Everybody is familiar with the term “trading�? Most of us have traded in our everyday life, although we may not even know that we have done so. Essentially, everything you buy in a store is trading money for the goods you want. Now you will learn how to trade the financial markets online �?but exactly what is online trading? This article will give you an understanding of how trading can be defined and how online trading works.
The term trading means exchanging one item for another. In the financial markets, you either buy something for one price and sell it again for another, hopefully at a higher price for a profit, or you sell something for one price and buy it again for another, hopefully lower price for a profit. The term “trading�?simply means “exchanging one item for another�? We usually understand this to be the exchanging of goods for money or in other words, simply buying something. When we talk about trading in the financial markets, it is the same principle. Think about someone who trades shares. What they are actually doing is buying shares (or a small part) of a company. If the value of those shares increases, then they make money by selling them again at a higher price. This is trading. You buy something for one price and sell it again for another �?hopefully at a higher price, thus making a profit and vice versa.
An increase in demand means an increase in price. For example, if a market stall owner is selling apples, and more people enter the market, he may raise the price because these customers are willing to pay to make sure they can get an apple. We can explain this using a simple everyday example of buying food. Let’s say you are in a market and there are only ten apples left on a stall. This is the only place where you can buy apples. If you are the only person and you only want a couple of apples, then the market stall owner will most likely sell them to you at a reasonable price. Now let's say that fifteen people enter the market and they all want apples. To make sure that they will actually get them before the others do, they are willing to pay more for them. Hence, the market stall owner can put the price up, because he knows that there is more demand for the apples than supply of them. Once the apples reach a price at which the customers think they are too expensive, they will then stop buying them. When the market stall owner realises that he is not selling his apples anymore because they are too expensive, he will stop raising the price and it may come back down to a level, at which customers will start to buy the apples again.hot pants
An increase in supply means a decrease in price. For example, if another market stall owner enters the market, there are now more apples for the customers. The first owner may drop his price to entice those customers to his stall. Let’s say that suddenly another market stall owner comes into the market and has even more apples to sell. The supply of apples has now increased dramatically. It stands to reason that the second market stall owner may want to sell apples at a cheaper price than the first stall owner to entice customers. It also stands to reason that the customers would probably want to buy at the lower price. Seeing this, the first stall owner will most likely bring his prices down. The sudden increase in supply has therefore brought the price of the apples down. The price at which demand matches supply is called the “market price�? i.e. the price level at which both the market stall owner and the customers agree on both a price and number of apples sold.
The concept of supply and demand is the same in the financial world. If a company posted some great results and is paying very good dividends, then more people want to buy the shares of the company. This increased demand will lead to an increase of the price of those shares.
For a long time financial trading was purely conducted electronically between banks and financial institutions. This meant that trading in the financial markets was closed to anyone outside of these institutions. With the development of high speed Internet, anyone who wanted to become involved in trading was able to do so online. Almost anything can be traded online: stocks, currencies, commodities, physical goods and a whole host of other things �?at this stage, you do not need to worry about all of these. For now, just keep in mind that if something can be traded, it will be traded.
Investing and trading are two very different methods of attempting to profit in the financial markets. The goal of investing is to gradually build wealth over an extended period of time through the buying and holding of a portfolio of stocks, baskets of stocks, mutual funds, bonds and other investment instruments. Trading, on the other hand, involves the more frequent buying and selling of stock, commodities, currency pairs or other instruments, with the goal of generating returns that outperform buy-and-hold investing. While investors may be content with a 10 to 15% annual return, traders might seek a 10% return each month. Trading profits are generated through buying at a lower price and selling at a higher price within a relatively short period of time. The reverse is also true: trading profits are made by selling at a higher price and buying to cover at a lower price (known as "selling short") to profit in falling markets.
A trader's "style" refers to the timeframe or holding period in which stocks, commodities or other trading instruments are bought and sold. Traders generally fall into one of four categories:
Understanding the stock trading terminology is a necessary step for anyone interested in the stock market.
There are two segments that you can trade in the stock markets in India. One is the Futures and Options (F&O) market and the other is the cash market. The third of course is the IPO market, but, you do not trade here, because you can only buy and cannot sell. The difference between the cash market and the F&O segment can be explained with the help of this analogy. Let's say you buy a product. You either pay by cash or by credit card. In the cash segment of the stock exchange, you pay the entire amount in cash and the shares are delivered to you.When you buy an item on a credit card, you buy now and pay later. Difference Between Futures And Options (F&O) And Regular Cash Market In the futures segment, you buy shares and pay only a margin amount. You have to then square-off your position and sell the entire lot of shares. Let's make this even simpler. If you buy 100 shares of Bank of India you pay Rs 13,800, because the share price is at Rs 138. In the futures segment (F&O) you cannot buy 100 shares, because you have to buy in a minimum lot of 1, which is 1000 shares. So, you buy 1000 shares, but, you do not pay Rs 1,38,000, but only the margin amount, which could be anywhere between 10-20 per cent (mostly). So, you may end-up paying only Rs 25,000-30,000 in the futures and options market. If you had to buy a similar quantity in the cash market you would need to pay the entire amount of Rs 1,38,000. But, in the futures and options market (F&O) you have to sell the shares, within a maximum period of three months, depending on the contract you have purchased. In the cash segment, you can buy and hold for a lifetime and your children could inherit the shares. You do not have to sell.
| Futures | Cash market |
| Very high exposure, because you cannot trade in small amounts. | Can buy even 1 share. |
| You are not a shareholder | You are a shareholder. |
| You do not receive dividends, bonus, rights and other benefits. | You receive dividends, bonus, rights and other benefits. |
| Generally suitable for traders. | Suitable for long term investors. |
| Highly risky. | Not very risky for long term investors. |
| Have to sell or square-off your position. | Can keep the shares for a lifetime. |
Like share trading in the cash segment (buy & sell shares), derivative is another kind of trading instrument. They are special contracts whose value derives from an underlying security.
Futures and Options (F&O) are two types of derivatives available for the trading in India stock markets.
In futures trading, trader takes the buy/sell positions in an index (i.e. NIFTY) or a stock (i.e. Reliance) contract. If, during the course of the contract life, the price moves in traders favor (rises in case you have a buy position or falls in case you have a sell position), trader makes profit. In case the price movement is adverse, trader incurs losses.
Few fundamental things you should know about F&O trading:
In the Futures and Options segment at NSE and BSE; trading is available in mainly two types of contracts:
At NSE; Index F&O are available for 6 indices. This includes; CNX Nifty Index, CNX IT index, Bank Nifty Index and Nifty Midcap 50 index.
Similar way BSE offers trading in future for underlying assets as following indexes:
Stock exchanges offer F&O contracts for individual scripts (i.e. Reliance Infra, Coal India etc.); which are traded in the Capital Market segment of the Exchange.
NSE offers F&O trading in 135 securities stipulated by the SEBI. The stock exchange defines the characteristics of the futures contract such as the underlying security, market lot, and the maturity date of the contract.
F&O contracts of individual companies are not available for all the companies listed in stock exchanges. Only those stocks, which meet the criteria on liquidity and volume, have been considered for futures trading. Or companies whose shares have high liquidity and volume of trades at stock exchanges are eligible for F&O trading.
Stock exchange decides which company's F&O contracts can be traded at the exchange.
'Square off' means selling a future position.
For example; if you buy 1 lot of NIFTY future on 20th Aug 2014 and decide to sell it on 24th Aug 2014; you actually square off your future position.
Yes, you can sell the contract (or square off the open position) anytime before the expiry date. If you do not sell the contract by expiry date; the contract get expired and profit / loss is shared with you.
The order place to sell square off in advance an open future position is called cover order.
Future contracts are settled in two ways:
Note: MTM is the most important process in F&O trading and very little difficult to understand for conventional stock market investors who buy and sell shares for long term.
At the end of every trading day; the open future contracts are automatically 'marked to market' to the daily settlement price. This means; the profits or losses are calculated based on the difference between the previous day and the current day's settlement price.
In other words; MTM means every day the settlement of open futures position takes place at the closing price of the day. The base price of today is compared with the closing price of previous day and difference is cash settled.
i.e. For 1 lot of NIFTY Futures (50 shares) if
Note:
Equity futures & options are traded in 3 'trading cycles'. The 3 month trading cycle includes the near month (one), the next month (two) and the far month (three).
i.e. If current month is Aug 2014; the contracts available for NIFTY Futures are as below:
The contract life of the F&O contract is until the last Thursday of the expiry month. If the last Thursday is a trading holiday, then the expiry day is the previous trading day.
For example; in the above table; 28th Aug 2014 is the expiry of this month's contract. The contract life of this future contract is from today to 28th Aug 2014.
New contracts are introduced on the trading day following the expiry of the near month contracts. The new contracts are introduced for three month duration. This way, at any point in time, there will be 3 contracts available for trading in the market (for each security) i.e., one near month, one mid month and one far month duration respectively.
Futures contracts expire on the last Thursday of the expiry month. If the last Thursday is a trading holiday, the contracts expire on the previous trading day.
To start trading in futures contract, you are required to place a certain percentage of the total contract as margin money.
Margin is also known as a minimum down-payment or collateral for trading in future. The margin amount usually varies between 5 to 15% and usually decided by the exchange.
Note: This feature (only paying small margin money) makes F&O trading most attractive because of high leverage. You can make a larger profit (or loss) with a comparatively very small amount of capital using F&O trading.
Margin % differs from stock to stock based on the risk involved in the stock, which depends upon the liquidity and volatility of the respective share besides the general market conditions.
Normally index futures have less margin than the stock futures due to comparatively less volatile in nature.
The margin amount usually recalculated daily and may change during the life of the contract. It depends on the volatility in the market, script price and volume of trade. It is possible that when bought the future position; the margin was 10%; but later on due to the increased volatility in the prices, the margin percentage is increased to 15%.
In that scenario, trader will have to allocate additional funds to continue with open position. Otherwise broker can sell (square off) the future contract because of insufficient margin. Thus It is advisable to keep higher allocation to safeguard the open position from such events.
While buy/sell transactions in margin segment have to be squared off on the same day, buy/sell position in the futures segment can be continued till the expiry of the respective contract and squared off any time during the contract life.
Margin positions can even be converted to delivery if you have the requisite trading limits in case of buy positions and required number of shares in your demat in case of sell position. There is no such facility available in case of futures position, since all futures transactions are cash settled as per the current regulations. If you wish to convert your future positions into delivery position, you will have to first square off your transaction in future market and then take cash position in cash market.
Another important difference is the availability of even index contracts in futures trading. You can even buy/sell indices like NIFTY in case of futures in NSE, whereas in case of margin, you can take positions only in stocks.
Below example demonstrate how to buy and sell one lot of NIFTY Future.
Assuming that you have an account with a share broker in India to trade in F&O segment; the first step is to buy (or sell in case of short-selling futures) a future contract. You can visit NSE or BSE websites to check the available future contracts for indexes as well as securities.
In this example; we will buy 1 lot of NIFTY ( 50 shares). Note that you can buy/sell the F&O contracts only in lots. The lot size is different from contract to contract.
Placing a buy order is pretty simple and similar to buying shares for delivery.
Below screenshot shows that we are placing an order to by 1 lot (50 shares) of NIFTY Futures at the price of Rs 7643.90.
In above 'buy order entry' form some of the important fields are:
You hold the equity future contract until you sell it or it expires on predefined expiry day (in our case its 25th Sept 2014). In this example we will hold the F&O contract for 7 days and then sell it.
For each day we hold the contract, the broker send a 'Future & Options Day Bill' along with few other statements including margin statement, client ledger detail, contract note etc.
The F&O day bill provides the accounting information of the contract on daily basis. Let's go through the F&O day bills for each day and discuss the accounting:
Below is the Future & Options Day Bill for end of day 1, the day when we bought the contract. Let's check few useful fields in this.
For buy and sell transactions of F&O contract, broker send a contract note. Below is the contract note received from broker on Day 1. The next contract note will be send to you on the day you sell the contract.
Brokers also share the ledger detail with the client with a 'client account ledger detail' document. This document provides you detail about all the financial transaction done by broker on day 1
On day 1 I decided to carry forward the F&O position. But on day 2 the market is closed as its Saturday. Note that the position is now name as 'Brought Forward'.
Note: The above day bill doesn't have any 'Carry Forward' position as the market was closed.
Note: The above day bill doesn't have any 'Carry Forward' position as the market was closed.
This is the first trading day (Monday) for NIFTY future and it went up around 50 points. Now let's check the accounting for Day 4:
The net profit of Rs 2422 is credited to the account.
Similar to previous day, we decided to carry forward the future contract. The price went up by Rs 103.7 and we made decent profit of Rs 5185.00.
Again we decided to carry forward the contract. The price remain flat and actually went down by Rs 2.15, loss of Rs 107.50.
On day 7 I decided to sell the contract for Rs 7800.00. Here is my transaction:
Below is the Future & Options Day Bill from day 7, the day when we sold the contract.
Note: The above day bill doesn't have any 'Carry Forward' position as the market was closed.
| Days | Net Profit/Loss |
| Day 1 | -787.97 |
| Day 2 | 0 |
| Day 3 | 0 |
| Day 4 | +2422.50 |
| Day 5 | +5185.00 |
| Day 6 | -107.50 |
| Day 7 | +947.15 |
| Total Profit / Loss | +7659.18 |
| Days | Brokerage Paid |
| Day 1 (Buy) | 20 |
| Day 7(Sell) | 20 |
Intraday trading as the name suggests refers to the trading system where you have to square-off your trade on the same day. Squaring off the trade means that you have to do the buy and sell or sell and buy transaction on the same day before the market close. Intraday Trading is also referred to as Day trading by many traders.
Lets explain Intraday trading with an example.
Suppose that you have bought 100 stocks of XYZ limited during the open market hours, then you have to sell the same no. of stocks of XYZ limited before market closure. Same is the case if you have sold the stocks, you have to buy the same quantity of the stock you have sold earlier. In online trading platforms when you are making an intraday transaction, you have to explicitly specify (as shown below) that it is a Intraday transaction while placing the order. However in case of a buy transaction you always have the option to change it to delivery later before the market close.In most of the online trading platforms positions bought under intraday trading are squared off automatically if not done by you before the market closure.
Intraday trading, as the name suggests, is trading stocks within trading hours in a single day. Many new investors and traders are keen to know about how intraday trading works. To begin with, you buy shares when the price is low and sells them when the price is high, thus taking advantage of the price movement. You can use real-time charts to identify these price movements and make profits. On the other hand, if you purchase and hold shares overnight, then you take delivery of shares. This is known as delivery trading. In the delivery method, stocks are transferred to your demat account. You can sell these stocks for either a short-term period (maybe next day) or after a few weeks, months or years. The benefit of intraday trading is that the cost of brokerage is low compared to delivery trading. Also, you receive margin profits the same day as opposed to delivery trading.
It is important to understand the fundamentals of intraday trading in order to make consistent profits. A good tip is to trade with the current market trend. If the market is falling, sell first and buy later, and vice versa. Make an intraday trade plan and stick to the plan. Set your desired profit and stop-loss limit. Do not be greedy. Instead, book your profits at regular intervals. Maintain stop-loss levels. It helps you to limit your loss if the market does not perform. Also, choose highly liquid shares and trade in a small number of shares at a time, if you are not a seasoned trader.
Most traders have a straight and simple goal - to make consistent profits. The best day trading strategy you can implement to achieve this is to buy when the stock moves above the Opening Range high and sell when the stock moves below the Opening Range low. In the first 30 minutes of day trading, each stock creates a range, known as the opening range. The fluctuations of this range are taken as support and resistance. If the stock movement is observed to cross the Opening Range high, then it is advisable to buy. Similarly, you can sell when stock movement is observed below the Opening Range low. This strategy can give you consistent profits if done with discipline, proper assessment of the market performance and optimal usage of indicators.
Keeping stop loss is very important for intraday trade. Otherwise one will loose heavily. Where to keep stop loss is a very important question. Again previous days intraday charts will help. If one shorted in a stock, keep stop loss at previous days high or days high. Also if bought, keep stop loss at previous days lows, or days lows. Another thing to remember is keep trailing stop loss and revise stop loss when one is in profit. Instead of booking profit, one can keep stop loss for profit and can revise according to upward movement. Normally this will help a lot in intraday trade.
The two things to avoid in stock market and particularly in intraday trade is panic and greedy. When one enters in a trade and goes in opposite direction, don’t be panic. Wait some time, keep strict stop loss. If stop loss triggers, don’t enter again. Wait some time and relax, watch the market trend and enter in some other stocks. Another thing to avoid is greediness. Some people will not book profit and wait for more and more profit. But such people will end up in loss only. In intraday trade book profit in every highs. Wait for a dip and enter again if trend sustains.
The best time to enter for intraday trade is after 20 to 30 minutes when the market opens. Some people will jump in the market at the opening bell itself. It is risky always. Watch the market in the early trades and find out the trend. First enter in some small quantity, say 25% of the quantity one is intended to buy. Then buy more in the next 10 to 15 minutes. The trend observed is intraday trading is stocks will shoot up till after 45 to 1 hour when the market opens. This is the best time to book profit. Once booked profit in a particular stock, better wait some time and watch the next movement and enter accordingly.
As the gain is great in day trading so is the loss. Main Mistake usually done by the beginners is to do over trading. This of course will land them in loss and then they frantically try to get that money back probably making more mistakes.
�?Day Traders must dedicate their time from starting till closing
�?Avoid investing in penny stocks that have very low liquidity
�?Concentrate only on one or two stocks so that it will be easier for you to follow them online.
�?When beginners buy stocks, determine the entry and target prices well in advance so that they need not miss maximum gains from market upside
�?It is always better to buy the stocks of the company that has met with good financial gains or has announced good news.
�?Intelligent use of stop loss facility must be practiced for safe trading.
�? Trading should be done only with the spare money, the money you don’t need and can afford to loose. Trading, although very profitable ,is associated with substantial risk.
�? Overtrading is suicidal. More trades become difficult to manage .So trade only that quantity you are comfortable with.
�? Discipline is the major quality of the successful traders. Avoiding overtrading, not fighting against the trend and cutting short losses and keeping fear and greed emotions out of the trading are some important steps.
�? ‘Trend is your Friend�? So, always follow the trend and trade in that direction only. In up trending markets, select stocks which are strong on charts and have long positions. In down trending markets, select the weaker stocks and short them. Never trade against the trend.
�? Exit Strategy is really important. Take your profits and get out of the market when your target are achieved. Letting the profits run beyond targets leads to greed which is dangerous for trading. You never know when the market will turn around and throw you in losses after eating all the profit.
�?Don't ignore brokerage expenses, check time to time
�?Don't try to guess tops or bottoms.
�?Don't follow a blind man's advice. Try to find out holes in your strategy.
�?Divide your risk capital in 2 equal parts. Never take risk more than 5% of your trading capital in a single trade.
�? Never borrow money from someone for trading.
�?Having contacts with other day traders and becoming a member of a network will be very useful for exchanging new ideas and news.
Taking previous day’s trading prices of a stock ,we can calculate the support and resistance levels for that stock for the next day. Support and Resistance terms are self explanatory.A stock which is moving higher, may stop at resistance level and come back. Similarly, a stock moving lower, may stop at support level and reverse its move. After crossing first support or resistance level, stock is expected to move to next support or resistance level.
Coming to the Pivot Point Formula, we select a stock for Intraday Trading. For that stock, we need its previous day trading data- Intraday high price it touched ( H), intraday low price it touched ( L) and the previous day closing price ( C) for that stock.
Add theses three values- H+L+C=X.
Divide the total value by 3 (P) = X/3.
Multiply it by 2 :- X/3*2=Y
This value P is called the Pivot Point. Stock sustaining above Pivot Point is likely to move higher towards first resistance level and above that towards second resistance level. If stock continues to trade below the Pivot Point, it is likely to drift lower towards first support level and after that towards second support level.
Let’s calculate resistance and support levels.
First resistance level ( R1) = It is the difference between the {Pivot Point X 2} or Y and the Intraday Low price.
R1= Y-L
R2=P+( H-L)
First support level ( S1) = it is the difference between Y and the Intraday High price.
S1= Y-H
S2= P-(H-L).
This theory is also based on previous day price movements of a stock.
Add up high (H),low(L) and closing (C) price of previous day of the stock and multiply it by 0.67 (ratio of 2:3 as in pivot theory and it is constant)
(H+L+C)* 0.67=Y
Resistance (R1)= Y-L
Support (S1)= Y-H
Possible Buy (P.B.)= Y-C
Above possible buy (P.B.),buy the stock for resistance levels.
2652 Theory is based on previous day and present day High and Low prices of a stock. This theory has its own disadvantage that it makes you trade for gain of 0.5% while keeping your stop loss 1% lower .Your risk is double of your profit and using such strategy in day trading doesn’t make sense where probability of going wrong remains high.
You should also use technical analysis based on short-term charts for stock to know the trend and other indicators of technical analysis. Buy stock which show uptrend while look to short which are down trending.
The Intraday Chart with 15 Minute interval remains best for effective Intraday trade, though you may use any interval like 1 Minute,5 Minute or 10 Minute. Prefer to use trend lines on Intraday Charts to take buy or sell call on your trade.5 Minute Bar Chart can be a good method to use trend lines for Intraday Trading.
A commodity market is a physical or virtual marketplace for buying, selling and trading raw or primary products, and there are currently about 50 major commodity markets worldwide that facilitate investment trade in approximately 100 primary commodities.
Commodities are split into two types: hard and soft commodities. Hard commodities are typically natural resources that must be mined or extracted (such as gold, rubber and oil), whereas soft commodities are agricultural products or livestock (such as corn, wheat, coffee, sugar, soybeans and pork).
The four categories of trading commodities include:
�?Energy (including crude oil, heating oil, natural gas and gasoline)
�?Metals (including gold, silver, platinum and copper)
�?Livestock and Meat (including lean hogs, pork bellies, live cattle and feeder cattle)
�?Agricultural (including corn, soybeans, wheat, rice, cocoa, coffee, cotton and sugar)
Commodity trading is progressively becoming a prominent business in India. To facilitate this trading there are various exchanges setup in India. These exchanges are the center of the trading of various commodities. The two important commodity exchanges in India are as follows :
�?Multi Commodity Exchange of India (MCX)
�?National Commodities and Derivatives Exchange Limited (NCDEX)
The main Indian commodity exchange is the Multi Commodity Exchange of India (MCX). The other very famous commodity exchange is National Commodities and Derivatives Exchange Limited (NCDEX). NCDEX is located in Mumbai and offers facilities in more than 550 centers in India.
MCX features amongst the world's top three bullion exchanges and top four energy exchanges. MCX is the only Exchange in India to have such investment and technical support from the commodity pertinent institutions. The day-to-day operations of the Exchange are administered by the experienced and qualified professionals with perfect integrity and expertise.
SEBI regulates Commodity Derivative Markets Since September 2015. Prior to that Forward Market commission, Overseen by Ministry of Consumer Affairs regulated Commodities.
There are numerous ways to invest in commodities. An investor can purchase stock in corporations whose business relies on commodities prices, or purchase mutual funds, index funds or exchange-traded funds (ETFs) that have a focus on commodities-related companies. The most direct way of investing in commodities is by buying into a futures contract. A futures contract obligates the holder to buy or sell a commodity at a predetermined price on a delivery date in the future.
Futures prices evolve from the interaction of bids and offers emanating from all over the country - which converge in the trading floor or the trading engine of an Exchange. The bid and offer prices are based on the expectations of prices on the maturity date.
Each type of commodity that trades on the commodity futures exchanges has specifications unique to that commodity. Contract specifications will include the quantity of the commodity per contract, contract delivery dates and minimum contract price changes. For example, the futures contract for corn calls for the delivery of 5,000 bushels of No. 2 yellow corn. Contract dates for corn are the end of the upcoming March, May, July, September and December. The minimum price fluctuation is one-quarter cent per bushel, equal to $12.50 per contract.
1. Organized : Commodity Futures contracts always trade on an organized exchange, e.g. NCDEX, MCX, etc in India and NYMEX, LME, COMEX etc. internationally.
2. Standardized : Commodity Futures contracts are highly standardized with the quality, quantity, and delivery date, being predetermined.
3. Eliminates Counterparty Risk : Commodity Futures exchanges use clearing houses to guarantee that the terms of the futures contract are fulfilled. The Clearing House guarantees that the contract will be fulfilled, eliminating the risk of any default by the other party.
4. Facilitates Margin Trading : Commodity Futures traders do not have to put up the entire value of a contract. Rather, they are required to post a margin that is roughly 4 to 8% of the total value of the contract (this margin varies across exchanges and commodities). This facilitates taking of leveraged positions.
5. Closing a Position : Futures markets are closely regulated by government agencies, e.g. Forward Markets Commission (FMC) in India, Commodity Futures Trading Commission in (CFTC) USA, etc. This ensures fair practices in these markets.
6. Regulated Markets Environment : Commodity Futures contracts are highly standardized with the quality, quantity, and delivery date, being predetermined.
7. Physical Delivery : Actual delivery of the commodity can be made or taken on expiry of the contract. Physical delivery requires the member to provide the exchange with prior delivery information and completion of all the delivery related formalities as specified by the exchange.
An efficient market for commodity futures requires a large number of market participants with diverse risk profiles. Ownership of the underlying commodity is not required for trading in commodity futures. The market participants simply need to deposit sufficient money with brokerage firms to cover the margin requirements. Market participants can be broadly divided into hedgers, speculators and arbitrageurs.
1. Hedgers : They are generally the commercial producers and consumers of the traded commodities. They participate in the market to manage their spot market price risk. Commodity prices are volatile and their participation in the futures market allows them to hedge or protect themselves against the risk of losses from fluctuating prices. For e.g. a copper smelter will hedge by selling copper futures, since it is exposed to the risk of falling copper prices
2. Speculators : They are traders who speculate on the direction of the futures prices with the intention of making money. Thus, for the speculators, trading in commodity futures is an investment option. Most Speculators do not prefer to make or accept deliveries of the actual commodities; rather they liquidate their positions before the expiry date of the contract
3. Arbitrageurs : They are traders who buy and sell to make money on price differentials across different markets. Arbitrage involves simultaneous sale and purchase of the same commodities in different markets. Arbitrage keeps the prices in different markets in line with each other. Usually such transactions are risk free.
Commodity futures are globally recognized to be a part of every successful and diversified investment portfolio. The fact that the returns from most of the commodities in the last 53 years from 1951 to 2006 have been higher than the global inflation rate, establishes that investments in commodity are an effective hedge against inflation.
Some of the reasons that make investing in commodity futures an attractive preposition are described below:
1. Leverage : Commodity Futures trading is done on margins. The investor only deposits a fraction of the value of the futures contract with the broker to cover the exchange specified margin requirements. This gives the investor greater leverage and thus the ability to generate higher returns
2. Liquidity : Unlike investment vehicles like real estate, investments in commodity futures offer high liquidity. It is equally easy to both buy and sell futures and an investor can easily liquidate his position whenever required. There is also another advantage of being able to use the profits from a trade elsewhere, without having to close the position
3. Diversification : Investments in commodity markets are an excellent means of portfolio diversification. For example, gold prices have historically shown a low correlation with most other asset prices (such as equities) and thus offer an excellent means for portfolio diversification.
4. Inflation Hedge : As the commodity prices determine price levels and consequently inflation, investing in commodity futures can act as a hedge against inflation.
5. Physical Gold : Physical Gold is a product by which retail and high net worth investors can take investment positions in dematerialized physical gold using the futures market. In this product, the investor can hold physical gold, in a safe deposit vault approved by the exchange, which is reflected in the investor's demat account. The main features of this are:
�?Liquidity
�?Assurance of purity
�?Transparency of rates
�?Safety
These features have attracted a large number of clients to the product since its introduction.
Large numbers of commodity are traded on commodity exchanges in around the world. The commodities are classified on the basis of their use and consumption. Further classification is based on the characteristics of the commodity.
| Sr. No. | Date | Day | Description |
|---|---|---|---|
| 1 | 26-Jan-2018 | Friday | Republic Day |
| 2 | 13-Feb-2018 | Tuesday | Mahashivratri |
| 3 | 02-Mar-2018 | Friday | Holi |
| 4 | 29-Mar-2018 | Thursday | Mahavir Jayanti |
| 5 | 30-Mar-2018 | Friday | Good Friday |
| 6 | 01-May-2018 | Tuesday | Maharashtra Day |
| 7 | 15-Aug-2018 | Wednesday | Independence Day |
| 8 | 22-Aug-2018 | Wednesday | Bakri ID |
| 9 | 13-Sep-2018 | Thursday | Ganesh Chaturthi |
| 10 | 20-Sep-2018 | Thursday | Moharram |
| 11 | 2-Oct-2018 | Tuesday | Mahatama Gandhi Jayanti |
| 12 | 18-Oct-2018 | Thursday | Dasera |
| 13 | 7-Nov-2018 | Wednesday | Diwali-Laxmi Pujan* |
| 14 | 8-Nov-2018 | Thursday | Diwali-Balipratipada |
| 15 | 23-Nov-2018 | Friday | Gurunanak Jayanti |
| 16 | 25-Dec-2018 | Tuesday | Christmas |
