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What Are Derivatives? |
| The term 'Derivative' indicates that it has no independent value, i.e. its value is entirely 'derived' from the value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, livestock, etc. Derivatives can be traded in the form of Futures, Options or its variants unlike Commodity Trading. |
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Commodity Derivatives |
Commodity derivatives have had a long and a wide-spread presence in India with commodity trading being one of the most popular ways of investment. The commodity derivative market has been functioning in India since the nineteenth century with organized commodity trading cotton through the establishment of the Cotton Trade Association in 1875. However, commodity trading in India has recently developed with commodity news and online commodity trading.
Currently there are 4 national level multi commodity exchanges which are included in commodity trading in India: National Multi-Commodity Exchange of India (NMCE), National Commodity and Derivatives Exchange (NCDEX), Multi Commodity Exchange (MCX) and Indian Commodity Exchange (ICEX). Commodity trading in India takes place with a constant reflection of the prices through commodity news and commodity charts.
There has been a substantial jump during recent times in commodity trading through volumes of commodities from Rs. 5.71 Lakh Crore in the first year in 2004-05 to Rs. 48.2 Lakh Crore in 2008-09 and to Rs. 119.5 Lakh Crore in 2010-11. Currently the Average daily Turnover is about Rs. 45,000 Crores and is expected to grow over a period of time. Live commodity prices can be seen on portals that support online commodity trading. |
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Commodity Spot Market |
In contrast to Derivatives market, Spot market is where buying and selling of physical commodities takes place whether it is agricultural products like grains, pulses, seeds, spices, sugar, etc., or whether its metals or bullions. In short it is the actual physical market of the underlying commodities which form the basis for Derivatives market.
Sushil Finance offers investment in Commodity Spot Market through National Spot Exchange Ltd. (NSEL) which is promoted by MCX. NSEL has an electronic screen based platform for commodity trading just like in equities where Agri, Bullion and other Metal contracts are listed for commodity trading and where an investor can buy and get delivery of these commodities. Commodity trading in Spot Market has gained significance because of the recently introduced E- series contracts which are mini contracts in bullion and metals. As an investor, one can take delivery of these E-Series contracts in Demat form. To know more about trading in Commodity Spot Market, click here |
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Why Invest in Commodities? |
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Core Objective: |
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Hedging - |
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Commodity derivatives is an effective tool for producers, consumers, suppliers etc. of the related commodities to hedge their risk and protect themselves against unexpected and uncertain volatile price movements by monitoring commodity news and commodity charts. They can hedge raw materials/ finished goods and/or Inventories: Eg. A Gold Jeweler may buy future contracts and fix his cost price of buying gold which would be used to make jewelry. |
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Direct Exposure: |
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The commodity derivatives market offers an alternative to directly invest in commodities rather than in the companies that deal in those commodities. This is an important objective of commodity trading in India. |
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Simple Analysis: |
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It is easier to forecast the live commodities prices, based on their demand and supply forecasts as compared to forecasting the price of the shares of a company which depend on various factors beyond demand and supply of the products they manufacture and sell. Through commodities charts, it becomes easier to follow the forecasts and indulge in commodity trading |
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Leverage – Small Investment & Bigger Return Potential: |
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Derivatives, being a leveraged product to invest in, require only a small sum of money to enter into contract. These derivatives can be monitored through online commodity trading. |
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Portfolio Diversification: |
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For investors,commodity trading can also be an attractive and alternative asset class to diversify their portfolios. Commodity trading in India, especially gold has been observed to have an inverse correlation with the stock markets, indicating that it is an asset looked upon as a safe haven against Financial, Economical and Geo - Political tensions. |
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Precious metals in Demat form: |
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Through the E-series contracts, investment in gold and silver is possible with delivery in Demat form and that too in small quantities. This makes it ideal for SIP form of investing; besides long term view on Bullion can be taken without the hassles of Mark-to-Market, Expiry, Rollover, etc. which are prevalent in the derivatives market. |
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THE SUSHIL ADVANTAGE |
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Vigilant Tracking of the international and domestic commodity markets and up to date market information & commentary through live commodity prices. |
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Bouquet of Research Products: include highly skilled Fundamental & Technical reports and analysis, Intraday SMS calls and timely market alerts. Wide range of research products to choose from depending on the type of commodity trading you are interested in. |
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Execution: Convenient, secure and efficient commodity trading is available in a personalized environment. It is our endeavor to provide a complete range of commodity instruments through online commodity trading which are traded, to our esteemed clients to suit their preferences and needs of having a well-structured risk management program. |
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