Basics of Commodity Trading . Day 2

Main Commodities List. 

Main Commodities List

Mainly Commodities Mainly divided into 3 types

1. ENERGY–oil and oil products, natural gas, electricity, coal, alternative energy

2. PRECIOUS METALS–gold, silver, platinum, palladium, and others

3. BASE METALS–copper, aluminum, nickel, lead, zinc, tin

Basics of Commodity Trading. Day 1

Contract Note Ref 1

1. What is a commodity?

A commodity is a product having commercial value that can be produced, bought, sold, and consumed.

2. What is a Derivative contract & what is Commodity future?

A derivative contract is an enforceable agreement whose value is derived from the value of an underlying asset; the underlying asset can be a commodity, precious metal, currency, bond, stock, or, indices of commodities, stocks etc. Four most common examples of derivative instruments are forwards, futures, options and swaps/spreads.

Commodity future is a contract to buy or sell specific commodity, of a specific quality, at a specific price, for a specific future date on the exchange.

3. What is a forward contract?

A forward contract is a legally enforceable agreement for delivery of goods or the underlying asset on a specific date in future at a price agreed on the date of contract. Under Forward Contracts (Regulation) Act, 1952, all the contracts for delivery of goods, which are settled by payment of money difference or where delivery and payment is made after a period of 11 days, are forward contracts.

4. What is a futures contract?


Futures Contract is a type of forward contract. Futures are exchange traded contracts to sell or buy standardized financial instruments or physical commodities for delivery on a specified future date at an agreed price. Futures contracts are used generally for protecting against rich of adverse price fluctuation i.e. hedging.

5. How are futures prices determined?


Futures prices evolve from the interaction of bids and offers emanating from all over the country which converge in the trading floor or the trading engine. The bid and offer prices are based on the expectations of prices on the maturity date.

6. What is long position?

In simple terms, long position is a net bought position.

7. What is short position?

In simple terms, short position is net sold position.

8. What is the difference between spot market and futures market?

In a spot market, commodities are physically bought or sold usually on a negotiable basis resulting in delivery. While in the futures markets, commodities can be bought or sold irrespective of the physical possession of the underlying commodity. The futures market trades in standardized contractual agreements of the underlying asset with specific quality, quantity, and mode of delivery whose settlement is guaranteed by regulated commodity exchanges.

9. What is a Commodity Exchange?


As in capital markets, a commodity exchange is an association or a company or any other body corporate that is organizing futures trading in commodities and is registered with FMC (Forward Market Commission). Two major national level commodities exchanges are Multi Commodities Exchange of India (MCX), National Commodities and Derivatives Exchange of India (NCDEX).


10. Who regulates the commodity exchanges in India?

Commodity Market in India is regulated by Forward Market Commission (FMC) under the guidance of the Ministry of Consumer Affairs, Food, & Public Distribution.

11. What are the benefits of futures trading in commodities?


The biggest advantage of trading in commodity futures is price risk management and price discovery. Farmers can protect themselves against undesirable price movements and decide upon cropping pattern. The merchandisers avoid price risk. Processors keep control on raw material cost and decreasing inventory values. International traders also can lock in their prices

Live Trading Call on Crude Oil On 11.07.13

AS ON 10.07.13  MORNING SESSION PROFIT BOOKING ....WE GO FOR LONG @ 6300 ABOVE.

BOUGHT 4 LOTS @ 6300
SOLD 4 LOTS@ 6404
NET PROFIT = 4 X 104 = 416 X 100 = 41,600
LESS BROKERAGE = 4X400 = 1600
So Net PROFIT = Rs 40,000


AS ON DATE NET PROFIT ON HAND - 1,71,600 + 20,000 + 22,800 = Rs 2,14 800

After  Pay Out Rs 2, Lakh ..Balance Rs 14,800/-

Rs - 40,000 +30,400 +14 800 = Rs 85,200/-

Natutal Gas Introduction

Introduction

Natural gas is a vital component of the world's supply of energy. It is one of the cleanest, safest, and most useful of all energy sources. Natural gas is a combustible mixture of hydrocarbon gases. While natural gas is formed primarily of methane, it can also include ethane, propane, butane and pentane. Natural gas is likely to play a greater role in the world energy mix given its growing resource base and its relatively low carbon emissions compared to other fossil fuels. Natural gas, when compressed at a pressure of 250 bars, is termed as compressed natural gas (CNG).

Global Scenario

The world’s natural gas reserves are estimated to be 7,360.9 trillion cubic feet (tcf). The Middle East holds 38.4% of the world’s reserves, while an additional 21.4% is located in the former Soviet Union, with only 9% held in the OECD countries. In 2011, the global natural gas production was 3,276.2 billion cubic metre (bcm), up 3.1% from 3,178.2 bcm in 2010, and consumption was 3,222.9 bcm, compared with 3,153.1 bcm in the previous year. The US, Russia and Canada are the largest natural gas producing countries, while the US, Russia and Iran are the largest natural gas consuming countries in the world.

Indian Scenario

The balance recoverable natural gas reserves in the country is 1240.9 bcm, which accounts for only 0.6% of the world’s total natural gas reserves. The share of natural gas in the country's primary energy mix decreased to 9.8% in 2011 from11% in 2010. However, this share is quite low compared to the global average (24%), primarily due to the supply-side constraints. The natural gas (including CBM) production in 2011 was 46.1 bcm, which is 12.8% higher than the actual production of 50.8 bcm in 2010. India's consumption of natural gas was around 61.1 bcm in 2011, which accounts for only 1.9% of the world natural gas market. As India does not have any pipeline connection, all the gas currently imported is LNG. India's current operational LNG import capacity is 18 bcm.

Price Moving Factors

Natural Gas inventory data The US weather conditions and active hurricane season poses a threat to the US Gulf coast’s natural gas production Price of crude oil Industrial and Residential demand in the US

Natural Gas Lot Size Specifications

Lot Size = 1250/mmbtu

Tick size = 10 paise

Margin Amount = Rs 25,000 +

If 10 Paise goes up = Rs 125

If 20 Paise goes up = Rs 250

If 30 Paise goes up = Rs 375

If 40 Paise goes up = Rs 500

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If 1 Rupee  goes up = Rs 1250

Sold 4 Lots @ 226.00
Bought 4Lots @ 218.00

Net Profit = 8 Rs/ Lot..So 4 Lots 4 X 8 = 32

Lot Size 1Rs = Rs 1250

8 Rs = 8X 1250 =  Rs 10,000

For 32 Rs =  32 X 1250 =  Rs 40,000

Deduct Brokerage..Rs = 1,000

So Net Profit = Rs 39,000/-

Brokerage ‘ll deduct…  Rs 250/ Lot

We can cover the brokerage if 0.20 Paise ‘ll goes up..

So for 4 Lots = 4 X 250 = Rs 1,000 

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Live Commodity Trading Call on Crude Oil (Energy) on 10.07.13

AS ON 09.07.13  MORNING SESSION PROFIT BOOKING ....WE GO FOR LONG @ 6220 ABOVE.

BOUGHT 4 LOTS @ 6220
SOLD 4 LOTS@ 6300
NET PROFIT = 4 X 80 = 32 X 100 = 32,000
LESS BROKERAGE = 4X400 = 1600
So Net PROFIT = Rs 30,400


AS ON DATE NET PROFIT ON HAND - 1,71,600 + 20,000 + 22,800 = Rs 2,14 800

After  Pay Out Rs 2, Lakh ..Balance Rs 14,800/-

Rs - 30,400 +14 800 = Rs 45,200/-

Live Commodity Trade on Natural Gas (Energy) on 10.07.13

As on 09.07.13 ..Per Lot 8 Rs taken Profit by Short Covering..Today Again we go for a long..