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India Infolines extension into commodities trading reconciles its strategic intent
to emerge as a one stop solutions financial intermediary. Its experience in securities
broking has empowered it with requisite skills and technologies. Increased offering:
The Companies commodities business provides a contra-cyclical alternative to equities
broking. The Company was among the first to offer the facility of commodities trading
in Indias young commodities market (the MCX commenced operations only in 2003).
Average monthly turnover on the commodity exchanges increased from Rs 0.34 bn to
Rs 20.02 bn. The commodities market has several products with different and non-correlated
cycles. On the whole, the business is fairly insulated against cyclical gyrations
in the business.
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IIFL Commodities - Key Features
- Enjoys membership of the MCX and NCDEX, two leading Indian commodities exchanges.
- Multi-channel delivery model, making it among the select few to offer online as
well as offline trading facilities.
- Special focus on Institutional Commodity Business.
- Extended commodity trading to retail investors, among the few Indian financial intermediaries
to do so.
- Provides regular commodity updates pertaining to the
- Indian and international environment.
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Why Commodities?
- Extended Trading Hours:
- Commodity Market 10:00am - 11:30pm
- Equity Market 09:00am - 3:30pm
- Easy Access
- The availability of the online platform has put trading in commodities on par with
shares and currencies.
- Hedge against Inflation
- Any rise in the prices of commodities leads to inflation. Accordingly one can take
advantage of the Future Market to hedge against inflation.
- Delivery
- Delivery in demat form is possible. No need for physical delivery of the commodity,
if not required!
Support & Services
IIFL distinguished its business through the interplay of knowledge and technology.
Our offerings include:
- Commodity Futures through MCX & NCDEX
- Corporate Desk
- National Spot Exchange
- Investment through SIP in form of E-Gold and E-Silver
- Margin Funding against Commodities.
- Hedging in commodity prices is possible in other
- Currencies through Currency Futures with MCX.
- Complete Solution
- The Company provides a complete Advice-to-Execution solution, facilitated by information
and advice on likely commodity trends in the Indian and International environment.
Technology
- Extended the Trading Terminal to the investors home or workplace, reinforced with
real-time commodity information and ledger positions.
Rates
- Harnessed technology to offer services at among the lowest rates in the business.
Expert Advisory Services
- Commodity-wise Research Support and daily pre-market, LME and global report and
special monthly reports on bullion, metals and agri commodities.
Daily Market News & Trading Strategies
- Commodities intra day calls and positional call are provided on trading terminal
and even sms facility offered to clients.
Commodities Strategies
The following strategies are often adopted by participants in the commodity industry:
- Positional Trading
- Clients can take buy or sell positions in Commodity Futures just by paying Margins
specified by the Exchange, and not the whole amount of the contract.
- Hedging – Strategies
- Commodity players dealing in listed commodities can directly hedge their positions
on Commodity Exchanges.
- For unlisted Commodities, the hedge can be achieved by calculating the Hedge ratio
with a correlated commodity available on the exchange platform.
- E.g. a Palm oil trader can hedge his position with Refined Soya Oil as both these
commodities have positive correlation Refined Soya Oil is traded on both the NCDEX
and MCX.
- A trader of energy products may hedge his position using Crude Oil futures contracts
available on MCX.
- Spreads – Strategies
A spread is created by selling or buying a near-term future contract, and by buying
or selling longer term futures contract at appropriate price levels.
- Both futures contracts are on the same underlying asset, and are of the same type.
- They are of following types:
- Bear Spread: created by selling near month, and buying far month expiry contracts
of the same underlying commodity.
- Bull Spread: created by buying the near month and selling the far month expiry ontracts
of the same underlying Commodity.
- Logic Behind Spreads
The Market is never consistent, nor is the price movement. Accordingly price movements
of various expiries of a commodity tend to move disproportionately. One executes
a spread at a particular difference, thereby locking in the loss. By doing this,
one is protected from any dverse price movements. Based on the above principles,
one may enter a Bull or a Bear preads.
- Factors Influencing Spreads
- Demand and supply cycles.
- Availability of substitute commodities.
- Government policies and regulations.
- Future production or supply expectations.
- Variations in seasonality patterns.
- International commodity market scenario.
- Stock position at various warehouses
- Expectation of deliveries on exchanges.
- Future price expectations of the commodity.
- Risks
- Increased supply in forward months will pressurize the far month Futures contract,
thereby adversely affecting the spread.
- Similarly, a sudden shortage in supply in the spot markets could pull the near month
expiry prices.
- Arbitrage – Strategies
- Spot to Futures:
- One enters into an arbitrage trade when there exists a disparity in the prices of
a commodity between spot and futures.
- To secure such an opportunity, one has to purchase the commodity from the spot market
in the exchange specified standard and deliver it on the exchange.
- Between two calendar months:
- Alternatively, one may take delivery in the near month contract and deliver in the
far month contract, if the opportunity exists.
- Between two exchanges:
- In some rare cases, prices of common commodities available on two exchanges may
deviate from each other. This would offer opportunity to purchase the commodity
from the exchange, offering significant discount to other and deliver on the premium
one.
Commodities Markets and Specifications
IIFL has wide reach in the markets through membership in domestic and international
exchanges:
- MCX (Multi Commodity Exchange)
- NCDEX (National Commodity and Derivatives Exchange)
- National Spot Exchange Ltd. (NSEL)
- DGCX (Dubai Gold Exchange)
Future Contracts - Legally binding agreement to buy or sell an underlying
asset Sometime in future.
Quantity - Lot size fixed
Delivery time - Expiry date is fixed
Market Timings
- Monday to Friday- Bullions, Metals and Crude oil timing: 10 A.M to 11:30 P.M
- Agro commodities timing: 10A.m to 5 P.M
- Saturday-All commodities timing: 10 A.M TO 2 P.M
National Spot Exchange
- Investment in demat form in commodities.
- Low contract size to invest so that each client can afford to take position.
- Duration of contract: Single day.
- Settlement cycle: T + 2
- Trading session: Mondays through Fridays
- Trading timing: 10:00 AM to 11:30 PM.
- Commodity pay in, commodity pay out, Funds pay in,
- Funds Pay out: T + 2
Advantages of Commodity Futures
Futures trading eases the hassles and costs of settlements and storage for traders
who do not want custody.
Futures trading allows investor participation at nominal costs.
Only the margin is required, no need to put the whole amount for trading.
Traders can short sell and profit from falling prices.
Standardized in a futures contract are:
- Investment in demat form in commodities.
- The date and the month of delivery
- The units of price quotation and minimum price change
- Delivery Center
Futures are a significant improvement over forward contracts, as they eliminate
counterparty risk and offer more liquidity.
Example: Specifications of a standardised Futures Contract for Gold traded
on The Exchange.
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Underlying Commodity
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Gold Exchange MCX - Multi Commodity Exchange
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Quantity ‘lot size’
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Lot size is 10 units, 1 unit is 10 gm and price is quoted for 10 gm, so total lot
is 100 gms
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Date & month of delivery/expiry
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Fixed
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Price Quotation
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For 10gm of gold
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Minimum Price change (Tick size)
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Rs.1
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Delivery Center
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Ahmedabad, Mumbai, Chennai, New Delhi and Hyderabad (at designated centres).
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Advantages of Commodities Demat
- The main advantage of e gold and e sliver are transparent pricing, seamless trading,
easy entry and exit, lower holding cost and pan India access.
- Holding commodities in Demat form.
- Retail Investors can diversify their portfolio.
- No worry for daily MTM Pay in/Pay out as in the
- Derivative market.
- No risk of commodity custody or theft.
- Liquidity: Any-time buying and selling of the Commodity. Hassle free, low-cost transactions
in physical Commodity.
- No rollover costing.
Systematic Investment in Gold and Silver
Gold and silver can be used as a hedge against inflation and uncertainty offering
the opportunity for systematic investment to build wealth for future needs such
as marriages, education etc.
- Invest in Gold in multiples of 1 gram
- Invest in Silver in multiples of 100 gram
- Complete transparency, buy online and hold gold and silver in demat account
- No cost of storage, enough liquidity and purity
- No AMC charges
Loan against Commodities
We offer loans at a concessional rate to farmers, dealers, exporters, traders
etc against the demated commodity in a bid to save them from falling prey to distress
sale of their farm produce, to hedge and/or enhance profitability. The loan would
be available at a negotiable rate for a period of 12 months (depending upon the
expiry of the product) in respect of loans sanctioned.
According to the scheme, the borrower deposits the commodities at any approved
Warehouse (as stipulated by the exchange) and obtains a warehouse receipt, which
certifies the quantity and quality of the deposited commodity. Client has to get
the commodity demated.
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India Infoline Commodities Ltd.
143, M G R Road, Perungudi, Chennai - 600 096, Tamilnadu.
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