Moneycontrol Presented by Motilal Oswal
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You are Here : Commodities FAQs

Q. Can one give delivery against futures contract?

A. Futures contractcontracts for deliverygoodsone can give deliverygoods against futures contracts depending upondelivery logicthe contract design But mostthe futures contracts,world over,performed otherwise

Q. Canloss incurredthe futures market be set off against normal business profit?

A. The loss incurredaccountspeculative transactions"futures market cannot be set off against normal business profit This loss is however allowed to be carried forward for eight yearsduringit can be set off against speculative profit

Q. Howfutures prices determined?

A. Futures prices evolve frominteractionbidsoffers emanatingall overcountry -converge"the trading floor ortrading enginean Exchange The bidoffer pricesbasedthe expectationspricesthe maturity date

Q. How does futures market benefit farmers?

A. World overfarmers do not directly participate"the futures market They take advantagethe price signals emanating from-futures market Price-signals given by long-duration new-season futures contract can help farmers to take decision about cropping patternthe investment intensitycultivation The farmers also benefit bydisseminationthe futures pricesthe Exchange traded products as it improves his bargaining capacity

Q. How many commoditiespermitted for Futures Trading?

A. At present 113 commodities are"the regulated list iecommodities have been notified under section 15the Forward Contracts (Regulation) Act Forward trading"these commodities can be conducted only betweenwithor through membersrecognized associations The commodities other than those listed under Section 15conventionally referred to as Free commodities Forward trading"these commodities can be allowed

Q. Whatstandardized contracts?

A. Futures contractsstandardized In other words,parties tocontracts do not decidetermsfutures contractsthey merely accept termscontracts standardized byExchange

Q. What arecommodities Suitable for Futures Trading?

A. Commodities suitable for Future trading should be"Suitable demandSupply conditions The commodity should be freesubstantial controlGovt regulationsimposing restrictionssupplydistributionpricesthe commodityCommodities Should be homogeneousstorable

Q. What aretrading hours?

A. The trade timingsthe ExchangeMonday to FridayIST 1000 am to 1130 pm 1155 pm* (*during US day light saving period)

Q. What is-Futures Contract?

A. Futuresexchange - traded contracts to sell or buy standardized financial instruments or physical commodities for delivery on-specified future date atagreed price

Q. What is cash settlement?

A. It is-process for performing-futures contract by paymentmoney difference rather than by deliveringphysical commodity

Q. What is convergence?

A. The difference between spotfutures contract theoretically should have declining trend overlifea contracttend to become zerothe datematurity

Q. What is Warehouse Receipt?

A. It is-document issued by-warehouse indicating ownershipa stored commodityspecifying details"respectparticularslikequalityquantity andsome timesindicatingcrop season

Q. What is `Backwardation`?

A. Whenpricesspotor contracts maturing earlierhigher than-particular futures contractit is said to be trading at Backwardation

Q. What is `basis`?

A. It is normally calculated as cash price minusfutures price Unless otherwise specified,pricethe nearby futures contract month is generally used to calculatebasis

Q. What is `Contango`?

A. Contango means-situation,"futures contract priceshigher thanspot price

Q. Who Regulates Commodity markets?

A. SEBI regulates Commodity Derivative Markets Since September 2015 Prior to that Forward Market commissionOverseen by MinistryConsumer Affairs regulated Commodities

Q. Why do we need speculators"futures market?

A. Speculatorsparticipants whowilling to take riskhedgers"the expectationmaking profit Speculators provide liquidity tomarketthereforeit is difficult to imagine-futures market functioning without speculators
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