of consumer who wishes to lock input prices

There is an equal chances of price going up or down.

There is a risk if price goes up.

Copper Consumer Stock

Wants to buy Copper in future 50,000 Kg (50 MT) of copper

Case

If price goes up by Re. 1 Loss Rs. 50000/-

If price goes down by Re. 1 Gain Rs. 50000/-


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Long Hedge - Example contdDate Spot Future

30th Nov Rs. 280/Kgs Rs. 295/Kgs

30th Nov Wait till Nov Buy

With Hedge (You rule out a loss)30th Dec Spot Future Net Result

Case 1 -Rs. 270/Kgs

ProfitRs. 10/Kgs

LossRs. 25/Kgs

LossRs.15/Kgs

Case 2 -

Rs. 305/Kgs

Loss

Rs. 25/Kgs

Profit

Rs. 10/Kgs

Loss

Rs. 15/KgsWithout Hedge

Case 1 -Rs. 270/Kgs

ProfitRs. 10/Kgs

-- ProfitRs. 10/Kgs

Case 2 -

Rs. 305/Kgs

Loss

Rs. 25/Kgs

-- Loss

Rs. 25/Kgs


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Advantage MK Commodity BrokersTop Quality Research

Professionally qualified analysts with richindustry experience

Research on Precious Metals, Base Metals and EnergyDaily outlook report and trading calls on SMS

Online Trading

Single Screen customized market watch for MCX /

NCDEX with BSE / NSEStreaming quotes & intra-day trading calls

Pro-active Relationship ManagementRelationship management desk

Educating clients on commodities futures market.


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Advantage for ClientsRound the clock operations in commoditiestrading

Indian commodities market, unlike stock market is

open till 11.30 in the night and MK Commodity BrokersLtd.is all poised to offer round the clock servicesthrough its dedicated team of professionals.

Better Trading Facility at one place.

State of Infrastructure

The strong IT backbone of Mangal Keshav helps us toprovide customized direct services through our back

office system, nation-wide connectivity and website.


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THANK YOU

mk commodity

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