Q. Are options also allowed"commodity derivatives?

Options"goodspresently prohibited under Section 19the Forward Contracts (Regulation) Act 1952 No exchange or person can organize or enter into or make or perform options"goods Howevermarket expectsgovernment to permit options trading"commodities soon

Q. Are there any custody charges?

No Thereno custody charges for holdingdemat units

Q. How isfutures contract defined?

Gold Pure Mumbai 1-Kg future contract expiring20th Mar 2006 is defined as "NCD-FUT-GLDPURMUMK-20-MAR-2006" Wherein "NCD" stands for NCDEX "FUT" stands for Futures as derivatives product "GLDPURMUMK" for underlying commodity"20-MAR-2006" for expiry date

Q. How isvaluethe trade calculated?

It is not necessary thatunitquantityprice issame For eg Price for Gold is expressed"Rs per 10 gms butquantity is submitted"gms Thereforequantity can not be multiplied directly The valuean ordertrade can be computed by multiplyingquantity"the pricethenresult bymultiplier For eg Multiplier incaseGold is 10

Q. How many days does it take to open-beneficiary account?

It takes at least 1 to 3 working days to complete all formalitiesopening-beneficiary account

Q. I have placedsquare off order Can I modify that order?

No square off orders cannot be modified You can always cancelsameplace another square off order

Q. Is Sales Tax applicableall trades?

Iftrade is squared off sales tax is not applicable The sales tax is applicable only if-trade results into delivery forseller Normally itíssellerís responsibility to collectpaysales tax The sales tax is applicable atplacedelivery

Q. Is Sales Tax Registration Compulsory?

Those who want to give (seller) physical delivery need to have sales tax registration number

Q. Isconcepttrading"commodity futures new"India?

Commodity futures market was very much there"earlier times"India In fact it was onemost vibrant markets tillearly 70s But due to numerous restrictionsmarket could not develop further Now that mostthese restrictions have been removed there is enormous scope fordevelopmentgrowththe commodity futures market"the country

Q. Ismargin uniform for all stocks?

It may not be so Margin percentage may differcommodity to commodity basedthe risk involved"itdepends upon its liquidityvolatility besidesgeneral market conditions But all contracts withinsame underlying would attract same margin

Q. Is there any charge for opening-beneficiary account?

The chargesnotified byDPs to allclients holding beneficiary account"them The DPs normally charge Annual Maintenance Charges (AMC)transaction chargesall debit instructions It is similar topractice followed"equity market

Q. Is there any difference betweenproceduresopening poolbeneficiary accounts?

Yes Membersthe Exchange can open-CM pool account"anythe DPs empanelled"NSEL The Exchange issues-member ID intimation letter tomemberhas to be submitted along"the request for opening-CM Pool Account Clientsrequired to submit their KYC documents for opening-beneficiary account

Q. Whatcommodity futures?

A commodity futures contract isagreement between two parties to buy or sellcommodity at-future date at todays future price Futures contracts differforward contracts"the sense that theystandardizedexchange traded In other wordsparties tocontracts do not decidetermsfutures contractsthey merely accept terms standardized byExchange

Q. What is-commodity market?

A commodity market facilitates trading"various commodities It may be-spot or-derivatives market In spot market commoditiesboughtsold for immediate delivery whereas"derivatives market various financial instruments basedcommoditiestraded These financial instruments such as futurestraded"exchanges

Q. What is"Underlying"how is it different than "Contract"?

A commodity enabled for tradingfutures is called"Underlying" eg Pure Gold Rubber There may be various tradable contracts forsame underlying basedtheir different expiration period For example NCD-FUT-RBRRS4KTM-20-Jan-2006 NCD-FUT-RBRRS4KTM-20-Feb-2006"contracts" available for trading"futures having Rubber as "underlying"

There can be more than one underlying for different gradeslocation (for price basis)the same commodity For Eg COTJ34BTD is Cotton J34 grade Bhatinda locationCOTLSCKDI is Long Staple Cotton grade Kadi location Similarly COTS06KDICOTS06SRNtwo underlyings forsame gradecottonhave their prices quoted as per different locations

Q. What is dematerialised or demat formcommodities?

Dematerialisationcommodities implies thatcommoditiesstored"Exchange-designated vaultswarehousesthe recordthe ownership is"electronic form just like trading"equity shares The legalbeneficial ownerthe goods gets-credit"his account electronicallyis similar to holding-pass book"the bank Similarly transferownership against buysale is doneone account toother just like money transfer through-cheque The depository keeps recordsholdingtransfers"electronic form The openingaccounttransfer instructionscarried out byagentsthe depository called Depository Participants (DPs)

Q. What is meant by calendar spread?

Calendar spread means risk off-setting positions"contracts expiringdifferent dates"the same underlying For example you take buy position for 20 MT"NCD-FUT-RBRRS4KTM-20-Feb-2006 @ 6550 per quintalsell position for 10 MT"NCD-FUT-RBRRS4KTM-20-Mar-2006 @ 6850 10 MT buy position"NCD-FUT-RBRRS4KTM-20-Feb-200610 MT sell position"NCD-FUT-RBRRS4KTM-20-Mar-2006 forms-spread against each otherhence called spread position This spread position would be levied spread margin for margin calculation insteadIM In this examplebalance 10 MT buy position"NCD-FUT-RBRRS4KTM-20-Feb-2006 would be non-spread positionwould attract initial margin

Q. What isdifference between delivery"physical formdelivery"demat form?

In casephysical delivery-person gets-warehouse receipt"paper form while"casedelivery"demat form he gets-credit entry"his demat account

Q. What ispay-inpay-out time for e-Series contracts?

Fundsdelivery pay-in-is at 100 pmpay-out is at 530 pm Pay-inpay-out for e-Series productsexecutedthe T+2 basis Settlement is doneMonday to Friday excluding holidays notified byExchange

Q. What isprocessopening-demat beneficiary account?

The process is similar to opening demat account for equity The investor is required to fill up-demat account opening form available"anythe DPs mentioned aboveprovide his KYC (know your client) documents

Q. Which aremajor commodity exchanges"India?

There24 commodity exchanges"India Therethree national level commodity exchanges to trade"all permitted commodities They are

Multi Commodity ExchangeIndia Ltd Mumbai (MCX)

MCX isindependentde-mutualised multi commodity exchange MCX features amongstworlds top three bullion exchangestop four energy exchanges Its key shareholdersFinancial Technologies (I) Ltd State BankIndiaits associates National Bank for AgricultureRural Development (NABARD) National Stock ExchangeIndia Ltd (NSE) Fid Fund (Mauritius) Ltd -affiliateFidelity International Corporation Bank Union BankIndia Canara Bank BankIndia BankBaroda HDFC BankSBI Life Insurance Co Ltd
National CommodityDerivative Exchange Mumbai (NCDEX)

A consortiuminstitutions promotes NCDEX These includeICICI Bank Limited (ICICI Bank) Life Insurance CorporationIndia (LIC) National Bank for AgricultureRural Development (NABARD)National Stock ExchangeIndia Limited (NSE)

National Multi Commodity ExchangeIndia Ltd Ahmedabad (NMCE)

It isfirst de-mutualised electronic multi-commodity ExchangeIndia Someits key promotersCentral Warehousing Corporation (CWC) National Agricultural Co Operative Marketing FederationIndia Limited (NAFED) Gujarat Agro Industries Corporation Limited (GAIC)Punjab National Bank (PNB)

Q. Who invests"commodities?

a Investors
b Producers Farmers
c Importers Exporters
d Commodity financers
e Agricultural credit providing agencies
f Hedgers speculators arbitrageurs
g Large scale consumers For eg refiners jewelers textile mills
h Corporate having risk exposure"commodities

Q. Who regulatescommodity market?

Just as SEBI regulatesstock market Forward Markets Commission (FMC) regulates commodity market

Q. Who regulatescommodity market?

Just as SEBI regulatesstock market Forward Markets Commission (FMC) regulates commodity market

Q. Why invest"commodities?

TransparencyFair Price Discovery Trading"commodity futures is transparenta processfair price discovery is ensured through large-scale participation The large participation also reflects viewsexpectationsa wider sectionpeople concerned"that commodity Online Platform Producers tradersprocessors exportersimporters getonline platform through MCX NCDEX for price risk management

Hedging It provides-platform for producers to hedge their positions according to their exposure"physical commodity

No Insider Trading Dealing"commodities is free fromevilsinsider trading Besides thereno company specific risks as those seen"stock markets

Simple Economics Commodity trading is aboutsimple economicsdemandsupply Moredemand for-commodity higher is its pricevice versa

TradeLow Margin Commodity Futures tradersrequired to deposit low margins roughly 5 to 10the total valuethe contract much lower compared to other asset classes The low marginagain varies across exchangescommodities facilitatestakinglarge positions at lower capital

Seasonality Patterns Quite often provide clue to both shortlong term players

No Counter party Risk Much likeexchanges"the equity market Commodity Futures market have Clearing Housesguarantee thattermsthe contractsfulfilled thereby eliminatingcounter party risk

Wide Participation The emergenceonline trading would enable growth"the commodity market much akin toone seen"the equity market It would also ensure bringingmarket closer to bothuserthe trader

Evolved Pricing The rise"participation would decreaseriskcartelisation ensuring-holistic viewthe commodity Hence pricing would be more practicalless irrational leading to Fair Price Discovery Mechanism