A Beginners Guide to The Capital Market

What is Commodities Futures Trading in India ? How Do I Do it ? Where do I do it?

Indian markets have recently thrown open a new avenue for retail investors and traders to participate: commodity derivatives. For those who want to diversify their portfolios beyond shares, bonds and real estate, commodities are the best option.

Till some months ago, this wouldn't have made sense. However, with the setting up of three multi-commodity exchanges in the country, retail investors can now trade in commodity futures without having physical stocks!

Commodities actually offer immense potential to become a separate asset class for market-savvy investors, arbitragers and speculators. Retail investors, who claim to understand the equity markets, may find commodities an unfathomable market. But commodities are easy to understand as far as fundamentals of demand and supply are concerned. Retail investors should understand the risks and advantages of trading in commodities futures before taking a leap. Historically, pricing in commodities futures has been less volatile compared with equity and bonds, thus providing an efficient portfolio diversification option.

With the introduction of futures trading, the size of the commodities market grow many folds here on.

Like any other market, the one for commodity futures plays a valuable role in information pooling and risk sharing. The market mediates between buyers and sellers of commodities, and facilitates decisions related to storage and consumption of commodities. In the process, they make the underlying market more liquid.

Here's how a retail investor can get started:

Where do I need to go to trade in commodity futures?

You have three options - the National Commodity and Derivative Exchange, the Multi Commodity Exchange of India Ltd and the National Multi Commodity Exchange of India Ltd. All three have electronic trading and settlement systems and a national presence.

How do I choose my broker?

Several already-established equity brokers have sought membership with NCDEX and MCX. The likes of Motilal Oswal, SSKI (Sharekhan) and ICICIcommtrade (ICICIdirect), and IIFL ( India Infoline ) are already offering commodity futures services. Some of them also offer trading through Internet just like the way they offer equities. You can also get a list of more members from the respective exchanges and decide upon the broker you want to choose from.

What is the minimum investment needed?

You can have an amount as low as Rs 5,000. All you need is money for margins payable upfront to exchanges through brokers. The margins range from 5-10 per cent of the value of the commodity contract.

Do I have to give delivery or settle in cash?

You can do both. All the exchanges have both systems - cash and delivery mechanisms. The choice is yours. If you want your contract to be cash settled, you have to indicate at the time of placing the order that you don't intend to deliver the item.

If you plan to take or make delivery, you need to have the required warehouse receipts. The option to settle in cash or through delivery can be changed as many times as one wants till the last day of the expiry of the contract.

What do I need to start trading in commodity futures?

As of now you will need only one bank account. You will need a separate commodity demat account from the National Securities Depository Ltd to trade on the NCDEX just like in stocks.

What are the other requirements at broker level?

You will have to enter into a normal account agreements with the broker. These include the procedure of the Know Your Client format that exist in equity trading and terms of conditions of the exchanges and broker. Besides you will need to give you details such as PAN no., bank account no, etc.

What are the brokerage and transaction charges?

The brokerage charges range from 0.10-0.25 per cent of the contract value. Transaction charges range between Rs 6 and Rs 10 per lakh/per contract. The brokerage will be different for different commodities. It will also differ based on trading transactions and delivery transactions. In case of a contract resulting in delivery, the brokerage can be 0.25 - 1 per cent of the contract value. The brokerage cannot exceed the maximum limit specified by the exchanges.

Where do I look for information on commodities?

Daily financial newspapers carry spot prices and relevant news and articles on most commodities. Besides, there are specialised magazines on agricultural commodities and metals available for subscription. Brokers also provide research and analysis support.

But the information easiest to access is from websites. Though many websites are subscription-based, a few also offer information for free. You can surf the web and narrow down you search.

Who is the regulator?

The exchanges are regulated by the Forward Markets Commission. Unlike the equity markets, brokers don't need to register themselves with the regulator.

The FMC deals with exchange administration and will seek to inspect the books of brokers only if foul practices are suspected or if the exchanges themselves fail to take action. In a sense, therefore, the commodity exchanges are more self-regulating than stock exchanges. But this could change if retail participation in commodities grows substantially.

Who are the players in commodity derivatives?

The commodities market will have three broad categories of market participants apart from brokers and the exchange administration - hedgers, speculators and arbitragers. Brokers will intermediate, facilitating hedgers and speculators.

Hedgers are essentially players with an underlying risk in a commodity - they may be either producers or consumers who want to transfer the price-risk onto the market.

Producer-hedgers are those who want to mitigate the risk of prices declining by the time they actually produce their commodity for sale in the market; consumer hedgers would want to do the opposite.

For example, if you are a bullion company with export orders at fixed prices, you might want to buy gold futures to lock into current prices. Investors and traders wanting to benefit or profit from price variations are essentially speculators. They serve as counterparties to hedgers and accept the risk offered by the hedgers in a bid to gain from favourable price changes.

In which commodities can I trade?

Though the government has essentially made almost all commodities eligible for futures trading, the nationwide exchanges have earmarked only a select few for starters. While the NMCE has most major agricultural commodities and metals under its fold, the NCDEX, has a large number of agriculture, metal and energy commodities. MCX also offers many commodities for futures trading.

Do I have to pay sales tax on all trades? Is registration mandatory?

No. If the trade is squared off no sales tax is applicable. The sales tax is applicable only in case of trade resulting into delivery. Normally it is the seller's responsibility to collect and pay sales tax.

The sales tax is applicable at the place of delivery. Those who are willing to opt for physical delivery need to have sales tax registration number.

What happens if there is any default?

Both the exchanges, NCDEX and MCX, maintain settlement guarantee funds. The exchanges have a penalty clause in case of any default by any member. There is also a separate arbitration panel of exchanges.

Are any additional margin/brokerage/charges imposed in case I want to take delivery of goods?

Yes. In case of delivery, the margin during the delivery period increases to 20-25 per cent of the contract value. The member/ broker will levy extra charges in case of trades resulting in delivery.

Is stamp duty levied in commodity contracts? What are the stamp duty rates?

As of now, there is no stamp duty applicable for commodity futures that have contract notes generated in electronic form. However, in case of delivery, the stamp duty will be applicable according to the prescribed laws of the state the investor trades in. This is applicable in similar fashion as in stock market.

How much margin is applicable in the commodities market?

As in stocks, in commodities also the margin is calculated by (value at risk) VaR system. Normally it is between 5 per cent and 10 per cent of the contract value.

The margin is different for each commodity. Just like in equities, in commodities also there is a system of initial margin and mark-to-market margin. The margin keeps changing depending on the change in price and volatility.

Are there circuit filters?

Yes the exchanges have circuit filters in place. The filters vary from commodity to commodity but the maximum individual commodity circuit filter is 6 per cent. The price of any commodity that fluctuates either way beyond its limit will immediately call for circuit breaker.

INTRADAY CALL GOLD UPDATE

Gold achieved new high of 30344 ----- BOOK FULL PROFITS AND EXIT...

Intraday Commodity Call - UPDATE

CRUDE - TARGET 2 of 5990 - Achieved at 5989 - HIGH of 5989

NICKEL - TARGET 1 of 875 achieved Low of 874.2

ZINC - TARGET 1 of 118 near achieved LOW of 118.10

GOLD - TARGET 3  30240 achieved HIGH of 30264

INTRADAY CALL UPDATE

Crude new high 5972 tgt 1 of 5970 achieved book full profits..

INTRADAY COMMODITY CALL # 4 Update

Safe Traders Book ZINC Partially at 118.45- 118.50

INTRADAY COMMODITY CALL # 4

MCX ZINC NOV SELL BELOW 118.8 TGT 118 , 117.7 , Put SL at 119.6

Inventory LME

LME Ware house Stocks :
Copper -1900
Lead unchanged
Nickel 558
Zinc -2700
Aluminium -10025
TIn unchanged

Re: INTRADAY COMMODITY CALL UPDATE

MCX NICKEL Nov SELL BOOK PROFIT NEAR 879

INTRADAY COMMODITY CALL # 3

Crude Book Profit 5960 Risky traders carry position.... Crude high of 5970... Enjoy profits....

INTRADAY COMMODITY CALL # 2

Gold New top of 30155 ... Book full profits... Near Target 1...

INTRADAY COMMODITY CALL # 3

Crude MCX Nov Buy 5940-50 . SL 5910 . TGT 5970 ,5990, 6015

Intraday Commodity Gold Call #2

Book Partial profits at 30140

Risky Traders may carry the position with same SL.

Book profits as per your risk appetite.

Intraday Commodity Call #2

Gold Buy Book Partial Profit at 30130

Intraday Commodity Calls 07-NOV-13 Call#2

Gold : MCX Dec Buy above 30070 . SL 29980 . TGT 30160 , 30200 , 30240

Commodity Intrday Call 07-NOV-13

MCX NICKEL NOV SELL BELOW 888 TGT 875 , 870 , Put SL at 901

Commodity Intra Day Calls - Paid Service

Dear All,

www.indiantaxhome.com shall be starting paid service of giving trading tips on Commodity Market.

MCX - Commodity Tips.

Energy and Bullion Category :

Which Shall Include tips on

• Gold
• Silver 
• Natural Gas &
• Crude Oil

The Service Shall be free for the month of November.

Post which it shall be chargeable @ Rs. 5000 Per Month.

The accuracy ratio shall be between 70 to 75%.

2 - 3 Calls shall be given per day under the above package - Which shall be categorized as GOLD PACKAGE

DIAMOND PACKAGE WILL BE STARTED FROM JANUARY 2014 UNDER WHICH THE COST WILL BE RS. 15000/- AND CALLS GIVEN WILL BE AROUND 10 CALLS PER MONTH WITH ACCURACY OF AROUND  80% TO 90%.

REGARDS,

Team info@indiantaxhome.com

Commodity INTRA DAY Calls for today 25-10-2013

MCX NOVEMBER 2013

CRUDE OIL

BUY IN RANGE 6030-6040

MAINTAIN STOP LOSS OF 6005

TARGET 1 6075

TARGET 2 6095

TARGET 3 6110



MCX COPPER NOVEMBER 2013

COPPER

BUY IN RANGE 447.6 - 448

MAINTAIN STOP LOSS OF 444

TARGET 1 452

TARGET 2 454


SHALL UPDATE AGAIN >>>>>>

DISCLAIMER : COMMODITY TRADING  IS RISKY.

WE DO NOT GUARANTEE THE ABOVE LEVELS THESE ARE JUST TECHNICAL LEVELS WE BROUGHT TO YOUR NOTICE....

A GOOD TRADER ALWAYS MAINTAINS STOP LOSS.

BE A GOOD TRADER NOT A GREEDY TRADER...

CBDT move to plug leakages in commodities derivative transactions

The Income-Tax Department has tightened its leash on commodities derivatives transactions put through recognised associations. The Central Board of Direct Taxes (CBDT) has asked commodity bourses to file with the Tax Department monthly reports of client code (unique customer ID) modifications. Reporting on client code modifications will help plug revenue leakages, say tax experts. This move is being largely driven by the Budget 2013-14 announcement to treat commodities derivatives transactions as non-speculative transactions for income tax purposes. All commodity derivative transactions put through recognised associations will be taxed under the business income head for income tax purposes.

Source : The Hindu Business Line

Gold on the upsurge, silver bullish

Last week was positive for a number of commodities in the world market with price gains in energy, metals and agriculture sector. The US made a significant contribution to boost positive perception of the global commodity market. The flow of positive macro data together with the Fed's assertion of continuing with the ‘loose money' policy until 2014 buoyed the sentiment. The US GDP growth was reported at 2.8 per cent in Q4 2011 at a seasonally adjusted annualised rate, the strongest gain since Q2 2010. Consumer confidence is seen rising. Inflationary pressures appear to be moderating. As for China, the mover and shaker of the world commodity market, December trade data continued to paint a picture of robust commodity demand.

Source: The Hindu Business line