COMMODITY PPT 22

el asset in the spot market. This forms the basis for the cost-of-carry model where the price r pricing of ures the futures contract is defined as: the end F = S + C (6.1) g the where: market. If F Futures price tlay for S Spot price he C Holding costs or carry costs t are The fair value of a futures contract can also higher be expressed as: F = S(1 + r)T (6.2) where: r Percent cost of financing T Time till expiration

Continue…..  F = SerT  where:  r Cost of financing (using continuously compounded interest  T Time till expiration  e = 2.71828  the futures price of 10 gms of gold one month down the line assume that we're on 1st  March 2017. How would we compute the price of a gold fu contract expiring on 30th  January? From the discussion above, we know that the futur nothing but the spot  price plus the cost-of-carry. Let us first try to work out the co of the cost-of-carry

rate) model. 1. What is the spot price of gold? The spot price of e ? Let us gold, S= Rs.28000 per 10 gms. utures 2. What is the cost of financing for a month? E 0.15 x res price is 30/ 365 . omponents 3. What are the holding costs? Let us assume that the storage cost = 0. In this case, the fair value of the futures works out to be = Rs.28210 F = SerT = 28000e0.15 x 30/365 = Rs.28210 If the contract was for a three-month period i.e. expiring on 30th March, the cost of financing would increase the futures price. Therefore, the fair value of futures would be F = 28000e0.15 x 90/365 = Rs.29035.54.

Others Important Aspect  1. Open Interest  2. Volume  3. Inventory  4. Technical Analysis  5. Rollover / Rollover cost  6. Demand & Supply

ts of Trading

Commodity Trading Charg

ges

Commodity Trading C 52 Remarks Rupee BROKERAGE .02% o STT/CTT 0.01% TRANSACTION CHARGES Non-A SERVICE TAX 15% o SEBI CHARGES ₹20 / STAMP CHARGES Depen AMC Charge Not ap

Charges es per crore of Trunover % on sell side (Non-Agri) Agri: 0.0036% | Agri: 0.00275% on (brokerage + transaction charges) crore nd on the State (20-30 per cr.) pplicable www.isfm.co.in 24 May 2022

Crude Oil Example 53 Expiry Price LTP Quotation Commodity CRUDEOIL 20-June-19 3229 1BBL BROKERAGE 25 STT/CTT TRANSACTION 12.45 (Only Sell side ) CHARGES 04.51 SERVICE TAX 2.5 SEBI CHARGES 0.2509 STAMP CHARGES 0.37 Total 45-/- only (one side )

Lot Size Margin % Lot Value(Rs) Margin (Rs) (Qty) 10.05% 3,22,900 32,451 100 www.isfm.co.in 24 May 2022

Gold 54 Commodity Expiry LTP Price Quotation 05-Apr- 28366 10GRMS GOLD 573 BROKERAGE 286 STT/CTT TRANSACTION 104 CHARGES 57.3 SERVICE TAX 6 SEBI CHARGES 9 STAMP CHARGES Total

Approx Margin n Lot Size (Qty) Margin % Lot Value(Rs) (Rs) 100 5.00% 28,36,600 1,41,830 www.isfm.co.in 24 May 2022

Trading Margin 55 Commodity Expiry LTP Price Quotation L ALUMINI 124.6 1KGS ALUMINIUM 31-Mar-17 124.6 1KGS BRCRUDEOIL 3436 1BBL CARDAMOM 31-Mar-17 1389.1 1KGS CASTORSEED 4226 100KGS 30-Mar-17 COTTON 21260 1BALES CPO 15-Mar-17 526.6 10KGS CRUDEOIL 3229 1BBL CRUDEOILM 20-Mar-17 3229 1BBL GOLDGUINEA 31-Mar-18 23114 8GRMS GOLDPETAL 2872 1GRMS GOLDPTLDEL 31-Mar-17 2871 1GRMS 20-Mar-17 KAPAS 20-Mar-17 1055.1 20KGS 31-Mar-17 31-Mar-17 31-Mar-17 31-Mar-17

Lot Size (Qty) Margin % Lot Value(Rs) Margin (Rs) 1000 5.72% 1,24,600 7,127 5000 5.77% 6,23,000 35,947 100 10.34% 3,43,600 35,528 100 30.88% 1,38,910 42,895 100 7.86% 4,22,600 33,216 25 5.32% 5,31,500 28,276 1000 6.50% 5,26,600 34,229 10.05% 3,22,900 32,451 100 10.11% 10 5.00% 32,290 3,265 1 5.00% 23,114 1,156 1 5.00% 1 2,872 144 24 9M.1a0y% 2022 2,871 144 www.isf2m00.co.in 2,11,020 19,203

Margin Requirement 56 Commodity Expiry LTP Price Quotation LEAD 31-Mar-17 150.25 1KGS LEADMINI 31-Mar-17 150.3 1KGS MENTHAOIL 31-Mar-17 NATURALGAS 28-Mar-17 1021.6 1KGS NICKEL 31-Mar-17 199.9 1mmBtu 660.5 1KGS NICKELM 31-Mar-17 660.7 1KGS SILVER1000 31-Mar-17 40650 1KGS ZINC 31-Mar-17 180 1KGS ZINCMINI 31-Mar-17 179.95 1KGS

Lot Size (Qty) Margin % Lot Value(Rs) Margin (Rs) 5000 9.00% 7,51,250 67,613 1000 9.00% 1,50,300 13,527 5.58% 3,67,776 20,522 360 14.22% 2,49,875 35,532 1250 11.66% 1,65,125 19,254 250 100 11.72% 66,070 7,743 1 6.57% 40,650 2,671 5000 9.19% 9,00,000 82,710 www.isfm.co.in 24 May 2022 16,519 1000 9.18% 1,79,950

Lesson –11 What is O 57

Open Interest www.isfm.co.in 24 May 2022

Open Interest  What is Open Interest ?  How is it different from Volumes?  How can we benefit from the Volum  How its predict market trend?  How we can identify operators gam

mes and Open interest data? me in stock

What is open Interest  Definition: Open interest is the total number of outs the end of each day. Open interest measures the to  Description: If both parties to the trade are initiatin open interest will increase by one contract. If both buyer and one old seller), open interest will decline to a new trader (one old buyer sells to one new bu Increasing open interest means that new money is f present trend (up, down or sideways) will continue. liquidating and implies that the prevailing price tre a lead indication of an impending change of trend To determine the total open interest for any given m the other, buyers or sellers, and not the sum of both

standing contracts that are held by market participants at otal level of activity into the futures market. ng a new position (one new buyer and one new seller), traders are closing an existing or old position (one old e by one contract. If one old trader passes off his position uyer), open interest will not change. flowing into the marketplace. The result will be that the Declining open interest means that the market is end is coming to an end. Therefore, open interest provides d. market, we only need to know the totals from one side or h.

Open Interest… 60

www.isfm.co.in 24 May 2022

OI and Volume interpretati  Open interest information tells us how many on the other hand tells us how many trades w and 1 sell, volume adds up to 1. For instance 400 were sold, then the volume for the day interest are two different; buy seemingly sim from zero at the start of the day and increm volume data always increases on an intra-da OI stacks up or reduces based on the entry a have just discussed, let us summarize the OI  Notice how OI and volume change on a dail tomorrow’s volume. However, it is not true for volume numbers are pretty useless. However prices to draw an inference about the marke

ion contracts are open and live in the market. Volume were executed on the given day. For every 1 buy e, on a given day, 400 contracts were bought and is 400 and not 800. Clearly volumes and open milar set of information. The volume counter starts ments as and when new trades occur. Hence the ay basis. However, OI is not discrete like volumes, and exit of traders. In fact for the example we and volume information. ly basis. Today’s volume has no implication on r OI. From a stand-alone perspective both OI and r traders generally associate these numbers with et.

Volume and OI with Pric 62 Price Volume Trader’s Perceptio Increase Increase Bullish Decrease Decrease Bearish trend could Decrease Increase Bearish Increase Decrease Bullish trend could Unlike volumes, the change in Open interest on markets. However it does give a sense of positions. The following tables summarizes th changes in the OI and prices –

ce ons d probably end, expect reversal probably end, expect reversal does not really convey any directional view f strength between bullish and bearish he trader’s perspective with respect to www.isfm.co.in 24 May 2022

OI and Price Action 63 Price OI Trad Increase Increase Mor Decrease Decrease Long Decrease Increase Mor Shor Do note, if there is an abnormally high OI b in prices then be cautious. This situation simp and leverage being built up in the market. could lead to a lot of panic in the market.

der’s Perceptions re trades on the long side gs are covering their position, also called long unwinding re trades on the short side rts are covering their position, also called short covering backed by a rapid increase or decrease ply means that there is a lot of euphoria In situations like this, even a small trigger www.isfm.co.in 24 May 2022

Factors Affecting P 64

Price www.isfm.co.in 24 May 2022

Factors Affecting Commo  Demand-Supply situation  Government Trade Policies  Global economic situation  Currency  Geo-political tensions  Market sentiments  Investment Funds  Weather dynamics  Seasonal cycles

odity Prices

Process of Delivery at Exch  Client who wish to give/take delivery at exchange have to per contract nature.  Deposit of commodity in “Angel” A/c at WH before giving  Transfer of Original Warehouse Receipts (WHR) and Quali request.  Deposit margins as per Angel’s policy for delivery trade.  CSO will mark buyer/ seller delivery request at exchange  Allocation of delivery to buyer on base or default location. will be bound to take delivery.  Rejecting of delivery request will happen under the followin  (i) Non availability of open position.  (ii) Non-receipt of delivery Intention request within sp  (iii) Non-receipt of funds / Commodities

hange submit Delivery Request to “Angel” within stipulated time line as Intention request. ity certificates (Q.C) to CSO before two days of giving of Intention as per intention and delivery (WHR) received from customer. . Even in case it does not match with preferred location, such buyer ng circumstances: pecific time frame.

Compulsory Delivery Settle  Deposit of Commodity at warehouse (Be  Submission of delivery intention letter (T  Delivery Marking to the Exchange (T da  Settlement of commodity pay-in (T+2 d  Settlement of Fund Pay-out (T+2 day)  Settlement of Quality Premium/Discoun  Settlement of Excess/ short quantity / C  Settlement of VAT / Sales tax (T+5 day  Settlement of Invoice (T+7 day)  Lifting of Delivery from Warehouse (As

ement Process: efore placing intention) T-2 day) ay) day) nt (T+3 day) Close out Qty (T+3 day) y) per client’s requirement)

Important Commodity Se  Below websites are useful to gain knowledge on comm  well as updates of all global events that affect commo  www.mcxindia.com  www.ncdex.com  www.icsg.org  www.copper.org  www.metalbulletin.com  www.basemetals.com  www.ilzsg.org  www.ilzro.org  www.gfms-metalsconsulting.com  www.metalprices.com  www.forexfactory.com

egment related websites modities as odity prices.

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KYOU office : of Financial Market war Singh Chowk, Gurgaon – 122001, Haryana, India 8689, +91-7015237224, +91-8168573253

International School of Financial Markets Commodity Market Module Reg. office : Plot no. 152 - P (LGF), Sec – 38, Medicity Road, NR Medanta Hospital Phone : 0124-2200689, +91 7015237224, +91-8168573253 +91 8368025252 Web: www.isfm.co.in , Email : [email protected]