A PROJECT REPORT ON

“A STUDY ON COMMODITY FUTURES AS ON INVESTMENT

AVENUES”

SUBMITTED BY

MR. JAINAM DILIP SHAH

B.M.S (Finance) Semester VI

Project Submitted To
“University Of Mumbai”
In Partial Fulfilment for the Award of Graduation Degree in
Bachelor of Management Studies (B.M.S) Finance

UNDER THE GUIDANCE OF

DR. RAJENDRA VARE

MUMBAI PRADESH ARYA VIDYA SABHA’s

GURUKUL COLLEGE OF COMMERCE

(PERMANENTLY AFFILIATED TO UNIVERSITY OF MUMBAI)

NAAC Re-accredited ‘B+’ Grade

ISO Certified: 21001/14001/50001
GHATKOPAR (E), MUMBAI- 400077

2023-24
 DECLARATION

I, MR. JAINAM DILIP SHAH student of Bachelor of Management

Studies (B.M.S) Finance Semester VI (April 2024) of GURUKUL
COLLEGE OF COMMERCE, MUMBAI-400077 to here by declare
that I have completed the project work titled “A STUDY ON
COMMODITY FUTURES AS ON INVESTMENT AVENUES” as a
part of academic fulfilment.

THE INFORMATION CONTENT IN THIS PROJECT WORK IS TRUE AND

ORIGINAL TO THE BEST OF MY KNOWLEDGE AND BELIEF.

SIGNATURE OF
MR. JAINAM DILIP SHAH
 ACKNOWLEGEMENT

Firstly, I wish to express my sincere and heartfelt thanks to my Project Guide DR.
RAJENDRA VARE, for her distinctive guidance and encouragement throughout the
project work.

I also take this opportunity to express my deep sense of gratitude to our Principal, DR.
MAMTA RANE, Bachelor of Management Studies (B.M.S) Finance Co-ordinator
MS. KANCHAN LOTALE and our college Librarian for their continuous support to
complete this project.

Lastly, I wish to express my heartfelt gratitude to my beloved parents Mr. DILIP

SHNATILAL SHAH and Mrs. DEEPALI DILIP SHAH and to all my friends for their
encouragement and support in completing this project work.

Above all I thank Lord Almighty for abundant mercies and infinite grace which showed
upon me to complete the project work.

SIGNATURE OF
MR. JAINAM DILIP SHAH
 CERTIFICATE

This is to certify that MR. JAINAM DILIP SHAH the student of

MUMBAI PRADESH ARYA VIDYA SABHA’s GURUKUL
COLLEGE OF COMMERCE Studying in Bachelor of Management
Studies (B.M.S) Finance Semester VI, ROLL NO. 23 has
successfully completed the project entitled “A STUDY ON
COMMODITY FUTURES AS ON INVESTMENT AVENUES” as a
part of assignment under my supervision during the academic
year 2023-2024

PRINCIPAL EXTERNAL GUIDE

DR. MAMTA RANE

CO-ORDINATOR INTERNAL GUIDE

MS. KANCHAN LOTALE (BMS) DR. RAJENDRA VARE
 CONTENT OF TABLE

CHAPTER CHAPTER NAME PAGE NO.

NO.

1 INTRODUCTION 1-22

2 RESEARCH 23-26
METHODOLOGY

3 REVIEW OF LITERATURE 27-42

4 DATA ANALYSIS 43-56

5 FINDINGS/ CONCLUSION / 57-60

SUGGESTION
* BIBLOGRAPHY 61

* ANNEXURE 62-64
 CHAPTER NO.1

INTRODUCTION TO COMMODITY MARKET

(A) What Is “Commodity”?

Any product that can be used for commerce or an article of commerce which is traded
on an authorized commodity exchange is known as commodity. The article should be
movable of value, something which is bought or sold and which is produced or used as
the subject or barter or sale. In short commodity includes all kind of goods.

Indian forward contract regulation act (FCRA), 1952 defines:-“goods as every kind of
movable property other than actionable claims, money and securities”.

In the current situation, the FCRA (financial conduct regulation act) recognizes various
categories of goods and products for commodity trading. These categories include
agricultural goods, mineral and fossil origin goods, and precious metals and non-ferrous
metals. The national commodity exchanges (NCDEX), recognized by the central
government, permit commodities in the following categories:

Precious metals (gold and silver): these metals are highly valued due to their rarity,
durability, and industrial applications. They are commonly traded in the form of coins,
bullion, and jewelry.

Non-ferrous metals: these metals are not used in the production of tools or weapons.
They include copper, aluminum, zinc, lead, and tin. Non-ferrous metals are widely used
in the manufacturing of electronic devices, automobiles, and construction materials.

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Cereals: cereals are a group of grains that are used as a staple food for humans. They
include wheat, rice, barley, and oats. Cereals are commonly traded in the form of futures
contracts on commodity exchanges.

Pulses: pulses are a group of legumes that are used as a protein source in human diets.
They include lentils, chickpeas, and beans. Pulses are commonly traded in the form of
futures contracts on commodity exchanges.

Gained and un-ginned cotton: cotton is a natural fiber that is used in the production of
textiles and other products. It is commonly traded in the form of futures contracts on
commodity exchanges.

Oilseeds: oilseeds are a group of seeds that are used as a source of oil. They include
soybeans, sunflower seeds, and rapeseed. Oilseeds are commonly traded in the form of
futures contracts on commodity exchanges.

Oils and oilcakes: oils are a group of fatty substances that are used in the production of
various products. They include vegetable oils, animal fats, and oils derived from
petroleum. Oils are commonly traded in the form of futures contracts on commodity
exchanges.

Raw jute: jute is a natural fiber that is used in the production of ropes, sacks, and other
products. It is commonly traded in the form of futures contracts on commodity
exchanges.

Jute goods: jute goods are products made from jute fiber, such as ropes, sacks, and bags.
They are commonly traded in the form of futures contracts on commodity exchanges.

Sugar and potatoes: sugar and potatoes are two important staple crops that are used as
a source of energy and nutrients in human diets. They are commonly traded in the form
of futures contracts on commodity exchanges.

Onions, coffee, tea, rubber, and spices: these products are commonly traded in the form
of futures contracts on commodity exchanges. They include onions, coffee, tea, rubber,
and spices.

In conclusion, the fcra and the national commodity exchanges play a crucial role in
regulating and facilitating the trading of various goods and products in the agricultural,

2
mineral, and fossil origin categories. These exchanges enable efficient and transparent
trading of commodities, contributing to the growth and development of the economy.

(B) What Is A Commodity Exchange?

A commodity exchange is an exchange where various commodities, derivative,

agricultural products and other raw materials are traded. A commodity exchange is an
association or a company or any other body corporate organizing futures trading in
commodities for which license has been granted by regulating authority.

The commodity market in India is regulated by market board (SEBI) since September
2015, prior to that forward market commission, overseen by ministry of consumer
affairs regulated commodities market in India.

The commodity exchanges in India includes – national spot exchange limited (NSEL),
Indian commodity exchange limited (ICEX), multi commodity exchange (mcx),
national commodity and derivatives exchange limited (NCDEX), national multi-
commodity exchange of India ltd (NMCE), chamber of commerce – Hapur (COC), ace
derivatives and commodity exchange ltd. (ACE), bhatinda om and oil exchange ltd.
(BOOE) and universal commodity exchange (UCX).

3
(C) Types Of Commodities Traded:-

In the global markets, there are following categories of commodities in which trading
takes places:

Sr. No Categories Examples

1 Energy Crude oil, heating oil, natural gas and gasoline
2 Metals Gold, silver, platinum, aluminum, copper, lead,
zinc, tin, steel, etc.
3 Livestock and meat Lean hogs, pork bellies, live cattle and feeder
cattle
4 Agricultural Corn, wheat, rice, coffee, cotton and sugar
5 Bullion Gold, silver

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1.1 History of Commodity Market
The history of commodity markets can be traced back to ancient civilizations.
Commodity-based money and commodity markets are believed to have originated in
the Sumerian civilization between 4500 BC and 4000 BC. Sumerians first used clay
tokens sealed in a clay vessel, then clay writing tablets to represent the amount, such as
the number of goats to be delivered. These promises of time and date of delivery
resemble futures contracts. Early civilizations used various items as commodity money,
including pigs, rare seashells, or other items.

Gold and silver markets evolved in classical civilizations. At first, the precious metals
were valued for their beauty and intrinsic worth, and were associated with royalty. Over
time, they were used for trading and were exchanged for other goods and commodities,
or for payments of labour. Gold, measured out, then became money. Gold's scarcity,
unique density, and the way it could be easily melted, shaped, and measured made it a
natural trading asset.

Beginning in the late 10th century, commodity markets grew as a mechanism for
allocating goods, labour, and capital across Europe. Between the late 11th and the late
13th century, English urbanization and regional specialization expanded and improved
infrastructure. The increased use of coinage and the proliferation of markets and fairs
were evidence of commercialization. The spread of markets is illustrated by the 1466
installation of reliable scales in the villages of Sloten and Osborn, so villagers no longer
had to travel to Haarlem or Amsterdam to weigh their locally produced cheese and
butter.

Indeed, the Amsterdam stock exchange, often cited as the first stock exchange,
originated as a market for the exchange of commodities. Early trading on the
Amsterdam stock exchange often involved the use of very sophisticated contracts,
including short sales, forward contracts, and options. Trading took place at the
Amsterdam bourse, an open-air venue, which was created as a commodity exchange in
1530 and rebuilt in 1608. Commodity exchanges themselves were a relatively recent
invention, existing in only a handful of cities.

In 1864, in the united states, wheat, corn, cattle, and pigs were widely traded using
standard instruments on the Chicago board of trade (CBOT), the world's oldest futures

5
and options exchange. Other food commodities were added to the commodity exchange
act and traded through CBOT in the 1930s and 1940s, expanding the list from grains to
include rice, mill feeds, butter, eggs, Irish potatoes, and soybeans.

Successful commodity markets required board consensus on product variations to make

each commodity acceptable for trading, such as the purity of gold in bullion. Classical
civilizations built complex global markets trading gold or silver for spices, cloth, wood,
and weapons, most of which had standards of quality and timeliness.

Throughout the 19th century, "the exchange became effective spokesmen for, and
innovators of, improvements in transportation, warehousing, and financing, which
paved the way to expanded interstate and international trade." reputation and clearing
became central concerns, and states that could handle them most effectively developed

1.2 Evolution Of Commodity Markets

Commodity futures market in India, predominantly remain underdeveloped (Ram

Swami and Singh, 2007). When compared to the USA and UK markets, Indian
commodities market has a long history of commodity derivatives trade (Vashishtha and
Kumar 2010).The comprehensive government attention. In the agricultural sector in the
post-independence era is a major contributor to this fact.

The production of several agricultural commodities is still regularized by the state

government and forwards as well as futures trading have only been selectively
familiarized with rigorous regulative measures. Under the essential commodities act
(ECA), 1955, free trade in many commodity items remains restricted. Under the
forward contacts (regulation) act (FCRA), 1952 forwards and future contracts are
limited to specific commodity items. It was in the year 1875, with the setting up of the
Bombay cotton trade association ltd., the evolution of the organized futures market in
India commenced.

A separate association, Bombay cotton exchange ltd., was constituted in 1983 following
widespread discontent among leading cotton mill owners and merchants over the
functioning of the Bombay cotton trade association. With the setting up of the Gujrati
Vyaparimandali in 1900, futures trading in oilseeds originated, which carried out
futures trading in ground nuts, castor seeds and cotton.

6
For futures trade in raw jute, the Calcutta hessian exchange ltd. And the east India jute
association ltd. Were set up in 1919 and 1927 respectively. Futures in cotton were
organized in Mumbai under the auspices of the east India cotton association (EICA) in
1921. Several futures markets in oilseeds were functioning in the states of Gujarat and
Punjab before the second we war in 1939.

Several other exchanges were established in the country in due course, alleviating trade
in diverse commodities such as pepper, turmeric, potato, sugar and just. The Indian
constitution listed the subject of stock exchange and futures markets under the union
list after independence. Solely as the responsibility of the central government, the
regulation and development of the commodities futures markets were defined.

In December 1952, the forward contacts (regulation) act was enacted by an expert
committee headed by prof. A.d. Shroff and selected committee of two successive
parliaments. The central government in 1954 notified the forward contacts (regulation)
rules.

The Indian pepper and spices trade association (IPSTA) in cochin in 1957 first
organized the future trade in spices. Futures trade was completely banned by the
government in 1966 in order to monitor the price movements of several agricultural and
essential commodities. Many traders resorted to unofficial and informal trade in futures
subsequent to the ban of fun trade. The government reintroduced futures on selected
commodities as per the June 1980 Khusro committee's recommendations.

Expanding it's coverage of agricultural commodities, along with silver, the committee
submitted its report in September 1994, championing the reintroduction of futures,
which are banned in 1966. The government of India appointed an expert committee on
forward markets under the chairmanship of prof.kn. Kabra in June 1993 following the
instruction of economic reforms in 1991.

The national agricultural policy 2000 conceived of external and domestic market
reforms and disassembling of all controls and regulations in the agricultural commodity
markets in order to encourage the agricultural sector. To minimize the wide fluctuations
in commodity prices and for hedging the risk arising from extreme price volatilities it
also proposed an expansion of the coverage of futures markets.

7
The commodity trading experienced various regulatory decisions during the post
independence period. Under the ministry of consumer affairs, the forward contract
(regulation) act was enacted in 1952 and the FMC or the forward market commission
was established in 1953. FMC acts as a regulatory body, which governs the commodity
markets in India. During the mid-1960s, it was witnessed that an unprecedented rise in
output. Futures trade was banned in most commodities to certain speculation, which the
government attributed to rising inflation.

But the NSEL scam of 2014 and subsequent problems led to merger for the first time
of two regulatory bodies viz., forward markets commission (FMC) with securities
exchange board of India (SEBI) which were formally merge in 2015.

1.3 Functions of Commodity Market

The two major economic functions of a commodity futures trading for ins are price risk
management and price discovery. A futures exchange on carries out these twin
functions by providing a trading platform time of that brings buyers and sellers together.

The price risk management (also called hedging) is considered to be the most important
function of a commodity futures market. The hedging is used to manage price risks. It
allows transfer of price risk to other agents who are willing to bear such risks. The
hedgers, strategy in principle, buy futures contracts for protection against rising direct
commodity prices and sell futures for protection against falling prices little or to get a
guaranteed price in the future. Hedgers use futures market to protect themselves against
price adverse changes and are often criteria interested in taking or making physical
delivery of the underlying the us commodity at a specified price. On the other hand,
speculators, part in gamblers and other non-commercial players trade futures contracts
strictly to make profits by betting on price movements. Such players have no interest in
taking possession of the underlying commodity.

Initially, commodity futures markets were created for the benefits of hedgers (i.e.,
producers or users of the underlying commodity) who would like to get guaranteed
prices for their product. The commodity futures market can be potentially beneficial to
producers and users of commodities (including farmers, manufacturers, bulk users,
traders, exporters and importers) who can pass the price risk on an expected purchase

8
or sale of physical commodity to other agents (specula-tors) who participate in these
markets without any physical backing.

The premise of hedging is the key reason behind the existence of commodity futures
exchanges. It has greater significance in a country like India where over 60 percent of
the population is dependent on agriculture and farmers face various kinds of
uncertainties and risks including price risk. In India, the original purpose behind re-
introduction of futures trading was to help farmers hedge against potential risks arising
out of price movements in agricultural commodities

The farmers can participate in futures market to manage price risk arising from decline
and rise in commodity spot prices in the future. For instance, a guar farmer faces the
possibility of incurring a loss on account of decline in guar seed prices at harvest time.

At the time of sowing, the guar farmer can reduce or eliminate his risk by entering into
a futures contract to sell guar seed at Bikaner exchange (Rajasthan) at a certain fixed
price. By doing this, the farmer has hedged his exposure to changes in guar prices; he
is no longer affected by adverse price changes in prices of guar, because he is
guaranteed to get the price quoted in the futures contract. This strategy is known as a
short hedge.

In India, however, such type of direct participation by farmers is seldom seen because
farmers have little knowledge of futures markets. Besides, trading in future markets is
cumbersome as it involves meeting various membership criteria, bank transaction
norms, daily payments of margins, etc. In the us, however, big farmers and agribusiness
corporations do take part in the futures markets.

On the other hand, a guar gum manufacturer plans to buy guar seeds in the future may
suffer a loss on account of an increase in guar seed prices. To minimize or eliminate
the risk, the manufacturer may enter into a futures contract to buy the guar seed at a
carta in fixed price. This strategy is known as a long hedge.

Just like a guar farmer, an airline can also hedge its operating cos olive fr by using a
futures contract to lock in the price on future delivery jet fuel, which alone may account
for 30-50 percent of its operating costs.

It is important to note that the commodity futures price, the prior available agreed upon
by the parties for the future transaction, is a market danger estimate about the future

9
price of the underlying commodity. C reflects the price expectations of both buyers and
sellers for a time of delivery in the future. It may be higher or lower than the spot price
of the commodity in the spot market. Thus, the futures price could be used as an
estimate of the spot price of a commodity & some future date. However, futures prices
keep changing until the last date of the futures contract subject to additional information
about demand and supply.

1.4 Participants of Commodity Market

1) Hedgers

Hedgers essentially players with an exposure to the underlying commodity and

associated price risk-producers or consumers who fund wish to transfer the price risk
on to the market. The futures markets default exist primarily for hedgers. The
hedgers simultaneously operate in sgf of the spot market and the futures market.
They try to reduce or seller eliminate their risk by taking an opposite position in the
futures s will market on what they are trying to hedge in the spot market so that fault
both positions cancel one another. They operate in the spot market lateral to buy or
sell the physical commodity, and in the futures market to offset any loss arising out
of price fluctuations in the spot market.

2) Speculators

Speculators are traders with no genuine commercial business to the underlying; they
do not hedge but trade with the objective of making profits from movements in
prices. The speculators generally assume higher risk and also expect a higher return
on their investments.

They do not have any real need to buy, sell or take delivery of the actual
commodities. They wish to liquidate their positions before the expiry date of the
contract and carry out a purely financial transaction. Due to the margin system,
speculators operate in the futures market with minimum investments. For instance,
upfront initial margin of 5 percent (or less) of the value of the contract provides
speculators with substantial leverage.

The speculators may be professional institutional investors dealing in big contracts

or small individual traders who trade on their own accounts. The speculators are

10
 supposed to provide market liquidity as the number of those seeking protection
against declining prices is rarely the same as the number of those seeking protection
against rising prices. In the financial media, speculators are frequently labelled as
investors and non-commercial players.

3) Arbitragers

Arbitragers traders who buy and sell to make money on price differentials across
different markets. They simultaneously buy or sell the same commodities in different
markets. Arbitrage keeps the prices in different markets in line with each other.
Usually, such transactions are risk-free.

1.5 STRUCTURE OF COMMODITIES MARKET IN INDIA

The commodities market exists in two distinct forms:

• Over-the-counter market

• Exchange based market

Similar to equities, there exists the spot and the derivatives segments. Spot markets
a essentially markets and participation is restricted to people who are involved with
commodity, such as the farmer, processor, wholesaler, etc.

A majority of the derivatives trading takes place through the exchange-based

markets w standardized contracts, settlements, etc. The exchange-based markets
are essentially derivative markets and are similar to equity derivatives in their
working, that is, everything is standardized and a person can purchase a contract
by paying only a percentage of the contract value.

A person can also go short on these exchanges. Moreover, even though there is a
provision for delivery, most contracts are squared-off before expiry and are settled
in cash. As a result, one can see an active participation by people who are not
associated with the commodity. The typical structure of commodity futures
markets in india is as follows

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Ministry of consumer affairs, food, and public distribution

The department pertaining to consumer affairs is responsible for the formulation

of policies for:

➢ Monitoring prices.

➢ Consumer movement in the country.

➢ Controlling of statutory bodies bureau of Indian standards (BIS) and weight

➢ Internal trade.

➢ Inter-state trade- the spirituous preparations [inter-state trade and commerce

control act, 1955 [39 of 1955].

➢ Control of futures trading- the forward contracts [regulations] act, 1952 [74
of1952].

The department for food and public distribution is responsible for the
formulation of policies for:
➢ Ensuring food security for the country through timely and efficient procurement
and distribution of food grains. Building up and maintenance of food stocks,

12
 their storage, movement and delivery to the distributing agencies and
monitoring of production, stock and price levels of food grains.

➢ Incentivizing farmers through fair value of their produce by way of minimum

support price mechanism, distribution of food grains to below poverty line (bpl)
families.

➢ Covering poor households at the risk of hunger under anthodia anna yojna (aay).

➢ Establishing grain banks in food scarce areas and involvement of panchayat raj
institutions in public distribution system (pds).

➢ Concerns for the sugar sector such as fixing of fair and remunerative price (frp)
of sugarcane payable by sugar factories, development and regulation of sugar
industry (including training in sugar technology), fixation of levy price of sugar
and its supply for pds and regulation of supply of free sale sugar.

Forward market commission :-

• The commission functions under the control of the ministry of consumer affairs,
food & public distribution, department of consumer affairs, government of
India. The functions of the forward markets commission are:

• To advise the central government in respect of the recognition or the withdrawal

of recognition from any association or in respect of any other matter arising out
of the administration of the forward contracts (regulation) act 1952.

• To keep forward markets under observation and to take such action in relation
totem, as it may consider necessary, in exercise of the powers assigned to it by
rounder the act.

• To collect and whenever the commission thinks it necessary, to publish

information regarding the trading conditions in respect of goods to which any
of the provisions of the act is made applicable, including information regarding

13
 supply, demand and prices, and to submit to the central government, periodical
reports on the working of forward markets relating to such goods.

• To make recommendations generally with a view to improving the organization

and working of forward markets.

1. National exchanges are :-

A. National commodity & derivative exchange (NCDEX)

• National commodity & derivatives exchange limited (NCDEX) is an online

commodity exchange based in India.

• It has an independent board of directors and professional management, who

have interest in commodity markets.

• It provides a commodity exchange platform for market participants to trade in

commodity derivatives.

• nedex is popular for trading in agricultural commodities,

B. Multi commodity exchange (MCX)

• Multi commodity exchange of India ltd (mcx) is an private /independent

commodity exchange based in India.

• It is based in Mumbai.

• It is India’s largest commodity futures exchange. Offers futures trading in

bullion, non-ferrous metals, energy, and a number of agricultural commodities

C. National multi commodity exchange of India (NMCE)

• The national multi commodity exchange of India ltd. (nmce)was launched as

India’s first online, demutualized commodity exchange.

14
 • Nmce is currently India’s third-largest commodity and derivatives exchange.

• Nmce is popular for trading in spices and plantation crops, especially from
Kerala, a southern state of India.

D. Indian commodity exchange limited (ICEX)

• The exchange is a public-private partnership with reliance exchange next ltd.

(reliance capital), mmtc ltd., India bulls housing finance ltd, etc.

• It provides fair, transparent and efficient trading platform to all participants.

• It meet the international benchmarks for the Indian commodity market.

• Provide equal opportunity and access to investors all over the country through
the modem communication modes.

2. Regional exchange :-

• National board of trade limited (NBOT) is state-of-the-art commodity futures

exchange.

• It was incorporated to offer transparent and efficient trading platform to various

market intermediaries in the commodity future trade.

• Today nbot is one of the fastest growing commodity exchange.

1.6 Trading In Commodities In India

Trading In Indian Commodities Market Is Done Is Following Ways.

1. Trade (buy/sell) commodity in future market format

2. Buy commodity in physical format

3. Buy commodity in demat format

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90% people trading in commodity market, use no.1 (future trading) way to trade this
market.

1. Trade (Buy/Sell) Commodity In Future Market Format

In future market, we do not need to pay the full amount for what we buy. We just pay
a margin percentage of what we buy. For example, if we want to buy gold, the total
amount we are buying is Rs 1,00,000 but we do not need to pay the full amount to buy
gold. We'll have to deposit 5% of total amount which is Rs 5,000 & we can get all the
benefits of buying gold worth Rs 1,00,000 .

2. Buy commodity in physical format

Once we buy commodity in future segment using margin & then if we plan to take
physical delivery of that contract instead of keeping it in future segment & settle in
terms of cash. In this scenario, our bought commodities will be kept in exchange's
authorized warehouse as a deposit & will be sold from the warehouse later on.

3. Buy commodity in demat format

We require a demat a/c in case, we want to buy commodity in demat format where you
need to pay the full amount of what you buy like equity shares. This sort of facility is
provided by a different exchange called nsel (the national spot exchange ltd) where
investors can buy commodities in a small denomination like you can buy 1g of gold or
100g of silver & keep that much unit deposited in your demat a/c. Later, whenever you
feel like selling those commodities. You can do so. There is no fixed timeline to hold
these kind of investment here.

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1.7 What Is Commodity Futures
A commodity futures is an agreement between two parties to buy or sell a specified and
standardized quantity of a commodity at a certain time in futures at a price agreed upon
at the time of entering into the contract on the commodity futures exchange. The need
for a futures market arises mainly due to the hedging function that it can perform.
Commodity markets, like any other financial instrument, involve risk associated with
frequent price volatility. The loss due to price volatility can be attributed to the
following reasons:

Consumer preferences:- in the short-term, their influence on price volatility is small

since it is a slow process permitting manufacturers, dealers and wholesalers to adjust
their inventory in advance.

Change in supply:- they are abrupt and unpredictable bringing about wild fluctuation
in prices. This can especially noticed in agricultural commodities where the weather
plays a major role in affecting the fortunes of people involved in this industry. The
futures market has evolved to neutralize such risks through a mechanism; namely
hedging.

Commodities futures contracts are agreements to buy or sell a raw material at a specific
date in the future at a particular price. The contract is for a set amount. It specifies when
the seller will deliver the asset. It also sets the price. Some contracts allow a cash
settlement instead of delivery.

The three main areas of commodities are food, energy, and metals. The most popular
food futures are meat, wheat, and sugar. Most energy futures are oil and gasoline.
Metals using futures include gold, silver, and copper.

Buyers of food, energy, and metal use futures contracts to fix the price of the
commodity they are purchasing. That reduces their risk that prices will go up. Sellers
of these commodities use futures to guarantee that they will receive the agreed-upon
price. They remove the risk of a price drop. Prices of commodities change on a weekly
or even daily basis. Contract prices change as well. That’s why the costs of meat,
gasoline, and gold change so often.

17
1.8 How They Work

If the price of the underlying commodity goes up, the buyer of the futures
contract makes money. He gets the product at the lower, agreed-upon price and can
now sell it at today's higher market price. If the price goes down, the futures seller
makes money. He can buy the commodity at today's lower market price and sell it to
the futures buyer at the higher, agreed-upon price.

If commodities traders had to deliver the product, few people would do it. Instead, they
can fulfil the contract by delivering proof that the product is in the warehouse. They
can also pay the cash difference or provide another contract at the market price.

1.9 How futures contracts affect the economy

Companies use futures contracts to lock in a guaranteed price for raw materials such as
oil. Farmers use them to lock in a sales price for their livestock or grain. Futures
contracts guarantee they can buy or sell the good at a fixed price. They plan to transfer
possession of the goods under the contract. The agreement also allows them to know
the revenue or costs involved. For them, the contracts reduce a significant amount of
risk.

Hedge funds use futures contracts to gain more leverage in the commodities market.
They have no intention of transferring any commodity. Instead, they plan to buy an
offsetting contract at a price that will make them money. In a way, they are betting on
the future price of that commodity. Price assessment and price forecasts for raw
materials are how commodities futures affect the economy. Traders and analysts
determine these values.

Pros:
• These contracts ensure that the commodity producer receives a fixed sales price,
come harvest or selling time.
• In a price drop, the producer does not lose money. He gets the agreed-upon
price.
• Producers can limit their risk, in case of a price drop.
• Producers or companies can make better production plans.

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Cons:
• In the event of a price increase, producers can miss out on considerable gains.
Contract prices are fixed.
• Trading in these contracts is very risky. World commodity prices are highly
volatile.
• Commodity prices are influenced by world events, traders’ emotions, and
market speculations, even when demand and supply remain at the same level.
• This investment type is best left to experts.

1.10 How to invest

The safest ways to invest in commodities futures are through commodity funds. They
can be commodity exchange-traded funds or commodity mutual funds. These funds
incorporate the broad spectrum of commodities futures that occur at any given
time. Trading in commodity futures and options contracts is very complicated and
risky. Commodities prices are very volatile. The market is rife with fraudulent
activities. If you aren't completely sure of what you are doing, you can lose more than
your initial investment. Before you invest, read about commodities profiles and day
trading in commodity futures.

19
1.11 Benefits of commodity futures markets

The primary objectives of any futures exchange are authentic price discovery and an
efficient price risk management. The beneficiaries include those who trade in the
commodities being offered in the exchange as well as those who have nothing to do
with futures trading. It is because of price discovery and risk management through the
existence of futures exchanges that a lot of businesses and services are able to function
smoothly.

Price discovery:- 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 assessment of fair value of a particular commodity
that is immediately disseminated on the trading terminal.

Price risk management:- 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.

Import-export competitiveness:- The exporters can hedge their price risk and improve
their competitiveness by making use of futures market. A majority of traders 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.

Predictable pricing:- The demand for certain commodities is highly price elastic. The
manufacturers have to ensure that the prices should be stable in order to protect their
market share with the free entry of imports. Futures contracts will enable predictability

20
in domestic prices. The manufacturers can, as a result, 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.

Benefits for farmers/agriculturalists :- 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 unfavourable price fluctuations. This would reduce the risk premiums
associated with the marketing or processing margins.

1.13 Commodity market work in India

Commodities were permitted in 2001 and in 2002, the mcx and the ncdex started
functioning. However, the volumes picked up very sharply only in select commodities.
To begin with, the commodity exchanges were only offering futures on commodities.
However, being a commodity market, the commodity futures offered speculation-based
trading and delivery-based trading. That means the exchange had tie-ups with
warehouses to supply the underlying commodity at an assured price to the two parties.
The risk belonged to the two parties and the exchange was only a facilitating platform.

In terms of regulation, the commodity markets were regulated under the aegis of the
forward market commission or fmc till 2015. After the national spot exchange (nsel)
scam in 2013, there was a major furore over the functioning and regulation of the
fmcand subsequently, the regulation of the commodity futures market was fully
transferred to sebi. Since 2015, it is the securities and exchange board of India (sebi)
has been regulating the commodity markets. Commodity trading in these exchanges
requires standard agreements as per the instructions so that trades can be executed
without visual inspection. In general. Like in any futures exchange, the trades on the
commodity futures exchanges are also standardized in terms of quality, lot sizes,
delivery dates, expiry, etc so that entry and exit become simple.

The trading in commodity options was introduced in 2017, but it is yet to take off in a
big way although the traction is visible in several commodities. In India, the volumes
on options are predominantly the volumes on options on commodity futures and not on

21
spot commodities. That is the difference between trading options in commodities in the
Indian context.

Major commodities exchange in India

There are 6 major commodity trading exchanges in India as listed below :-

(1) Multi commodity exchange – MCX. This was founded by financial technologies
almost 20 years ago and has a leadership position in commodity futures on base metals,
precious metals, and energy.

(2) National commodity and derivatives exchange – NCDEX is also around 20 years
old and while it also offers most of the commodity futures for trading, it has a leadership
position in trading agricultural commodities.

(3) National multi commodity exchange – NMCE

(4) Indian commodity exchange – ICEX

(5) Ace derivatives exchange – ACE

(6) The universal commodity exchange – UCX

22
 CHAPTER NO. 2

RESEARCH METHODOLOGY

[1] Collection Of Data :-

A. Primary Data- in this study the data is collected through personal contacts
using a structured questionnaire method which is original.

B. Secondary Data- in this study of commodity futures secondary data is collected

through books, internet, articles.

[2] Sampling Size :-

Convenient sampling method is being used for collecting the data. The sample size of
the present study is 71 samples. Which are collected by students and investors.

[3] Sampling Techniques :-

Questionnaire sampling is something that is sent to the candidates who want to invest
in commodity futures. By questionnaire you can understand peoples taste and
preferences so it is easy to convince.

[4] Data Interpretation :-

Data interpretation is that in which we analyse the whole collected data and try to give
it in simple words that is understandable .

[5] Selection Of The Problem:-

The topic was selected to know about the commodity futures market. From this research
work i was able to know about the concept of commodity futures in detail and why it is
a good investment option for investor.

23
[2] Hypothesis of the study

• Hypothesis 1: investors with a higher risk tolerance can achieve greater returns by
incorporating commodity futures into their portfolios compared to those with lower
risk tolerance.

• Hypothesis 2: increased geopolitical instability in resource-rich regions will lead

to a significant rise in the price volatility of related commodity futures contracts.

• Hypothesis 3: advancements in alternative energy sources will negatively impact

the price of traditional energy commodity futures in the long run.

• Hypothesis 4: utilizing technical analysis on commodity futures contracts can

outperform a buy-and-hold strategy in volatile market conditions.

• Hypothesis 5: combining commodity futures with a diversified portfolio of stocks

and bonds will offer a superior risk-adjusted return compared to a purely stock or
bond portfolio.

• Hypothesis 6: increased media attention towards a specific commodity will lead

to a surge in speculative activity and price bubbles in the corresponding futures
market.

• Hypothesis 7: retail investors with limited investment experience are more likely
to experience losses when trading commodity futures compared to institutional
investors.

2.1 Limitation of The Study

➢ Date collected through Questionnaire may be biased.

➢ The area of the study is limited to financial and commodity market, thus,
result does not show the humanitarian effects.

➢ Respondents may have to be contacted repeatedly or alternate respondents

may have to be identified.

24
➢ The data used in the study might be out of time.

➢ It was difficult to collect the information due to other respondents confidential

nature

2.3 Scope of the Study

The scope of the study involves the following points:

➢ Data Sources: The research will rely on data from reputable sources such as
the Reserve Bank of India (RBI), Bombay Stock Exchange (BSE), National
Commodity & Derivatives Exchange (NCDEX), Ministry of Finance, and
reports from financial institutions and research agencies.

➢ The research was conducted to assess the overall impact on the global
financial markets which include the global stock markets, bond markets,
commodity market.

2.4 Abstract of the study

➢ To provide an overview of commodity market in India.

➢ To understand the market share of various commodity exchanges in India.

➢ To find out which future opportunities and challenges of commodity market in

India.

The present study is based on conceptual perspective of commodity future trading and
its effect on the commodity market. There is no tool applied due to turnover, values
fluctuation from year to year. This paper is based on secondary data gathered from
various sources like journals, magazines, newspaper articles, online database like ssrn
and others resources. The national commodity exchanges in India are nmce, mcx,
ncdex, icex, ace, and ucx were selected for the organization structure of Indian
commodity market

25
The Indian commodity market can be divide into 3 layers to control the functioning of
commodity market.1st and the top most layer consist the government of India, 2nd layer
or the mid layer consist of forward market commission which is now merged with sebi
(securities and exchange board of India) and 3rd or bottom layer consist of commodity
exchange. Government of India through forward contract regulation act 1952 it controls
the commodity futures trade in commodity exchange. The regulator for the
commodities trading is the forward markets commission, situated at Mumbai, which
comes under the ministry of finance, department of economic affairs -government of
India. In September 2013, the regulatory body fmc has been brought under the control
of ministry of finance study.

Commodity market is a market which involves buying and selling of hard and soft
commodities. Commodity market exists more than a century. India has experienced
impressive progress in the commodity derivatives markets since 2003. After
government approval for operation of multiple exchanges, the exchange environment
has become highly competitive market for product development and business
strategies. Private sector initiatives, seeking to tap the potential value of agricultural
trading, have become key promoters in this process.

26
 CHAPTER-3

REVIEW OF LITERATURE

Naik Gopaland Jain, Sudhir Kumar (2002) :-

“Agricultural commodity futures market” naik, gopalan, jain, and sudhirkumar (2002)
highlighted the inadequacy of the agricultural commodity futures market in serving as
an effective tool for price discovery and risk management. The study identified various
factors that contribute to the underdevelopment of these markets, including poor
management, infrastructure, and logistics. Moreover, the dominance of speculators in
the market often discourages hedgers from participating, further exacerbating the
problem.

Poor management: a major obstacle in agricultural commodity futures market. One of

the critical factors that hinder the development of agricultural commodity futures
markets is poor management. The lack of proper management practices and systems
can lead to inefficiencies, errors, and fraud, eroding the market’s credibility and trust
among market participants. Moreover, ineffective risk management practices can
expose market participants to significant financial losses, further discouraging their
participation in the market.

Infrastructure and logistics: essential components for a vibrant agricultural commodity

futures market. Another critical factor that affects the development of agricultural
commodity futures markets is infrastructure and logistics. The absence of adequate
infrastructure, such as warehousing, transportation, and communication systems, can
make it challenging to deliver and store agricultural commodities physically. Moreover,
the lack of logistics can hinder the timely and efficient transfer of commodities, leading
to price volatility and market inefficiencies.

Speculators vs. Hedgers: the dynamics of agricultural commodity futures market. The
dynamics between speculators and hedgers play a crucial role in shaping the
agricultural commodity futures market. Speculators, who trade in the market to profit
from price movements, often dominate the market, leading to increased price volatility.
On the other hand, hedgers, who use the market to manage price risks, may be
discouraged from participating due to the dominance of speculators. This imbalance

27
can result in an underdeveloped market, which fails to serve its intended purpose of
price discovery and risk management.

Expanding the role of agricultural commodity futures market: opportunities and

challenges. Despite the challenges, there are opportunities to expand the role of
agricultural commodity futures markets in price discovery and risk management. One
such opportunity is to leverage technology to improve market efficiency, transparency,
and accessibility. However, this also presents challenges, such as ensuring the security
and integrity of the market, protecting market participants’ interests, and addressing
regulatory and legal issues.

Conclusion: the need for a holistic approach to develop agricultural commodity futures
marketing conclusion, the agricultural commodity futures market has the potential to
serve as an effective mechanism for price discovery and risk management. However,
to realize this potential, it is essential to address the underlying issues that hinder its
development, such as poor management, inadequate infrastructure and logistics, and
the imbalance between speculators and hedgers. A holistic approach that considers
these factors and leverages technology can help expand the role of agricultural
commodity futures markets, benefiting farmers, traders, and consumers alike.

Ahuja, Narender l. (2006)

Indian commodity market has made enormous progress since 2003 with an increased
number of modern commodity exchanges, transparency, and trading activity. The
volume and value of commodity trade have shown unpredicted marks. This had
happened due to the role played by market forces and the active encouragement of the
government by changing the policy concerning commodity derivatives. He suggested
the promotion of barrier-free trading in the future market and freedom of market forces
to determine the price.

Suchismita Bose(2006):-

"the Indian derivatives market revisited" presented accounts of the major developments
in the Indian commodity, exchange rate, and financial derivatives markets, and outlines
the regulatory provisions that have been introduced to minimise misuse of derivatives.

28
Ashutoshvashishtha and SatishKumar (2010):-

“development of financial derivatives market in India- a case study”

The historical roots of derivative trading in India: the authors have discussed the early
history of derivative trading in India, which can be traced back to the 19th century when
the Bombay stock exchange (bse) was established. They have highlighted the role of
the bse in the development of the derivatives market in India.

Regulation and policy developments: the authors have discussed the regulatory
framework in India that governs the financial derivatives market. They have highlighted
the role of the securities and exchange board of India (sebi) in regulating the derivatives
market in India. The authors have also discussed the policy developments in India that
have influenced the growth of the derivatives market, such as the introduction of the
securities contracts (regulation) act, 1956, and the sebi (prohibition of fraudulent and
manipulative practices) regulations, 2004.

Trend and growth: the authors have analysed the trends and growth of the financial
derivatives market in India. They have highlighted the increasing role of equity
derivatives in shaping price discovery in the Indian financial market. The authors have
also discussed the growth of the derivatives market in India, which has been driven by
factors such as increased volatility in financial asset prices, growing integration of
national financial markets with international markets, development of more
sophisticated risk management tools, wider choices of risk management strategies for
economic agents, and innovations in financial engineering.

Future prospects and challenges: the authors have discussed the future prospects of the
financial derivatives market in India. They have highlighted the potential for further
growth in the derivatives market in India, which could be driven by factors such as
increased regulation, innovation in financial engineering, and the development of new
risk management strategies. The authors have also discussed the challenges that the
financial derivatives market in India may face in the future, such as the need for
increased regulation, the potential for systemic risk in the derivatives market, and the
need for better risk management practices.

In conclusion, the authors have concluded that there is an increasing sense that the
equity derivatives market is playing a major role in shaping price discovery in the

29
Indian financial market. Factors like increased volatility in financial asset prices,
growing integration of national financial markets with international markets,
development of more sophisticated risk management tools, wider choices of risk
management strategies for economic agents, and innovations in financial engineering
have been driving the growth of the financial derivatives market in India.

Kamleshgakhar and Ms. Meetu (2013):-

"derivatives market in India: evolution, trading mechanism, and future prospects" said
that there are many issues (e.g., the lack of economies of scale, tax and legal
bottlenecks, increased off-balance sheet exposure of Indian banks need for an
independent regulator etc), which need to be immediately resolved to enhance the
investors confidence in the Indian derivative market.

Daksha Pratapsinh Chauhan (2013) :-

“performance of stock exchanges in India” has studied the financial performances of

bse and nse over the last one decade. And has tried to find out of the two stock
exchanges which one is performing better financially on the various basis and
concluded that bse and nse are the icons of the Indian capital market they are not rivals,
both of them are the pillars of Indian economy. Both must try to be complimentary to
each other. If both will go hand in hand than it will result in rapid growth and upliftment
of the nation.

Shalini h and Raveendra p (2014):-

in their research paper “a study of derivatives market in India and its current position
in global financial derivatives markets” studied the scope, history, concept, definition,
types, features, regulation, market, trend, growth, future prospects and challenges of
derivatives in India and status of Indian derivatives market vis-à-vis global derivative
market and concluded that there is big significance and contribution of derivatives to
financial system.

Gupta and Mokshmar (2018):-

“India’s most of the investment avenues are termed to be risky by the investors”. The
choice of investment avenue depends on the investor’s risk appetite and desired return.
For example, if an investor is risk-averse and seeks a stable return, they may choose to

30
invest in provident funds, national saving certificates, or fixed deposits. On the other
hand, if an investor is risk-tolerant and seeks higher returns, they may choose to invest
in equity, derivatives, or other riskier investment avenues. The decision-making process
for investors can be complex, as they need to consider various factors such as return,
risk, liquidity, and ease of transferability.”

The perception of risk in investment avenues can vary depending on the investor’s
background, experience, and knowledge. For instance, a novice investor may perceive
equity investments as riskier due to their volatility. However, for an experienced
investor, equity investments may be perceived as less risky, as they can potentially
generate higher returns over time. Similarly, the perception of risk in derivatives can
vary depending on the investor's understanding of the underlying asset and the nature
of the derivative contract.

Investors often face a trade-off between risk and return. By investing in riskier assets
like equity and derivatives, investors can potentially earn higher returns. However, this
comes with the risk of losing a larger portion of their investment. On the other hand, by
investing in less risky assets like fixed deposits or government securities, investors can
minimize the risk of loss but may also receive lower returns. The choice of investment
avenue depends on the investor’s risk tolerance and desired return.

The choice of investment avenue can also be influenced by factors such as tax benefits,
regulatory environment, and the ease of accessing and managing the investment. For
example, investors may choose to invest in mutual funds due to their professional
management and diversification benefits. However, mutual funds can also be perceived
as riskier investment avenues due to their dependence on the performance of the
underlying assets and the potential for market risk.

In conclusion, the choice of investment avenue depends on various factors, including

the investor’s risk tolerance, desired return, and knowledge of the investment avenue.
By considering these factors and the potential risks and returns associated with each
investment avenue, investors can make informed decisions that align with their
financial goals and risk tolerance

31
Gautami Nallabalakalyan (2018):-

In their reveal that as part of financial market reforms, new instruments and financial
reengineering have been introduced in India since 1991. One area where the growth
and innovation is slow is in the introduction of derivatives. In India, the appearance and
enlargement of derivatives market is moderately a recent phenomenon. Since its
beginning in June 2000, derivatives market has exhibited exponential enlargement both
in terms of volume and number of traded contracts. The term derivatives, refers to a
broad class of financial instruments which mainly include options and futures. These
instruments derive their value from the price and other related variables of the
underlying asset. They do not have worth of their own and derive their value from the
claim they give to their owners to own some other financial assets or security.

Ashutosh Roy (2006):-

Suggested the participation of banks in the commodity futures market for effective
commodity price risk management as financing by banks could provide efficient hedge
against price risk.

Himdari Bhattacharya (2007):-

Pointed out that significant risk returns features and diversification potential has made
commodities popular as an asset class. Indian futures markets have improved pretty
well in recent years and would result in fundamental changes in the existing isolated
local markets particularly in case of agricultural commodities.

Nath Golka c. And Tulsi lingareddy (2008):-

In the study conduct by the authors highlighted the significant impact of trading in
commodity futures on inflation rates. Their research findings indicated a positive
correlation between the time period of future trading and the spot price of selected
commodities, as well as their volatilities. Specifically, the study showed that during the
time period of future trading, the spot price of these commodities and their volatilities
had posted are markable increase.

This suggests that trading in commodity futures contributes to inflation as it drives up

the prices of commodities and increases market volatility. Commodity futures markets
involve the buying and selling of contracts that represent a specified quantity and

32
quality of a particular commodity at a predetermined price and delivery date. These
markets provide a platform for hedgers, speculators, and arbitrageurs to manage price
risks and exploit market opportunities

When market participants engage in commodity futures trading, they may bid up the
prices of commodities in anticipation of future price increases. This can lead to higher
spot prices, which are the prices at which commodities are bought and sold for
immediate delivery. Higher spot prices can translate to higher inflation rates as the
prices of goods and services that rely on these commodities also increase.

Moreover, the increased volatility in commodity prices can contribute to inflation as

well. Volatility refers to the degree of unpredictability or variation in price movements.
High volatility can create uncertainty in the market, making it difficult for businesses
to plan and budget for their operations. This uncertainty can lead to higher costs, which
can be passed on to consumers in the form of higher prices

In conclusion, the study by nath, golka c. And lingareddy (2008) underscores the
importance of understanding the impact of commodity futures trading on inflation rates.
The positive correlation between future trading and commodity prices and volatilities
suggests that trading in commodity futures can contribute to inflation. Therefore,
policymakers and market participants should be mindful of these impacts when making
decisions related to commodity futures markets.

Gurbandini Kaur (2010):-

The commodity spot and future prices had closely tracked each other in selected agri
commodities and no significant volatility has been found in the prices of future and spot
contracts of those agricultural commodities.

Brajesh Kumar and Ajay Pandy (2009):-

Observed that commodity futures market in India provide higher hedging effectiveness
in agricultural commodities as compared to non agricultural commodities and price risk
management role of Indian commodity futures market has also increased with increased
activity in market.

33
Biswas and Rajib (2011):-

Conducted a study to test price-volume relationships for Indian commodity states. The
nature of price-volume relationships in asset markets has been an interesting subject in
financial research, as it reveals a very important aspect that has implications for market
efficiency. The purpose of this paper is to examine price-volume relationships in the
Indian commodity futures market.

Though there exists contemporaneous correlation between volume and price change in
some cases, in general, on the basis of the presence of granger causality, it follows that
sih (standard investment horizon) is supported. This result suggests that the presence of
sih in the Indian commodity futures market is consistent with the presence of granger
causality.
However, the study by Biswas and rajib (2011) focused on a limited number of
commodity states. To provide a more comprehensive analysis, it is necessary to
consider the price-volume relationships for a wider range of commodity states. This can
be achieved by conducting a similar study for a larger number of commodity states,
covering various market conditions such as high volatility, low volatility, and periods
of high and low liquidity.

In addition, the study by biswas and rajib (2011) did not consider the impact of external
factors such as market sentiment, news events, and changes in policy. To enhance the
analysis, it is important to incorporate these external factors into the study. This can be
done by examining the relationship between price-volume relationships and external
factors such as market sentiment, news events, and changes in policy.

Furthermore, the study by biswas and rajib (2011) did not consider the role of market
participants such as hedgers, speculators, and arbitrageurs. To provide a more
comprehensive analysis, it is necessary to consider the impact of different market
participants on price-volume relationships. This can be achieved by examining the
relationship between price-volume relationships and the behaviour of different market
participants such as hedgers, speculators, and arbitrageurs

By incorporating these additional factors and market participants into the study, a more
comprehensive analysis of price-volume relationships in the Indian commodity futures
market can be achieved. This will provide a more accurate understanding of the

34
relationship between price and volume changes in the market and help improve market
efficiency

In conclusion, the study by biswas and rajib (2011) provides valuable insights into the
price-volume relationships in the Indian commodity futures market. However, to
enhance the analysis and provide a more comprehensive understanding of the
relationship between price and volume changes in the market, it is necessary to consider
a wider range of commodity states, external factors, and market participants. This will
help improve the accuracy of the analysis and contribute to a better understanding of
the relationship between price and volume changes in the Indian commodity futures
market.

Moharna (2011):-

In her article observes that Indian commodity markets will cross rs.110 to 112 trillion
(lakh crore) by the end of this fiscal and already the turnover has crossed 88 lakh crore.
“the Indian commodity market has had an exponential growth in the last 8 years i.e.
After 2003 when the government had decided to open it. In the last fiscal i.e. 2009-10
the total turnover of Indian commodity markets was rs.77 trillion and this year it is
estimated to grow at a rate of 33% to cross rs.110-112

Pillai Iyer (2010):-

In their paper examined whether futures markets play a dominant role in the price
discovery process. The rate of convergence of information from one market to another
is analysed to infer the efficiency of futures as an effective hedging tool. This paper
finds evidence for price discovery process happening in the futures market in five out
of six commodities. However, the rate of convergence of information is slow,
particularly in the non-expiration weeks.

Gurbandini Rao (2010):-

Draw attention that since commodity “futures” trading was permitted in 2003, the
commodity derivative market in India has witnessed phenomenal growth. Though the
volume of commodity futures trade increased exponentially since its launch in 2003,
the functioning of the features market came under scrutiny during 2008-2009, due to

35
price rise and the role of futures market in stabilizing spot prices was widely discussed.
The study aims at testing the weak form of efficient market hypothesis in the context
of an emerging commodity market - national commodity derivatives exchange (ncdex),
which is considered as the prime commodity derivatives market in india.

Ali (2011):-

Analysed the efficiency of agricultural commodity markets by assessing the

relationships between futures prices and spot market prices of major agricultural
commodities in India. In line with the ongoing global and domestic reforms in
agriculture and allied sectors, the Indian government is reducing its direct market
intervention and encouraging private participation based on market forces. This has led
to increased exposure of agricultural produce to price and other market risks, which
consequently emphasize the importance of futures markets for price discovery and price
risk management.

Muharjee (2011):-

Made an attempt to re-validate the impact of futures trading on agricultural commodity

market in India. The daily price information in spot and futures markets, for a period of
7 years (2004-2010), for 9 major agricultural commodities, taken from different
categories of agriproducts, are incorporated into various econometric models to test the
concerned objective. The empirical findings significantly shows that comparative
advantage of futures market in disseminating information, leading to a significant price
discovery and risk management, that can again help to successfully develop the
underlying commodity market in India.

Muharjee, k.n. (2011):-

“impact of future trading in Indian agricultural commodity market”, mpra paper

no.29290, February 2011. Kapil, et. Al (2010) focused on the major operational and
policy issues in the growth of commodity market in India. Hence, they viewed that the
Indian commodity market is not well organized.

Iqbal Et Al. (2013):-

Measured the relationship between investors’ behaviour and financial market

anomalies. The stock anomalies created due to over confidence of investors, overstated

36
reactions, guesstimate and change in the investors’ behaviour. Thus, the behaviour of
the investors had led to abnormal market conditions.

Chen and Chang (2015):-

Identified producers’ role, hedge funds, and business entities were determined the price
of commodity futures.

Erb and Harvey (2016):-

Analysed the misconceptions of investors when investing in the commodities. The low
return was caused due to pitiable financial performance. The study result showed that
misunderstanding had created disappointment with the commodity trading.

Ftiti et. Al (2016):-

Have studied the relationship between delays and delays. The study results showed that
there was a relationship between delays and delays. Moreover, commodity market is a
prime reason for fluctuations in the credit markets.

Jena, et al. (2016):-

Have identified that commodity prices was linked with the commodity prices. But, the
commodity prices were negatively correlated with the bond prices.

Han, Letal. (2017) :-

Emphasized the importance of investor vigilance and market analysis in identifying and
capitalizing on arbitrage opportunities. They suggested that investors should pay
particular attention to the impact of market efficiency on the preservation of stocks.
In the world of finance, market efficiency refers to the degree to which market prices
reflect all available and relevant information. In an efficient market, it is difficult for
investors to consistently outperform the market by buying undervalued stocks or selling
overvalued ones. However, this does not mean that there are no opportunities for
arbitrage.
Arbitrage is the practice of taking advantage of differences in price for the same asset
in different markets or at different times. For example, if a stock is trading at $10 on
one exchange and $11 on another, an arbitrageur could buy the stock on the cheaper
exchange and sell it on the more expensive one, making a risk-free profit.

37
However, arbitrage opportunities are often fleeting and require quick action to take
advantage of. This is where han et al.'s (2017) point about investor attention and market
analysis comes in. Investors who are able to quickly identify and act on arbitrage
opportunities can potentially earn significant profits

Moreover, the efficiency of the market can have a significant impact on the preservation
of stocks. In an efficient market, prices are less likely to be influenced by irrational
behaviour or misinformation. This can lead to more stable and predictable stock prices,
which can help investors preserve their investments over the long term.

In conclusion, han et al. (2017) highlighted the importance of investor attention and
market analysis in identifying arbitrage opportunities and promoting the preservation
of stocks. By paying close attention to market efficiency, investors can potentially earn
higher returns and protect their investments from unnecessary risks.

Monga et al (2016) and Vasan (2018):-

identified that investors had preferred to invest in jewellery than other investment
avenues like gold bars and coins, gold elf’s, etc. Hence, investors had given priority to
safety than earning higher profits.

Kaur, Gurbandini and Rao, d.n. (2010):-

The commodity spot and future prices had closely tracked each other in selected agri
commodities and no significant volatility has been found in the prices of future and spot
contracts of those agricultural commodities.

Senthil d (2012):-

Senthil d (2012) conducted an insightful study on the behavior of investors, focusing

on various aspects such as their goals, preferences, factors influencing their choice of
schemes, and service expectations. One of the key findings of this study was that the
primary goal of investors is wealth appreciation.

This goal of wealth appreciation highlights the importance of investors making

informed decisions when selecting investment schemes. To achieve this goal, senthil d
(2012) suggests that mutual fund companies have a critical role to play. Specifically,

38
mutual fund companies should control the charges that retail investors are required to
pay and bring the expense to a reasonable level

The reason for this recommendation is that excessive charges can significantly impact
the returns that investors receive. If charges are too high, it can be challenging for
investors to achieve their goal of wealth appreciation. Therefore, mutual fund
companies must ensure that their charges are fair and reasonable, allowing investors to
earn a reasonable return on their investment.

Moreover, the transparency and disclosure of charges are also crucial in building trust
and confidence among investors. When investors have a clear understanding of the
charges associated with an investment scheme, they are more likely to make informed
decisions and have greater confidence in their investment choices

In conclusion, senthil d (2012) emphasized the importance of wealth appreciation as

the main goal of investors. To achieve this goal, mutual fund companies must control
charges and bring them to a reasonable level. By doing so, investors can have greater
confidence in their investment choices and be better positioned to achieve their
financial goals.

Kumar, Brajesh and pandy, Ajay (2013):-

Investigated the short run and long run market efficiency of Indian commodity futures
market. They had tested four agricultural and even non-agricultural commodities for
market efficiency and unbiasedness. The result confirmed the long run efficiency of
commodity futures prices and inefficiency of futures prices in short run prices. He
found many factors like lack of participation of trading members, low market depth and
thin volume with government’s interference in commodity markets etc., as major evils
for inefficient price risk management.

Bhatt. N Dr.Babraju:-

Conducted study on ―perception of investor towards derivatives as on investment

avenue‖ in the year 2014. The derivatives are risk management tool that support in
effective management of risk by various stockholders. Derivatives provide a chance to
transfer risk from the one who wish to avoid it: to one who wish to agree it. India‘s
experience with the introduction of the equity derivatives market has been really

39
encouraging and successful. The derivatives turnover on the nse has surpassed the
equity market turnover.

Kaustia m (2011):-

In the study by kaustia m (2011), the researcher examined the anchoring effects in the
long-term future stock returns estimates of investment professionals. The study aimed
to determine if expertise indeed significantly attenuated behaviour biases. The
researcher conducted a test of the classic anchoring effect applied to stock market return
estimates. The results revealed that the effect obtained with students was several times
higher than with professionals. This suggests that financial market professionals may
not hold steady return expectations. The study also found that professionals were not
conscious of the impact of historical returns on their expectations.

The study's methodology: the researcher employed a two-part experimental design. In

the first part, the researcher tested the classic anchoring effect by manipulating the
historical return rate of a stock. In the second part, the researcher tested the anchoring
effect in the long-term future stock returns estimates of investment professionals. The
researcher used a within-subjects design, where participants were exposed to different
conditions (historical return rate and stock market return estimates) within the same
session.

The impact of historical returns on professional expectations: the study found that
professionals were not conscious of the impact of historical returns on their
expectations. This suggests that professionals may not adjust their return expectations
based on historical data. This could potentially lead to overconfidence in their
predictions, as they may not consider the possibility of market fluctuations.

The role of expertise in anchoring effects: the study found that expertise indeed
significantly attenuated behaviour biases. This suggests that professionals with more
experience may be less prone to anchoring effects. This could be because experienced
professionals are more aware of the potential impact of market fluctuations on their
predictions.
The implications of the study for investment decision-making: the study's findings
highlight the importance of considering the impact of historical returns on professional

40
expectations. This could help improve the accuracy of investment professionals'
predictions. Additionally, the study suggests that investment professionals should be
aware of their own behaviour biases and strive to overcome them. This could involve
seeking additional training or incorporating methods to adjust their return expectations
based historian data

The study's limitations: the study had some limitations. First, the sample size was
relatively small, which could limit the generalizability of the findings. Second, the study
did not consider other factors that could impact professional expectations, such as
market sentiment or economic indicators. Finally, the study did not explore the impact
of other anchoring cues, such as news headlines or analyst recommendations, on
professional expectations.

In conclusion, the study by kaustia m (2011) provides valuable insights into the
anchoring effects in the long-term future stock returns estimates of investment
professionals. The study highlights the importance of considering the impact of
historical returns on professional expectations and suggests that expertise may attenuate
behaviour biases. The study's findings have implications for investment decision-
making and could inform the development of strategies to improve the accuracy of
professional predictions. However, the study's limitations should be considered when
interpreting the findings.

Chaubey D.s and Dimrir.p (2012):-

in their empirical investigation identified that investment perception and various

factors which influence the investors in their selection of the investment avenues. They
found that the behaviour of investors for designing effective investment policies which
indicated that investors’ choice of their investment scheme is associated with the
demographic factors like age, gender, marital status, occupation and income but it is
not associated with their level of education, family size and annual savings. They
concluded that physiological profiling is the most important aspect which needs to be
taken care for various investment avenues.

Seru a et Al., (2013):-

Analysed survival rates, the disposition effect and trading performance at the individual
level using a large sample of individual investor records over a nine year period to

41
determine whether and how investors learn from their trading experience. They found
evidence of two types of learning that some investors become better at trading with
experience, while others stopped trading after realizing that their ability was poor.

42
 CHAPTER NO. 4

DATA ANALYSIS AND INTERPRETATION

[1] Age (as per years)

Figure 4.1 :-

AGE

below 18 18-25 26-40 41-55 above 55

Tabel 4.1 :-
Sr No. Particulars Count Percentage
1 Below 18 2 2.8%
2 18-25 63 88.7%
3 26-40 3 4.2%
4 41-55 2 2.8%
5 Above 55 1 1.4%

Interpretation :- As per the survey, 2.8% (2) of the respondents are of the age group
are of below 18 which is represented by dark red colour, 88.7% (63) of the respondents
are of the age group of 18-25 which is represented by red colour, 4.2%(3) of the
respondents are of the age group of 26-40 which is represented by orange colour,
2.8%(2) of the respondents are of the age group of 41-55 which is represented by yellow
colour and 1.4(1) of the respondents are of age group of above 55 which is represented
by blue colour.

43
[2] What is your profession

Figure 4.2

PROFESSION

STUDENT
BUSINESSMEN-WOMEN
EMPLOYED
NOT TO SAY

Table 4.2

Sr No Particulars Count Percentage

1. Students 55 77.5%
2. Businessman- 1 1.4%
Woman
3. Employed 13 18.3%
4. Not To Say 2 2.8%

Interpretation :-

As per survey, figure 4.2 and table 4.2 represents profession of the respondents. 77.5%
(55) are student which is represented in red colour, 1.4% (1) are businessmen-women
which is represented in purple colour, 18.3% (13) are employed which is represented
in blue colour and 2.8% (2) respondents prefer not to say there profession.

44
[3] Investment options preferred

Table 4.3

Sr no. Particulars Count Percentage

1 Equity 36 50.7%
2 Mutual funds 20 28.2%
3 Fixed deposit 12 16.9%
4 Other 7 9.9%
Figure 4.3

INVESTMENT OPTIONS
OTHER

FIXED DEPOSIT
EQUITY

MUTUAL FUNDS

Interpretation :-

In the above table and figure, we have seen that the respondents are currently preferred
to investing in securities like equity, mutual fund, fixed deposit, etc. Here 50.7%
respondents they preferred to invest in equity shares which is represented in red in
colour, 28.2% respondent have said that they preferred to invest in mutual funds which
is represented in purple in colour, 16.9% respondents they preferred to invest in fixed
deposit which is represented in blue in colour and 9.9% in others which in green colour.
From 71 responses 36 voted for equity, 20 voted for mutual funds, 12 voted for fixed
deposits and 7 voted for others.

45
[4] Are you aware about commodity and derivatives

Table 4.4
Sr no. Particulars Count Percentage
1 Yes 60 85.5%
2 No 11 15.5%

Figure 4.4

ARE YOU AWARE ABOUT COMMODITY AND

DERIVATIVES

NO

YES

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00%

ARE YOU AWARE ABOUT COMMODITY AND DERIVATIVES

Interpretation :-

In the above figure and table, we have seen that how much aware the respondents are
about commodity and derivatives market. Here we have seen that 85.5% voted for yes
which means they are aware about commodity and derivatives, and 15.5% have voted
for no it shows that they are not aware about commodity and derivatives.

46
[5] If yes, have you heard of the following derivatives option

Table 5.1

Sr no. Particulars Percentage

1 Forward 34.6%
2 Future 55.6%
3 Option 40.7%
4 Swap 22.2%

Figure 5.2

HAVE YOU HEARD OF THE FOLLOWING

DERIVATIVES OPTION
60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
FORWARD FUTURE OPTION SWAP

HAVE YOU HEARD OF THE FOLLOWING DERIVATIVES OPTION

Interpretation :-

In the given diagram, we can see the number of respondents who are familiar with
various types of derivatives options. Here, 34.6% of respondents voted for forward
contracts, 55.6% voted for futures contracts, 40.7% voted for options, and 22.2% voted
for swaps. It is evident that futures contracts are the most well-known type of derivative
option among respondents, with a total of 55.6% voting for them.

47
[6] Are you aware about futures trading?

Figure 6.1

ARE YOU AWARE ABOUT FUTURES TRADING?

90.00%

80.00%

70.00%

60.00%

50.00%
ARE YOU AWARE ABOUT
40.00% FUTURES TRADING?

30.00%

20.00%

10.00%

0.00%
YES NO

Table 6.2
Sr no. Particulars Percentage
1 Yes 81.7%
2 No 18.3%

Interpretation:-

We have observed that people are aware of futures trading. Here, it is shown that 69.1%
voted for yes, indicating their awareness of futures trading, while 30.9% voted for no,
meaning they are not aware of futures trading.

48
[7] If yes how frequently do you trade in futures

Figure 7.1

IF YES HOW FREQUENTLY DO YOU TRADE IN

FUTURES
70.00%
NOT SO
60.00%
FREQUENTLY
50.00%

40.00%

30.00%

20.00% ONCE IN WHILE

FREQUENTLY
10.00%

0.00%
0 0.5 1 1.5 2 2.5 3 3.5

Table 7.2

Sr no. Particular Percentage

1 Frequently 18.3%
2 Not so frequently 60.6%
3 Once in awhile 21.1%

Interpretation:-

Based on the information presented in the diagram, we can see the frequency at which
respondents trade in futures. Here, 18.3% of respondents trade in futures frequently,
while 60.6% of respondents do not trade in futures frequently. Furthermore, 21.1% of
respondents trade in futures only occasionally. Therefore, it can be inferred that most
people do not trade frequently in futures, as the majority of respondents (60.6%)
indicated that they do not trade in futures frequently.

49
[8] Do you believe that futures are good option

Table 8.1
Sr no. Particular Percentage
1 Agreee 40.7%
2 Neutral 40.7%
3 Disagree 4%
4 Can’t say 16%

Figure 8.2

DO YOU BELIVE THAT FUTURES ARE GOOD

OPTION
45.00%
40.00%
35.00%
30.00%
25.00% DO YOU BELIVE THAT
20.00% FUTURES ARE GOOD
OPTION
15.00%
10.00%
5.00%
0.00%
AGREE NEUTRAL DISAGREE CAN'T SAY

Interpretation:-

In the diagram, you refer to respondents' views on whether futures are a good
investment option. Specifically, 40.7% of respondents agreed that futures are a good
investment option, while 4.0% disagreed. Additionally, 40.7% were neutral on the
matter, and 16% could not say for certain whether futures are a good investment.
Overall, it appears that more respondents are favorable towards futures as an investment
option, with 40.7% agreeing and only 4.0% disagreeing. However, a significant portion
of respondents (56.3%) are uncertain or neutral about the matter

50
[9] Do you trade in commodity future
Figure 9.1

Interpretation :-
Based on the data presented in the diagram, we can see that a significant portion of
respondents have indicated that they engage in trading commodity futures. Specifically,
39.4% of respondents mentioned that they do trade in commodity futures, while 60.6%
of respondents stated that they do not. This suggests that the majority of people do not
trade in commodity futures.

51
[10] Frequency of trading in commodity
Figure 10.1

FREQUENCY OF TRADING IN COMMODITY

LESS MORE FREQUENT

Interpretation :-
In the given diagram, the frequency distribution of trading in commodity futures has
been surveyed. According to the results, 70.4% of respondents voted for trading less
frequently, 11.3% voted for trading more frequently, and 18.3% voted for trading
frequently. It is evident that the majority of people (70.4%) trade in commodity futures
less frequently. However, a significant portion of respondents (18.3%) do trade in
commodity futures frequently.

52
11] In which commodity do you trade
Figure 11.1

IN WHICH COMMODITY DO YOU TRADE

Metals like gold and silver

Agricultural products like wheat,

rice,Etc.
OTHER

Table 11.2
Sr no. Particulars Count Percentage
1 Metals like gold and 38 53.5%
silver
2 Agricultural products 4 5.6%
like wheat, rice,etc.
3 Others 29 40.8%

Interpretation :-
The diagram presented provides information on the commodities in which respondents
engage in trading. Based on the survey results, a total of 71 respondents participated,
and among them, 38 (53.5%) respondents voted for trading in metals, such as gold and
silver. Additionally, 4 (5.6%) respondents voted for agricultural products, such as
wheat and rice, while 29 (40.8%) respondents selected "others" as the commodity in
which they trade.

53
[12] How do you get information about future prices
Table 12.1
Sr no. Particulars Count Percentage
1 Research and analysis 28 39.4%
2 From internet 35 49.3%
3 Brokers 3 4.2%
4 Others 5 13.6%

Figure 12.2

INFORMATION ABOUT FUTURE PRICES

OTHERS

BROKERS RESEARCH AND

ANALYSIS

FROM INTERNET

Interpretation:-
The above diagram indicates how do they get information about futures prices. Here
39.4%(28) respondents voted for research and analysis which means they do there own
research and from there they get information about prices. As per surevy 49.3%
(35)respondents voted for they get infromation from internet. Whereas 4.2%(3)
respondents are voted there source of information is through brokers.on the other hand
13.6% (5)respondents voted for others.

54
[13] Do you believe that commodity futures have good scope of
earning in future

Table 13.1

Sr no. Particulars Count Percentage

1 Agree 31 43.7%
2 Neutral 31 43.7%
3 Disagree 2 2.8%
4 Can’t say 7 9.9%

Figure 13.2

DO YOU BELIEVE THAT COMMODITY

FUTURES HAVE GOOD SCOPE OF EARNING
IN FUTURE

AGREE NEUTRAL DISAGREE CAN'T SAY

Interpretation:-
In the above diagram we have seen that do they belive that commodity futures have
good scope of earninng profit in future. As per survey 43.7% respondents agree with
the statement that they belive futures have good scope of earning profits in future. Here
43.7% respondents voted for neutral, 2.8% respondents are disagree with the statement.
And on the other hand 9,9% responents voted for can’t say which shows that they are
not sure about commodity futures have good scope of earning profits in future.

55
[14] Do you feel that commodity futures are safe to invest with zero
risk

Figure 14.1

DO YOU FEEL THAT COMMODITY FUTURES

ARE SAFE TO INVEST WITH ZERO RISK
0.7
1
0.6

0.5

0.4
2
0.3

0.2

0.1

0
1 2

Interpretation:-
In the above diagram we have seen that respondents feel that commodity futures are
safe to invest with zero risk. Here 63.4%of the respondents voted for yes as they feel
that commodity futures are safe to invest with zero risk. And 36.6% respondents are
voted for no which shows that they do not feel commodity futures are safe to invest
with zero risk.

56
 CHAPTER NO. 5

FINDINGS, SUGGESTIONS AND CONCLUSION

Findings :-

1. Market & Contracts:

• Diversification: Commodity futures can diversify a portfolio beyond stocks and

bonds, potentially reducing overall risk.
• Hedging: Producers and consumers can use futures contracts to hedge against
price fluctuations.
• Leverage: Futures contracts offer leverage, allowing for magnified gains (and
losses).
• Contract Specifications: Understand contract size, delivery locations, and
expiration dates to avoid unintended consequences.
• Market Fluctuations: Commodity futures markets are known for high volatility
due to various factors like supply & demand, weather, and geopolitical events.

2. Risk & Return:

• High Risk: The potential for significant losses is inherent due to leverage and
market volatility.
• Margin Requirements: Investors need to maintain a minimum deposit (margin) to
hold positions, which can be a significant upfront cost.
• Basis Risk: The possibility that the cash price of a commodity differs from the
futures price at delivery.
• Commissions & Fees: Frequent trading can incur high commissions and fees,
impacting profitability.
• In-depth Research: Thorough research on historical price trends, supply &
demand factors, and global economic conditions is crucial for informed decisions.

3. Investment Strategies & Analysis:

• Fundamental Analysis: Evaluate factors affecting supply & demand like weather
patterns, geopolitical events, and economic growth forecasts.

57
 • Technical Analysis: Utilize charts and technical indicators to identify price trends
and potential entry/exit points for trades.
• Trend Following: Capitalize on established price trends by buying futures
contracts in uptrends and selling in downtrends.
• Hedging Strategies: Implement strategies like long hedges (buying futures to
offset potential price hikes in physical holdings) and short hedges (selling futures
to protect against price declines in owned commodities).
• Spreads Trading: Engage in spread trading by capitalizing on the price difference
between related futures contracts.

4. Investor Suitability & Considerations:

• Risk Tolerance: Commodity futures are suitable only for investors with a high
tolerance for risk and the ability to withstand significant losses
• Investment Timeframe: These are typically short-term investments due to high
volatility. Long-term holdings require active management.
• Regulatory Requirements: Understand regulations governing futures trading in
your specific jurisdiction
• Choose a Reputable Broker: Select a licensed and experienced broker
specializing in commodity futures.
• Start Small: Begin with small investments to gain experience and manage risk
before committing larger sums
• Remember, commodity futures are a complex investment avenue. Consider
seeking professional financial advice before venturing into this market.

Suggestions :-

Suggestion for commodity future investors

1. Pick an asset

When it comes to futures, there are many assets that you can choose to trade in. You
can choose to trade in future contracts of stocks, commodities, interest-rates, or
currencies. Now, keep in mind that irrespective of the asset that you choose, the concept
of futures remains the same. Also, here’s another thing that you need to know.

58
In the case of stock futures, not all stocks listed in the exchanges have derivative
contracts that you can trade in. As a matter of fact, there’s an exclusive list of f and o
stocks who have futures contracts that you can trade in. This list usually only includes
large cap companies and sector leaders like reliance industries, infosys, and tcs, among
others.

2. Get to know what moves the asset

Once you’ve chosen the asset whose future contracts you wish to trade in, the next thing
you need to do is try to understand the factors that influence their price movement. This
along with technical analysis will make it easier for you to gauge the future price
movement of the asset.

For instance, in the case of stocks, some of the factors that influence the price movement
of a stock are the company’s financial performance and industry demand. Likewise, in
the case of commodities, the amount of supply and demand for the commodity and geo-
political news are major influential factors.

3. Consider both long and short positions

This is one of the most important futures and options trading tips that you absolutely
need to follow. Most traders usually stick to purchasing futures contracts (taking on
long positions). Here, you only get to make returns if the price of the asset moves up in
the future. However, you can also generate returns if the price of the asset falls as well
by selling futures contracts (taking on short positions). Once the asset has fallen
according to your expectations, you can exit by squaring off your position

4. Always protect your positions

Another major tip that you need to follow if you’re getting into futures trading is this
one. Since futures trading is highly risky and can be volatile in nature, it is important
for you to protect your positions. You can do this by placing a stop loss trade, which is
designed to automatically square off your position if the price movement doesn’t go
according to your expectations. Stop loss trades can limit the losses that you suffer due
to unexpected price movements

59
Conclusion :-

Based on the study conducted, commodity futures can be vaible investment avenue for
investord seeking diversification and potential returns. However, it is important to note
that commodity futures are high – risk investment and require a thorough understanding
of the market and its dynamics. Additionally, investors should carefully consider their
risk tolerance and investment goals before investing in commodity futures. There is no
proper information among the people about commodity future market .

Overall, while commodity futures can offer potential benefits, they should be
approached with caution and careful consideration.

60
 Bibliography

Books referred :

• Commodity and derivatives market by savita shirkant bodke.

Third edition.

Websites visited :

• WWW.THEBALANCEMONEY.COM
• WWW.JETIR.ORG
• WWW.SCRIBD.COM
• WWW.INVESTOPEDIA.COM
• HTTPS://WWW.REUTERS.COM/

Articles referred :

Sage Journals On Indian Agri Commodities Markets By Author

Minakshi Kar

Basic Of Futures Trading, By Cftc

61
 ANNEXURE

1) Name :-

2) Gender :-

A) Male

B) Female

3) Age Group ( In Years )

A) Below 18 Years

B) 18-25 Years

C) 26-40 Years

D) 41-55 Years

E) Above 55 Years

4) What Is Your Profession

A) Student

B) Employed

C) Businessman

D) Housewife

E) Retired

5) Investment Option Preferred

A) Equity

B) Mutual Funds

C) Fixed Deposit

E) Others

62
6) Are You Aware About Commodity And Derivatives

A) Yes

B) No

7) If Yes Have You Heard Of The Following Derivatives Option

A) Forward

B) Future

C) Option

D) Swap

8) Are You Aware About Futures Trading

A) Yes

B) No

9) If Yes How Frequently Do You Trade In Futures

A) Frequently

B) Not So Frequently

C) Once In Awhile

10) Do You Belive That Futures Are Good Investment Option

A) Agree

B) Neutral

C) Disagree

D) Can’t Say

11) Are You Aware About Less Risk Attached To Future

A) Yes

B) No

63
12) Do You Trade In Commodity Futures

A) Yes

B) No

13) Frequency Of Trading In Commodity

A) Less

B) More

C) Frequent

14) In Which Commodity Do You Trade

A) Metals Like Gold And Silver

B) Agricultural Products Like Whear, Rice, Etc.

C) Others

15) How Do You Get Information About Future Prices

A) Research And Analysis

B) Internet

C) Brokers

D) Others

16) Do You Belive That Commodity Futures Have Good Scope Of Earning In Future

A) Agree

B) Neutral

C) Disagree

D) Can’t Say

17) Do You Feel That Commodity Futures Are Safe To Invets With Zero Risk

A) Yes

B) No

64