Print Main

CHAPTER – 1
INTRODUCTION
1.1 INTRODUCTION OF THE STUDY
Investing in securities such as shares, debentures, bonds and

commodities are profitable as existing. It is indeed rewarding as well as
involves a great deal of risk. Investing in financial securities considered to be
one of the best avenues for investing in financial securities considered to be
one of the best avenues for investing one’s saving, while it is acknowledged to
be one of the most risky avenues of investment.
As the awareness about the stock market, commodity market and

investment opportunities among the population are on an upward roll in the
securities market. However, whatever be the investment avenue none of them
is free from exposure to the risk of market price fluctuation. An investor who
has invested in shares will face substantial loss just because of a bearish trend
in the securities market and commodities market. Efforts have been taken to
reduce the loss from market fluctuations, as this particular risk is unavoidable.
Derivatives were evolved originally to curtail the risk of market price
fluctuation in the commodity market. It is said to that derivatives had been in
use way back from 13th century onwards. Later financial derivatives were
developed for securities market. In India National stock exchange of India
limited and Bombay stock exchange introduced financial derivatives in the
year 2000. There are several risks inherent in financial transactions.
Derivatives allow managing these risks more efficiently by unbundling the
risks and allowing either hedging or taking only (one or more if deserved)
instrument in the first place. Now a day they are widely used for speculation
purpose.
1
This study titled “a study on effectiveness of hedging in the MCX
futures” is being undertaken to analyze the effectiveness of hedging using
futures, which is a type of derivative, focusing on index futures, which is a
type of derivative, focusing on index futures. The study aims to identify the
hedging strategies in futures and assess the losses made by an investor in the
stock market. As such, the present study aims to identify the hedging strategies
in the real market condition. Derivatives being a new area sufficient care has
been taken to the subject and related topics in detail.
2
CHART NO: 1
INVESTMENT AVENUES
INVESTMENT
AVENUES
National
Mutual funds Bonds and Bank fixed
Shares Life insurance savings
debentures deposits
certificates
“Working of Stock Exchange & Depositary Services”
3
MEANING OF STOCK EXCHANGE
The stock exchange is the important segment of its capital market. If

the stock exchange is well-regulated function smoothly, then it is an indicator
of healthy capital market. If the state of the stock exchange is good, the overall
capital market will grow and otherwise it can suffer a great set back which is
not good for the country. The government at various stages controls the stock
market and the capitals market.
A capital market deals in financial assets, excluding coin and currency.

Banking accounts compromises the majority of financial assets. Pension and
provident funds insurance policies shares and securities.
Financial assets are claim of holders over issuer (business firms and
governments). They enter low different segment of financial market.
Those having shorter maturity that is non-transferable like bank

savings and current accounts set the identification of the monetary financial
assets. This market is known as money market, Equity, Preferential shares and
bonds and debentures issued by companies and securities issued by the
government constitute the financial assets, which are traded in the capital
market.
Both money market and capital market constitute the financial market.
Capital market generally known as stock exchange. This is an institution
around which every activity of national capital market revolves. Through the
medium stock exchange the investor gets on impetus and motivation to invest
in securities without which they would not be able to liquidate the securities. If
there would have been no stock exchange many of the savers would have hold
their saving either in cash i.e. idle or in bank with low interest rate or low
returns. The stock exchange provides the opportunity to investors for the
continuous trading in securities. It is continuously engaged in the capital
mobilization process.
4
Another consequence of non-existence of stock exchange would have
been low saving of the community, which means low investment and lower
development of the country.
S - Securities provide for investor.
T - Tax Benefits planning and exemption.
O - Optimum return on investment.
C - Cautious Approach.
K - Knowledge of Market.
Ex - Exchange of Securities Transacted.
C - Cyclopedia of Listed Companies.
H - High Yield.
A - Authentic Information
N - New Entrepreneur encouraged.
G - Guidance of Investor & Company.
E - Equity
HISTORY AND ORIGIN OF STOCK EXCHANGE
The first stock exchange was established in London in the year 1773.
Just after establishment of London stock exchange various countries like
France, Germany and USA also established their own stock exchange markets.
In India, the first exchange established in Bombay in the year 1875. Later, in
year 1908, Calcutta stock exchange was established which was recognized in
1923 and the madras stock exchange limited was established in 1973. So far
the government of India has recognized 22 stock exchanges, which was
located at major business centers in different parts of country.
5
Till the mid fifties the stock exchange was governed by their own bye
laws and regulations with very little interface by the government. In the year
1925, the government of Bombay promulgated an act “securities contracts and
control act, 1625 for regulation and the stock exchange. During the Second
World War, trading outside the stock exchange flourished with adverse effect
on investor’s confidence due to base – less issues and higher rate of
liquidation of companies. In 1956, the Central Government passed contracts
(regulation) act 1956, which came into force through out the country on 20th
Feb. 1957.
Recently the government of India has enacted an act (SEBI Act 1952),
which provides for the establishment of a board to protect the interest of
investor in securities, the SEBI has emerged as a monitoring institution of the
country fir the development and regulation of stock market, SEBI has issued
from time to time guideline to insider trading listing of securities, registration
of intermediaries mutual funds etc.
MANAGEMENT OF STOCK EXCHANGE
Management of stock exchange is controlled by elected body of

members. These bodies are known by different names in different stock
exchange. For example, the BOMBAY, INDORE and AHEMEDABAD stock
exchanges are managed by a ‘Governing Board’, while the Board of Directors
governs the Stock Exchange.
These governing bodies are powerful bodies which enjoys an extensive

administrative power of management and control over their respective stock
exchange. The day-to-day function of the stock exchanges are executed by the
sub-committee like the ‘defaulters committee’ ‘listing committee’, ‘settlement
committee’ etc.
6
STOCK BROKERS
SEBI registered stock - brokers who are interested in providing

Internet based trading services will be required to apply to the respective stock
exchange for a formal permission. The stock exchange should grant approval
or reject the application as the case may be, and communicate its decision to
the member within thirty calendar days of the date of completed application
submitted to the exchange.
The Exchange closely monitors outstanding position of top buying

member-brokers and top selling member-brokers on a daily basis. For this
purpose, it has developed various market monitoring reports based on certain
pre-set parameters. These reports are scrutinized by officials of the
Surveillance Dept. to ascertain whether a member-broker has built up
excessive purchase or sale position compared to his normal level of business.
Further, it is examined whether purchases or sales are concentrated in one or
more Scrip’s, whether the margin cover is adequate, whether transactions have
been entered into on behalf of institutional clients and even the quality of
scrip’s, i.e., liquid or illiquid is looked into in order to assess the quality of
exposure. The Exchange also scrutinizes the pay-in position of the member-
brokers and the member-brokers having larger funds pay-in positions are at
times, at the discretion of the Exchange, required to make advance pay-in on
T+1 day instead of on T+2 day.
7
BASIC REQUIREMENTS FOR STOCK BROKERS
Trading will be on existing stock exchanges through order routing

system for execution of trades. Therefore, stockbrokers are to comply with the
following before the start of trade on Internet.
1. The broker must have a net worth of Rs. 50 lakh if he wants to avail
the facility of Internet for his own.
2. Provision for maintenance of adequate back up system.
3. The software system to be used by him should be secured and reliable.
4. To employ the qualified staff for this purpose.
5. To send order/trade confirmation to the client also through e-mail.
6. The contract notes must be issued to the clients as per existing

regulation within 24 hours of the execution of trades.
7. The broker and his client should use authentication technologies.
The above are some of the important pre-requisites for the stockbroker
should intend to take benefits of trading on Internet. However, detailed
guidelines issued by the SEBI for the stock exchange
8
KIND OF STOCK BROKERS
1. Commission Broker
Near about all the brokers buy and sell securities for earning a
commission for investor point of view he is the most important person and
responsibility is to buy and sell stoke for his customer. It means that he acts as
an agent of investor and earns commission for his services rendered. The
broker is also an independent dealer in securities. He purchases and sells
securities in his own name but he is not allowed to deal with non-member.
2. Jobber
He is a professional speculator who works for a profit called ‘turn’ he

makes a continuous auction in the market in the stock in which he specialized.
He trades in the market evens for small difference in the prices and helps to
maintain liquidity in the stoke exchange.
3. Floor Broker
The floor broker buys and sells shares for the other broker on the floor
of the exchange. He is an individual member owns his seat and receives his
own commission on the orders he execute. He helps other brokers when they
are buy and as compensation receives a portion the broker.
4. Odd lit dealer
For trading in stock exchange there a certain number of share a fixed to

be transacted in a lot, this is known as round lat which is usually a, 100 share
a. Any thing less than the round lot are add lot. If a person is in possession of
add lot of share i.e. 10, 20, 30, 40 etc. They he will has to look for the add lot
dealer.
9
5. Budliwala
He is the person who finance or provide credit facilities to the market

for this service he charges a fees called contango or backwardation charges.
The budliwala gives a fully secured loan for period of 2 to 3 weeks.
6. Arbitrageur
A person who is specialist in dealing with securities in different stock

exchange centers at the same time. He makes a profit by the difference in the
piece prevailing in different centers of the market activity. For example the rte
of a certain scrip is higher in some stoke exchange than other on. In this case
the broker will buy the scrip from the marked lower price and will sell the
scrip in the market at higher price. The profit of the arbitrageur depends on the
ability to get the prices from different centers before trading in other stoke
exchanges.
STOCK TRADING OVERVIEW
The marketing of the securities on the stock exchange can be done

through member of the stock exchange. These members can be either
individuals or corporate bodies.
For the process of trading in stock exchange there is the basic need for
a transaction between an individual and the broker execute customer’s order to
buy or sell on the stock exchange trading ring. The exchange of scrip between
the member of the exchange in from of buying or selling is called trading
Broker is the member of recognized stock exchange and helps the

customers in buying or selling the securities for the brokerage that he receives.
10
TRADING METHOD
Listing securities are traded on the floor of recognized stock exchange

where its member traded. An investor is not permitted to enter the floor of
stock exchange and he has trust the broker to:
* Negotiate the best price for the trade.
* Settle the account, i.e. payment for securities sold on due date.
* Take delivery of securities purchase.
TYPES OF TRADING
Trading in stock exchange is conducted in two ways:
Ø Spot delivery contract.
Ø Forward delivery contract.
BASKET TRADING SYSTEM
The Exchange has commenced trading in the Derivatives Segment

with effect from June 9, 2000 to enable the investors to, inter-alias, hedge their
risks. Initially, the facility of trading in the Derivatives Segment was confined
to Index Futures. Subsequently, the Exchange has introduced the Index
Options and Options & Futures in select individual stocks. The investors in
cash market had felt a need to limit their risk exposure in the market to
movement in MCX.
11
To participate in this system, the member-brokers need to indicate
number of MCX basket(s) to be bought or sold, where the value of one MCX
basket is arrived at by the system by multiplying Rs.50 to prevailing MCX.
For e.g., if the MCX is 4000, then value of one basket of MCX would be 4000
x 50= i.e., Rs. 2,00,000/-. The investors can also place orders by entering
value of MCX portfolio to be brought or sold with a minimum value of Rs.
50,000/- for each order.
The Basket Trading System provides the arbitrageurs an opportunity to

take advantage of price differences in the underlying MCX and Futures on the
MCX by simultaneous buying and selling of baskets comprising the
COMDEX scrips in the Cash Segment and MCX Futures. This is expected to
provide balancing impact on the prices in both cash and futures markets.
PROCEDURE OF TRADING
1. Selection of broker
The first step in buying or selling of share is to select a broker for

transaction business on behalf of the investor. The trading of securities on the
stock exchange can be done through members of the exchange.
* An investor prefers to select a broker who shall.
* Act with due skill, Care and diligence in the conduct of all his business.
* Not create false market either singly or in concert with other.
12
2. Opening an account with the broker
The next step to open account with the broker. It helps the investor to
provide his credit worthiness, if the clients were not to do margin money with
the broker.
3. Selection of securities
This is an application for buying securities. The investor may be

consulted with broker and take advise for selection of securities.
4. Selection of time for trading
This is important to get the best advantage from buying or selling the
securities.
5. Placing an order
Various method of placing an order with the broker has been evolved
to give the broker leverage when he is on the floor of the stock exchange.
6. Preparation of contract note
SEBI circular of 4th Feb. 1991 requires that all members of the
recognized stock exchange, issue contract note to the investors on the
execution of trade. Brokers, therefore issue contract note to the client, which
gives the name of the company, price of trade, brokerage, time of execution,
provision regarding arbitration etc. in term of the bye-laws of stock exchange,
this is statutory requirement and mandatory.
7. Settlement
The settlement is the process where by payment is made by brokers

who have made purchase and share delivery by those brokers who have made
sales.
13
CONCEPT OF THE STUDY
DERIVATIVES
The emergence of the market of derivatives products, most notably

forwards, futures and options can be traced back to the willingness of risk
averse economic agents to guard themselves against uncertainties arising out
of fluctuations in asset price. By their nature the financial markets are marked
by a very high degree of volatility. Through the use of derivatives products, it
is possible to partially or fully transfer price risks by locking in asset prices.
However by locking in asset prices derivatives products it minimize the
impact of fluctuations in asset price on the profitability and cash flow situation
of risk adverse investors.
DERIVATIVE DEFINITION
Derivatives is a product, whose value is derived from the value of one

or basis variables called bases ( underlying asset, index or reference rate ) in a
contractual manner. The underlying asset can be equity, forex, commodity, or
any other asset. For example, wheat farmers may wish to sell their harvest at a
future date to eliminate the risk of a change in prices by that date. Such a
transaction is an example.
The price of this derivative is driven by the spot price of wheat which
is the “underlying”. In the Indian context the Securities Contracts (Regulation)
Act, 1956 [SC( R) A] defines derivative to include
1. A security from a debt instrument, share, loan whether secured or

unsecured, risk instrument or contract for difference or any other form
of security.
2. A contract, which derives its value from the prices or index of price of
underlying securities.
14
ORIGIN OF DERIVATIVES
The origin of derivatives can be traced back to the need of farmers to

protect themselves against fluctuations in the price of their crop. From the
time it was sown to the time it was ready for harvest, farmers would face price
uncertainty. Through the use of simple derivative products, it was possible for
the farmer to partially or fully transfer price risks by locking in asset prices.
These were simple contracts developed to meet the needs of farmers

and were basically a means of reducing risk. A farmer who sowed his crop in
June faced uncertainty over the price he would receive for his harvest in
September. In years of scarcity, he would probably obtain attractive prices.
However, during times of oversupply, he would have to dispose off his harvest
at a very low price. Clearly this meant that the farmer and his family were
exposed to a high risk of price uncertainty.
On the other hand, a merchant with an ongoing requirement of grains

too would face a price risk that of having to pay exorbitant prices during
dearth, although favorable prices could be obtained during periods of
oversupply. Under such circumstances, it clearly made sense for the farmer
and the merchant to come together and enter into a contract whereby the price
of the grain to be delivered in September could be decided earlier. In 1848, the
Chicago Board of Trade, or CBOT, was established to bring farmers and
merchants together. A group of traders got together and created the ‘to-arrive’
contract that permitted farmers to lock in to price upfront and deliver the grain
later. These to-arrive contracts proved useful as a device for hedging and
speculation on price changes. These were eventually standardized, and in 1925
the first futures clearing house came into existence.
Today, derivative contracts exist on a variety of commodities such as

corn, pepper, cotton, wheat, silver, etc., Besides commodities, derivatives
contracts also exist on a lot of financial underlyings like stocks, interest rate,
exchange rate, etc.
15
INDEX
An index is used to give information about the movements of products

in the financial, commodities or any other markets. Financial indexes are
constructed to measure price movements of stocks, bonds T-bills, and other
forms of investments. Commodity market indexes are meant to capture the
overall behavior of commodity markets. A commodity market index is created
by selecting a group of commodities that are representative of the whole
market or a specified sector or segment of the market. An index is calculated
with reference to a base index value.
MCX FUTURES
A future contract is a standardized contract to buy or sell a specific

security at a future date at agreed price. A MCX future is a future on the
MCX. There is no underlying security or a commodity which is to be
delivered to full fill the obligation as MCX futures are cash settled. As other
derivatives the contract derives its value from the underlying MCX. The
underlying indices in this case will be the various eligible indices and as
permitted by the regulator from time to time.
16
TABLE NO: 1
CONTRACT SPECIFICATION FOR MCX FUTURES

CONTRACT
Contract period 1,2,3 months
Tick size 0.05 MCX points
Price quotation MCX points
Trading hours 10.00 to 00.00
Last trading/Expiration day Every Saturday till 14.00hrs
Final settlement Cash settlement
Source: www.mcx.com
17
FUTURES
Futures markets were designed to solve the problems that exist in

forward markets. A futures contract is an agreement between two parties to
buy or sell an asset at a certain time in the future at a certain price. But unlike
forwards contract, the futures contracts are standardized and exchange traded.
A futures contact may be offset prior to maturity by entering into an equal and
opposite transaction. More than 99% of futures transactions are offset in this
way.
The standardized items in a futures contract are:
1. Quantity of the underlying
2. Quality of the underlying
3. The date and the month of delivery
4. The units of price quotation and minimum price change
5. Location of settlement
18
CHART NO: 2
ROLE OF CONTRACT
Money
Money
Long Position Clearing House Short Position
Asset Asset
Through the intermediation of the clearing house, traders can liquidate

their positions easily. If you have a long position and you want to unwind it,
simply instruct your broker to do the short side of the contract. Likewise, if
you have a sort position and you want to undo it, simply instruct your broker
to do the long side of the contract. Such trades mean to close out a position,
are called reverse trades.
The open interest of the contract is simply the number of contracts

outstanding. Because the long positions and sort positions are not counted
separately, open interest is defined as either the number of long or short
contracts outstanding. Since the position of the clearing house nets out to zero,
it is not count in computing the open interest. At the beginning of the trading
cycle the open interest is zero. As time passes, open interest builds up.
However as most traders close their positions before the contract maturity
date, open interest declines sharply when the maturity date nears.
19
MARGINS
When you execute a futures trade, you have to provide the initial
margin, as is fixed by the exchange. The margin, consisting of cash or cash
equivalents, is to ensure that traders will honor.
TRADING CYCLE
Commodity futures contracts have minimum of 1, 2, and 3 months

trading cycles. A new contract is introduced on trading day following the
expiry of the near month contract. The new contract will be introduced for tree
month duration.
EXPIRY DATE
Commodity futures expire on the every Saturday of the expiry month.

If the Saturday is a holiday then the contract will expire on the previous
trading 14hrs.
FUTURES CONRACT
Futures are exchange traded contractual obligations to make or accept

the delivery of a specified quantity of a commodity during a specified time in
future at a price agreed upon at the time the commitment is made. Futures are
highly standardized products. It is just a commitment to do the transaction in
the future and is a powerful tool to modify portfolio characteristics and hedge
other investments. Futures prices are quoted for products with precise
specifications, delivered at a specified location during a specified period of
time.
20
TYPES OF HEDGING
Basically there are two types of hedging with futures. Long term hedge
and short term hedge.
LONG TERM HEDGE
In a long term hedge one buys futures contract. The hedger is either
currently short the cash good or has a future commitment to buy the good at
the spot price that will exist at a later date. By buying futures contracts any
subsequent price rise would lead to profit in the futures market and losses in
the cash market. The hedger must also be aware that prices might fail leading
to a profit in the cash market and loss in the future market. The hedger must
thus be reasonably sure that price changes of the cash position and changes in
the futures prices will be correlated.
SHORT TERM HEDGE
In a short term hedge one sells futures contracts. The hedger fears that
prices will fall and if they do, loss will be sustained in the spot market. The
short edger either currently long the cash or as commitment to sell it on a
future date at a unknown price. If prices do indeed decline loss will be
incurred on the cash position but there will be a profit in the futures position.
As a result any loss that arising from cash position can be minimized by way
of hedging.
21
HEDGING STRATEGIES
A number of strategies are available for hedging with derivatives. But

in hedging with futures contract, MCX futures and commodity futures the
following are the strategies:
1) Have
portfolio, short MCX futures
2) Have funds,
long MCX futures
3) Short
security, long MCX future
4) Long
security, sort MCX future
RISK MANAGEMENT
NSCCL has developed a comprehensive risk containment mechanism

for the F&O segment. It is the margining system and on-line position
monitoring. The actual position monitoring and margining is carried out on-
line through parallel risk management system.
REVIEW OF LITERATURE
Kamara (1982) compared cash market volatility before and after the
introduction of futures trading and found that the introduction of commodity
futures trading generally reduced or at least did not increase cash price
volatility.
Singh (2004) investigated the hessian cash (spot) price variability

before and after the introduction of futures trading (1988-1997) in Indian
22
markets using the multiplicative dummy variable model and concluded that
futures trading has reduced the price volatility in the Hessian cash market.
Slade and thille (2004) assessed the levels and volatilities (means and
standard deviations) of the spot prices of the six commodities that were traded
on the London Metal Exchanges in the 1990s.The theories that they examined
could be grouped into four classes. The first considered how product-market
structure and forward-market trading jointly affect the spot-market game, the
second explored the links between product-market structure and spot price
stability, the assessed whether forward trading destabilizes spot prices, and the
last related the arrival of new information to price volatility and the volume of
trade. They found support for traditional market-structure models of the price
level but not of price stability. In addition, increased forward trading was
associated with lower prices. Further, although they found a positive
relationship between increased trading and price instability, the link appeared
to be indirect via a common causal factor.
Sahi and raizad (2006) studied the impact of commodity futures on

welfare and inflation in the economy. They have estimated the efficiency of
futures using the johansen’s Co integration for different forecasting
frequencies. Their results suggested that the wheat futures were not efficient
even in the short term. Further, they concluded that the price discovery was
poor and the higher volumes in futures markets had a significant causal impact
on inflation.
Another study by K L Rao and Ravinder analyzes gold, crude and

exchange rates. The increase in the international spot prices of the precious
yellow metal in the year 2007 is driven by the weak US economic
performance, increase in crude oil prices, and inflation in the US housing
sector and disequilibrium between demand and supply as compared to the
previous years. The gain in gold price was not just because of the weakening
23
dollar but supported by the supply and demand, expectation of rising interest
by the US federal government and some geopolitical factors also.
Niteen jain says with the world becoming increasingly globalised and
there by resulting in intensified competition, it has become imperative to
control the cost as well as ascertain the bottom lines to remain spirited in the
market. The volatility in the commodities market has the potential to derail the
best of the strategies of the participants of commodity value chain. Global
supply demand imbalances in commodities and resulting price volatility will
likely continue to impact the profitability and competitiveness of the
participants. The only remedy that has the potential to provide an insurance
cover from this volatility is the effective use of derivatives.
In another study jayanta Kumar seal says, India is one of the leading
countries in the production of commodities. It is also having a long history of
derivative trading. The market has made considerable progress in terms of
technology, governance and trading activity. The most noticeable part is that
this development has taken place once the government has withdrawn the
protection from many commodities and allowed the market to determine the
price. Therefore, the price risk management should be handled by the market
forces and there should be no administered price mechanism. Management of
price risk will be very important once the free trade policy is introduced.
Since Shiller’s (1981a) seminal article examining excess volatility in

the US stock prices, many articles have used his data set, or extensions of it, to
assess the performances of the alternative volatility tests that have been
discussed above. Shiller argues that the level of stock market volatility is too
high relative to the ex post variability of dividends. In present value models
such as shiller’s, a change in the volatility of either future or discount rates
causes a change in the volatility of the stock return.
24
Volatility is one of the most important factors when pricing options are
considered. The pricing of options depends on volatility of the underlying
asset. The price of a call or a put option is directly related to the volatility of
the underlying stock. The variables that appear in the black scholes differential
equation for pricing options are;
• Current stock price
• Time
• Stock price volatility
• The risk-free rate of interest
The only parameter in the black-scholes pricing formulas that cannot

observe is the volatility of the stock price.
25
1.2 COMPANY PROFILE
INDIA INFOLINE GROUP :
• India Infoline (IIL) is engaged in business of equities broking, wealth advisory

services and portfolio management services. The company was incorporated in
October 1995 as Probity Research & Services and later in April 2000 the name
was changed to India Infoline.com. Then in March 2001 the company again
changed its name to India Infoline.
• The company is part of India Infoline Group. It has pan- India presence
through its distribution network of 607 branches, 151 franchisees located in 346
cities. The company also has presence in Dubai, New York and Singapore.
• IIL operates portals such as www.indiainfoline.com and www.5paisa.com.
• The India Infoline group, comprising the holding company, India infoline
limited and its wholly-owned subsidiaries, straddle the entire financial services
space with offerings ranging from equity research, equities and derivatives
trading, commodities trading, portfolio management services, mutual funds, life
insurance, fixed deposits, goi bonds and other small savings instruments to loan
products and investment banking.
AWARDS
• India Infoline has been awarded the ‘Best Broker in India’ by Finance Asia.
Company’s Rs. 5 billion short-term debt programme has received an A1+ rating
from ICRA. This reflects highest -credit-quality of short-term debt instruments.
OUTLOOK
26
• India Infoline has received approval from SEBI for sponsoring mutual fund.
Through this, the company wants to expand its product offerings.
INDIA INFOLINE GROUP SUBSIDIARIES:
India Infoline Media and Research Services Limited
• India Infoline Commodities Limited
• India Infoline Marketing & Services
• India Infoline Investment Services Limited
• IIFL (Asia) Pte Limited
OUR GLOBAL PRESENCE:
USA, Dubai, Singapore
MANAGEMENT TEAM:
• Nirmal Jain
Chairman, and Managing Director
• R Venkataraman
Executive Director,
• Nilesh Vikamsey
Independent Director
• Sat Pal Khattar

Non Executive Director.
27
PRODUCTS PROFILE
• India Infoline provides a gamut of financial products and services.
The company offers broking services in the Cash and Derivatives
segments of the NSE and BSE.
• India Infoline Media and Research Services- This company offers
content support to India Infoline in area of broking, commodities, mutual
fund and portfolio management services.
INDIA INFOLINE COMMODITIES
• This company is engaged in broking services for commodities segment.
INDIA INFOLINE MARKETING & SERVICES
• This is holding company of India Infoline Insurance Services and India
Infoline Insurance Brokers. The company is the largest Corporate agent for
ICICI Prudential Life Insurance Company. It is also engaged in insurance
broking.
INDIA INFOLINE INVESTMENT SERVICES
• This subsidiary is engaged in business such as loans against securities,
28
SME financing, distribution of retail loan products, consumer finance
Business and housing finance business.
IIFL (ASIA) PTE
• This subsidiary is engaged in carrying out financial sector activities.
CHAPTER – 2
OVERVIEW OF THE STUDY
2.1NEED FOR THE STUDY
• If your business depends on the purchase or sale of

commodities, can you afford to stay resigned to wild
fluctuations in commodity prices? In a marketplace where
prices fluctuate dynamically due to various price moving
factors like demand and supply. We bring you a trade
mechanism – hedging -- that allows you to lock-in your price
by judiciously using the commodity futures market.
• Profitability of a commodity-dependent business is largely

influenced by the price at which it sells or buys the particular
commodity. However, commodities are vulnerable to price
volatility, which can adversely affect the profitability of
business. This leads to better management of cost, profits and
selling price.
• All large buyers, sellers and processors and users of

commodities need to hedge because they all stand vulnerable to
price volatility. They include: commodity producers, large
consumers, manufacturers for whom a commodity is major raw
29
material, processors of commodities, importers, exporters,
traders, and so on.
• Hedging is a method by which a buyer, who requires a

commodity at a future date, protects himself from the risk of a
possible price rise, by agreeing to buy the same commodity on
the MCX platform at a pre-determined price. Alternatively, a
seller who plans to sell a commodity at a future date but fears a
potential price fall can agree to sell the same commodity on the
MCX platform at a pre-determined price. Thus, both buyer and
seller can avail of the hedging mechanism on MCX to protect
themselves from adverse price movements. Trades done in such
manner are assured of completion and settlement by MCX.
• In the absence of price discovery by market forces, as it

happens on the futures exchanges, prices can only be guessed.
Experience suggests that such guessed prices are often in the
interests of a few and not in the interests of the macro
economy. Hence, it is necessary that large number of buyers
and sellers should converge anonymously on a trading platform
to discover the prices based on which important economic
decisions can be taken by all stakeholders for commodities
market.
30
2.2 OBJECTIVES OF THE STUDY
• To examine the hedging effectiveness of MCX futures in minimizing

the market risk associated with the commodity portfolio.
• To analyze the MCX futures trading with the equity portfolio.
• To find out the extent to which the loss can be reduced.
31
2.3 SCOPE OF THE STUDY
• The strategies are very much relevant in the commodity market.
• The recommendations on the study are helpful to the hedgers.
• The study helps the investors in gathering knowledge about the

hedging effectiveness.
32
2.4RESEARCH METHODOLOGY
RESEARCH PROBLEM
A person making an investment expects to get some return from the

investment in the future. But every investment has some uncertainty which is
associated with the return. So the research is to study the risk which is
associated with the investment and how one can reduce the risk through
strategic utilization of risk reducing instrument i.e. derivatives. This project
provides ways how to reduce risk through MCX future.
RESEARCH DESIGN
The formidable problem that follows the task of defining the research
problem is preparation of the design of the research project, popularly known
as “research design”. A research design is the arrangement of condition and
analysis of data in a manner that aims to combine relevance to the research
purpose with economy in procedure. It is empirical in nature. The aim is to test
how effectively the index future used to reduce the risk associated with the
index fluctuations while making an investment in the cash market by a
prospective investor, while is formerly known as hedging. This type of
research adopted for the project work is historical, descriptive and analytical in
nature.
METHOD OF DATA COLLECTION
33
The study is purely based on secondary data collected from journals,
books and websites, along with the inside discussion with the trade participant
and authorized brokers in the year 2010. Already established hedging
strategies in this futures and options have been identified and were applied in
the data collection from various secondary sources.
2.5 LIMITATIONS OF THE STUDY
• Data were collected only on the basis of NSE listing.
• While applying the strategy transaction cost and impact cost are not
taken into consideration.
• Hedging strategy is applied on historical data.
34
CHAPTER-3
ANALYSIS AND INTERPRETATION
After data have been collected, it was then recorded, tabulated and
edited accurately. Data analysis was done with the help of computer to provide
accuracy and clarity. Share prices, prices of stock future and prices of MCX
futures are collected for a period from first January 1st to July 2010. For MCX
future prices are taken. Data collected from secondary sources and data
derives from the application of the strategies are analyzed using simple
statistical tools.
HEDGING STRATEGIES APPLIED
1. Continuous hedging
2. Descriptive hedging
SAMPLE PLAN
Data regarding commodity market during period of January to July is

taken. Value of commodity and MCX are taken. All valid information
regarding commodity during the relevant month is considered. Four
commodities are selected at random on the basis of market capitalization and
beta value from each of these selected commodities.
35
COMMODITIES TAKEN
1. Gold
2. Silver
3. Platinum
4. Palladium
PORTFOLIO BUILDUP
The portfolio has been buildup with five major industries in present
scenario. Since the study is to find out the hedging effectiveness, the portfolio
was created in such a way that the beta of the portfolio is between 0.05 and
1.50
36
TABLE NO: 2
COMMODITY’S BETA VALUE
SL.NO COMMODITY NAME BETA VALUE
1 GOLD 0.8994
2 SILVER 0.628
3 PLATINUM 1.3125
4 PALLADIUM 0.1555
37
The overall analysis of the study is subdivided into two parts;
 Analysis of the portfolio and the commodity during the period.
 Analysis of hedging effectiveness during the period,
Criteria for the selection of the portfolio and securities
 Different sectors or industries.
 High market return in the past.
 Credibility of promoters.
 Shares are selected randomly with good beta values.
 Analysis of MCX futures on hedging strategy and its

effectiveness is done for the month of January, February 2008
ASSUMPTIONS OF HEDGING
 There is no margin
 No brokerage
 Plenty of liquidity
In a portfolio the each commodity quantity to be purchased can be

determined by the following formula
38
TABLE NO: 3
CALCULATION OF PORTFOLIO AMOUNT
&
HEDGED AMOUNT
COMMODITY PORTFOLIO BETA BETA

COMPANY WEIGHT
VALUE AMOUNT VALUE AMOUNT
GOLD 1183 100 g 118300 0.8994 106399.02
SILVER 17.55 250 g 4387.85 0.628 755.25
PLATINUM 1502.00 30 k 45060 1.3125 59141.25
PALLADIUM 438 15 k 6570 0.1555 1021.635
Total 174317 169317.26
• Weights taken as in equal proportion.
Source: secondary data
Value of BetaAmount
Beta of the Portfolio = Value of Portfolio
169317
=
174317
= 0.97
For hedging purpose, amount of Commodity to be sold
39
= Portfolio Amt x Portfolio Beta
= 174317x0.97
= 169087.49
Amount of Commodity to be sold

No of Commodity to be sold = Clo sin g price of Commodity future
169087.49
=
2865
= 59.02
1, Lot or contract because futures are sold and purchased in tonnes.
The Hedge Amount = 2865 x 100
= 286500
TABLE NO: 4
Calculation of portfolio amount
40
Spot Lot
Date Commodity Amount Total P/L
price size
01.06.10 Gold 1227.75 1 1227.75
Silver 18.3 1 18.3
Platinum 1550 1 1550
Palladium 457 1 457 3253.05 0
02.06.10 Gold 1215 1 1215

Silver 18.43 1 18.43
Palladium 450 1 450 3225.43 -27.62
03.06.10 Gold 1215 1 1215

Silver 18.27 1 18.27
Palladium 462 1 462 3260.27 34.84
04.06.10 Gold 1203.5 1 1203.5

Silver 17.76 1 17.76
Palladium 440 1 440 3188.26 -72.01
07.06.10 Gold 1215 1 1215

Silver 17.36 1 17.36
Palladium 423 1 423 3155.36 -32.9
08.06.10 Gold 1246 1 1246
Silver 18.34 1 18.34
Palladium 428 1 428 3208.34 52.98
09.06.10 Gold 1233.5 1 1233.5

Silver 18.27 1 18.27
Palladium 453 1 453 3241.77 33.43
10.06.10 Gold 1217.5 1 1217.5

Silver 17.98 1 17.98
Palladium 450 1 450 3215.48 -26.29
11.06.10 Gold 1220 1 1220
41
Silver 18.31 1 18.31
Palladium 449 1 449 3226.31 10.83
14.06.10 Gold 1223.75 1 1223.75

Silver 18.43 1 18.43
Palladium 457 1 457 3255.18 28.87
15.06.10 Gold 1225 1 1225

Silver 18.42 1 18.42
Palladium 460 1 460 3261.42 6.24
16.06.10 Gold 1234.5 1 1234.5
Silver 18.51 1 18.51
Palladium 471 1 471 3292.01 30.59
17.06.10 Gold 1245 1 1245

Silver 18.5 1 18.5
Palladium 482 1 482 3322.5 30.49
18.06.10 Gold 1256 1 1256

Silver 18.77 1 18.77
Palladium 484 1 484 3336.77 14.27
21.06.10 Gold 1254.5 1 1254.5

Silver 19.37 1 19.37
Palladium 502 1 502 3380.87 44.1
22.06.10 Gold 1236 1 1236

Silver 18.625 1 18.625
Palladium 487 1 487 3326.63 -54.245
23.06.10 Gold 1226.5 1 1226.5

Silver 18.91 1 18.91
42
Palladium 485 1 485 3305.41 -21.215
24.06.10 Gold 1236.25 1 1236.25
Silver 18.38 1 18.38
Palladium 466 1 466 3269.63 -35.78
25.06.10 Gold 1254 1 1254

Silver 18.65 1 18.65
Palladium 471 1 471 3299.65 30.02
28.06.10 Gold 1261 1 1261

Silver 19.11 1 19.11
Palladium 481 1 481 3342.11 42.46
29.06.10 Gold 1234.5 1 1234.5

Silver 18.57 1 18.57
Palladium 463 1 463 3261.07 -81.04
30.06.10 Gold 1244 1 1244

Silver 18.74 1 18.74
Palladium 446 1 446 3240.74 -20.33
01.07.10 Gold 1234 1 1234

Silver 18.65 1 18.65
Palladium 433.5 1 433.5 3200.15 -40.59
02.07.10 Gold 1201.5 1 1201.5
Silver 17.98 1 17.98
Palladium 433 1 433 3160.48 -39.67
05.07.10 Gold 1208 1 1208

Silver 17.85 1 17.85
Palladium 429 1 429 3160.85 0.37
43
06.07.10 Gold 1195 1 1195
Silver 17.85 1 17.85
Palladium 432 1 432 3153.85 -7
07.07.10 Gold 1193.25 1 1193.25

Silver 17.65 1 17.65
Palladium 439 1 439 3161.9 8.05
08.07.10 Gold 1193.5 1 1193.5

Silver 18 1 18
Palladium 447 1 447 3186.5 24.6
09.07.10 Gold 1208.75 1 1208.75

Silver 17.87 1 17.87
Palladium 454 1 454 3207.62 21.12
12.07.10 Gold 1205.5 1 1205.5
Silver 18.06 1 18.06
Palladium 456 1 456 3205.56 -2.06
13.07.10 Gold 1216 1 1216

Silver 18 1 18
Palladium 463 1 463 3231 25.44
14.07.10 Gold 1207 1 1207

Silver 18.29 1 18.29
Palladium 465 1 465 3213.29 -17.71
15.07.10 Gold 1208 1 1208

Silver 18.42 1 18.42
Palladium 470 1 470 3226.42 13.13
16.07.10 Gold 1189.25 1 1189.25

Silver 18.25 1 18.25
44
Palladium 456 1 456 3175.5 -50.92
19.07.10 Gold 1181 1 1181

Silver 17.78 1 17.78
Palladium 447 1 447 3144.78 -30.72
20.07.10 Gold 1183 1 1183

Silver 17.55 1 17.55
Palladium 438 1 438 3140.55 -4.23
45
CHART NO: 3
CHARTS SHOWING THE DAILY CHANGES OF

PORTFOLIO
INTERPRETATION
The above chart showing the daily price changes of portfolio. In the
beginning stage the portfolio was showing the upward movement so strategy
is buy the MCX future. After a few days the portfolio shows a downward
movement so here the strategy is sells the MCX future. At last again portfolio
shows the upward movement.
46
TABLE NO: 5
CONTINUOUS HEDGING
47
MCX HEDGE PROFIT/ NET
DATE PORTFOLIO PROFIT/LOSS FUTURE AMT LOSS P/L
01.06.1
0 3253.1 0 2865 286500 0 0
02.06.1
0 3225.4 -27.62 2858.35 285835 -665 -692.62
03.06.1
0 3260.3 34.84 2940 294000 8165 8199.84
04.06.1
0 3188.3 -72.01 2954.74 295474 1474 1401.99
07.06.1
0 3155.4 -32.9 2974.3 297430 1956 1923.1
08.06.1
0 3208.3 52.98 2960.6 296060 -1370 -1317
09.06.1
0 3241.8 33.43 3097.25 309725 13665 13698.4
10.06.1
0 3215.5 -26.29 3159.3 315930 6205 6178.71
11.06.1
0 3226.3 10.83 3058.1 305810 -10120 -10109
14.06.1
0 3255.2 28.87 3047.7 304770 -1040 -1011.1
15.06.1
0 3261.4 6.24 2777 277700 -27070 -27064
16.06.1
0 3292 30.59 2742.3 274230 -3470 -3439.4
17.06.1
0 3322.5 30.49 2751.15 275115 885 915.49
18.06.1
0 3336.8 14.27 2766.5 276650 1535 1549.27
21.06.1
0 3380.9 44.1 2986.1 298610 21960 22004.1
22.06.1
0 3326.6 -54.245 3070.75 307075 8465 8410.76
23.06.1
0 3305.4 -21.215 3081.5 308150 1075 1053.79
24.06.1
0 3269.6 -35.78 3079.7 307970 -180 -215.78
25.06.1
0 3299.7 30.02 3138.6 313860 5890 5920.02
28.06.1
0 3342.1 42.46 2310.85 231085 -82775 -82733
29.06.1
0 3261.1 -81.04 2446.95 244695 13610 13529
30.06.1
0 3240.7 -20.33 2469.25 246925 2230 2209.67
01.07.1 48
0 3200.2 -40.59 2290.1 229010 -17915 -17956
02.07.1
0 3160.5 -39.67 2093.95 209395 -19615 -19655
CHART NO: 4
Continuous Hedging
49
INTERPRETATION
The above chart is showing the position of profit and the loss
occurred if the hedging strategy is not applied. From this chart we can see that
at the portfolio shows the fluctuating movements. Here the market is
uncertain and the chance for the profit and loss is equal. So it is better to
hedge the portfolio.
TABLE NO: 6
DESCRIPTIVE HEDGING
PRIFIT MCX HEDGE

DATE PORTFOLIO
/ LOSS FUTURE AMOUNT
01.06.10 3253.1 0 2865 286500
02.06.10 3225.4 -27.62 2858.35 285835
03.06.10 3260.3 34.84 2940 294000
04.06.10 3188.3 -72.01 2954.74 295474
07.06.10 3155.4 -32.9 2974.3 297430

08.06.10 3208.3 52.98 2960.6 296060
09.06.10 3241.8 33.43 3097.25 309725
10.06.10 3215.5 -26.29 3159.3 315930
11.06.10 3226.3 10.83 3058.1 305810
14.06.10 3255.2 28.87 3047.7 304770

15.06.10 3261.4 6.24 2777 277700
16.06.10 3292 30.59 2742.3 274230
17.06.10 3322.5 30.49 2751.15 275115
18.06.10 3336.8 14.27 2766.5 276650
21.06.10 3380.9 44.1 2986.1 298610

-
22.06.10 3326.6 54.245 3070.75 307075
50
-
23.06.10 3305.4 21.215 3081.5 308150
24.06.10 3269.6 -35.78 3079.7 307970
25.06.10 3299.7 30.02 3138.6 313860
28.06.10 3342.1 42.46 2310.85 231085

29.06.10 3261.1 -81.04 2446.95 244695
30.06.10 3240.7 -20.33 2469.25 246925
01.07.10 3200.2 -40.59 2290.1 229010
02.07.10 3160.5 -39.67 2093.95 209395
05.07.10 3160.9 0.37 2085.9 208590

06.07.10 3153.9 -7 1798.45 179845
07.07.10 3161.9 8.05 1791.65 179165
08.07.10 3186.5 24.6 1895.85 189585
09.07.10 3207.6 21.12 2175.4 217540
12.07.10 3205.6 -2.06 2273.05 227305

13.07.10 3231 25.44 2253.95 225395
14.07.10 3213.3 -17.71 2243.3 224330
15.07.10 3226.4 13.13 2102.4 210240
16.07.10 3175.5 -50.92 2156 215600
19.07.10 3144.8 -30.72 2072.2 207220

20.07.10 3140.6 -4.23 2181.75 218175
CHART NO: 5
51
Descriptive Hedging
350000
300000
INTERPRETATION
The above chart is showing the daily changes in the heading amount.
Beginning stage hedging gives a more profit. However, after a few days it
was coming to down because of price changes in the stock market, in this time
hedging is not effective. At the end of the month again it goes up.
250000 TABLE NO: 7
52
DAILY PORTFOLIO ANALYSIS
JUNE
DATE PORTFOLIO
01.06.10 3253.1
02.06.10 3225.4
03.06.10 3260.3
04.06.10 3188.3
07.06.10 3155.4
08.06.10 3208.3
09.06.10 3241.8
10.06.10 3215.5
11.06.10 3226.3
14.06.10 3255.2
15.06.10 3261.4
16.06.10 3292
17.06.10 3322.5
18.06.10 3336.8
21.06.10 3380.9
22.06.10 3326.6
23.06.10 3305.4
24.06.10 3269.6
25.06.10 3299.7
28.06.10 3342.1
29.06.10 3261.1
30.06.10 3240.7
JULY
01.07.10 3200.2
02.07.10 3160.5
53
05.07.10 3160.9
06.07.10 3153.9
07.07.10 3161.9
08.07.10 3186.5
09.07.10 3207.6
12.07.10 3205.6
13.07.10 3231
14.07.10 3213.3
15.07.10 3226.4
16.07.10 3175.5
19.07.10 3144.8
20.07.10 3140.6
CHART NO: 6
54
Daily Portfolio Analysis
INTERPRETATION
Here chart shows the position of hedging through out the trading
period. And at the beginning stage the portfolio was in loss and also the
market shows a downward movement so the strategy was to sell the MCX
future. After a short day the market shows an upward movement so here we
change the strategy. That is here the strategy was to buy the MCX future. So
from the above chart we can see that the strategy was determined on the basis
of the market situation.
TABLE NO: 8
55
DAILY ANALYSIS OF PORTFOLIO PROFIT/LOSS
JUNE
DATE PRIFIT/LOSS
01.06.10 0
02.06.10 -27.62
03.06.10 34.84
04.06.10 -72.01
07.06.10 -32.9
08.06.10 52.98
09.06.10 33.43
10.06.10 -26.29
11.06.10 10.83
14.06.10 28.87
15.06.10 6.24
16.06.10 30.59
17.06.10 30.49
18.06.10 14.27
21.06.10 44.1
22.06.10 -54.245
23.06.10 -21.215
24.06.10 -35.78
25.06.10 30.02
28.06.10 42.46
29.06.10 -81.04
30.06.10 -20.33
JULY
01.07.10 -40.59
02.07.10 -39.67
56
05.07.10 0.37
06.07.10 -7
07.07.10 8.05
08.07.10 24.6
09.07.10 21.12
12.07.10 -2.06
13.07.10 25.44
14.07.10 -17.71
15.07.10 13.13
16.07.10 -50.92
19.07.10 -30.72
20.07.10 -4.23
CHART NO: 7
Daily Analysis of Portfolio Profit / Loss
57
INTERPRETATION
Here the chat shows the two positions that is profit and loss before and
after the hedging. This lines one shows the position of profit and loss
occurred if the hedging strategy is not applied. And another one shows the
position of profit and loss incurred after the hedging. And from the above
chart we can understand that we can earn more profit through the descriptive
hedging strategy.
CHAPTER-4
SUMMARY OF FINDINGS, SUGGESTIONS
58
&
CONCLUSION
4.1FINDINGS
1. From the above study, descriptive hedging is the optimum strategy for
hedging, because it minimizes loss when the market is down and
maximize profit when the market is boom.
2. Effective utilization of the commodity futures help market participant.

And the time of beginning of the study, our portfolio gives a positive
return. But after a short number of days the market becomes high
volatile.
3. When the market volatility at the time of the beginning stage of the
trade investors use descriptive hedging strategy to reduce the risk of
loss.
4. From the above study, the commodity market is always changing and
they cannot predict anything in the market, because of the different
kinds of market trends and situations. So they have to use optimum
hedging strategy to reduce the risk of loss in the volatility share
market.
5. From the above study, the risk factor cannot be avoided but it can be
minimized. The best that can be achieved using hedging is the
removal of an unwanted exposure.
6. The study reveals that an aggressive hedger can reduced the risk
through the adoption of suitable period and security. The expert make
59
and aggressive decisions on the basis of the market performances and
this will help to reduce risk and maximize profit.
7. This study found that the hedging provides a safe position on an

underlying security. The loss get shared to the counter party, thus
hedging provides a safe and positive position to the hedger. Some
times the market performs against the exploitations this will trigger
losses, so the hedger must be positives and strategic thinker.
60
4.2 SUGGESTIONS
1. If it is a portfolio, especially when the portfolio consist of different

commodity index futures are better tool for hedging since they are
convenient and represents the true nature to the security market as a
while.
2. Understand that the hedging is a tool to curtail the losses that may arise
from the market risk. Its primary objectives is not profit maximization,
but risk minimization. Any profit from shares or futures will be offset
from the losses from futures of shares as the case may be. As a result a
hedger will return comparing to that of an uneager.
3. The success of the hedge entirely depends on the trend and the
hedger’s ability in understanding the directing of the market trend. So
the hedger must have a better understanding of the market. Otherwise
hedge will result in a loss to the hedger.
61
4.3 CONCLUSION
Hedging with MCX futures proved to be effective instrument.

Through the MCX futures hedging we reduced the unnecessary risk of the
MCX movement. Thus hedging reduces the loss from the portfolio and it is
also creates a profit according to our study. India’s derivative market is not
much established because it introduced in India after 2000. Till many investor
don’t know about derivatives and it use correctly. In the future, the derivative
market will show a remarkable growth.
Hedging does not remove losses. The best one can be achieved
using hedging is the removal of unwanted exposure i.e. unnecessary risk. The
hedged position will make less profit than the unhedged position. Once
should not enter into a hedging strategy hoping to make excess profit for sure;
all that come out of hedging is reduced risk.
62

Print Main

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Print Main

Uploaded by

Copyright:

Available Formats

CHAPTER – 1

Investing in securities such as shares, debentures, bonds and

As the awareness about the stock market, commodity market and

“Working of Stock Exchange & Depositary Services”

The stock exchange is the important segment of its capital market. If

A capital market deals in financial assets, excluding coin and currency.

Those having shorter maturity that is non-transferable like bank

S - Securities provide for investor.

T - Tax Benefits planning and exemption.

O - Optimum return on investment.

Ex - Exchange of Securities Transacted.

C - Cyclopedia of Listed Companies.

N - New Entrepreneur encouraged.

G - Guidance of Investor & Company.

HISTORY AND ORIGIN OF STOCK EXCHANGE

MANAGEMENT OF STOCK EXCHANGE

Management of stock exchange is controlled by elected body of

These governing bodies are powerful bodies which enjoys an extensive

SEBI registered stock - brokers who are interested in providing

The Exchange closely monitors outstanding position of top buying

Trading will be on existing stock exchanges through order routing

2. Provision for maintenance of adequate back up system.

3. The software system to be used by him should be secured and reliable.

4. To employ the qualified staff for this purpose.

5. To send order/trade confirmation to the client also through e-mail.

6. The contract notes must be issued to the clients as per existing

7. The broker and his client should use authentication technologies.

He is a professional speculator who works for a profit called ‘turn’ he

4. Odd lit dealer

For trading in stock exchange there a certain number of share a fixed to

He is the person who finance or provide credit facilities to the market

A person who is specialist in dealing with securities in different stock

STOCK TRADING OVERVIEW

The marketing of the securities on the stock exchange can be done

Broker is the member of recognized stock exchange and helps the

Listing securities are traded on the floor of recognized stock exchange

* Negotiate the best price for the trade.

* Take delivery of securities purchase.

Trading in stock exchange is conducted in two ways:

Ø Spot delivery contract.

Ø Forward delivery contract.

BASKET TRADING SYSTEM

The Exchange has commenced trading in the Derivatives Segment

The Basket Trading System provides the arbitrageurs an opportunity to

The first step in buying or selling of share is to select a broker for

* An investor prefers to select a broker who shall.

* Not create false market either singly or in concert with other.

This is an application for buying securities. The investor may be

4. Selection of time for trading

6. Preparation of contract note

The settlement is the process where by payment is made by brokers

The emergence of the market of derivatives products, most notably

Derivatives is a product, whose value is derived from the value of one

1. A security from a debt instrument, share, loan whether secured or

The origin of derivatives can be traced back to the need of farmers to

These were simple contracts developed to meet the needs of farmers

On the other hand, a merchant with an ongoing requirement of grains

Today, derivative contracts exist on a variety of commodities such as

An index is used to give information about the movements of products

A future contract is a standardized contract to buy or sell a specific

CONTRACT SPECIFICATION FOR MCX FUTURES

Contract period 1,2,3 months

Tick size 0.05 MCX points