Futures Trading Simplified

Now-a-days futures trading in commodity market is a booming business in India. Following are the technical terms of commodity futures trade explained in simple language:

1.       Cash Commodity–It is the actual physical commodity as distinguished from the futures contract based on the physical commodity.

2.       Settlement of Cash–According to a procedure specified in the contract, it is where the seller pays the buyer the cash value of the commodity traded.

3.       Carry Forward Position–This is the situation in which client carries his open positions to the next day.

4.       Arbitrage – Here similar commodities are on simultaneous purchase or sale in different contracts or in different exchanges of the same commodity in one exchange.

5.       Clearing Member – A non clearing member should settle all the trades through a clearing member.

6.       Day Trader – It is within a single trading session, a speculator will normally initiate and offset a position.

7.       Default–As per the exchange rules, it is the failure to perform on a futures contract.

8.       Derivative–It is traded on or off the exchange and its price is directly dependent upon the value of one or more underlying securities, equity indices, debt instruments or any agreed upon arrangement.

9.       Hedging–Hedgers take advantage of adverse price changes in the market and protect their businesses.

10.   Long – It is one who owns a cash commodity or has bought futures contracts.

11.   Price Discovery–The price level of commodity is determined on the basis of supply and demand factors.

12.   Short – One who has sold cash commodity or futures contracts.

13.   Speculator–One who anticipates future price movements and tries to profit from buying, selling future contracts.

14.   Trade Account – It is an account with the broking organization to trade in the futures market.

15.   Volatility – A measurement of the change in price over a given period of time.

16.   Warehouse Receipt – The client receives a Warehouse Receipt when the commodity sold in the futures market is taken the warehouse.

Founded in 2005, ABans Group has grown from being a trading house to a dynamic and diversified business group. We provide expertise in Broking Services, Merchant Banking, Non-Banking Financial Dealings, Gold Refining and Realty and Infrastructure. In a nut shell Abans Group is a comprehensive Financial Services and Solution Provider, which aims to provide an end-to-end financial solution to all its clients.

Commodity Futures Markets

India has a long history of commodity futures trading from more than 125 years. There are several commodity exchanges including Multi Commodity Exchange, the National Commodity and Derivatives Exchange and the National Multi Commodity Exchange. Following are the points that will help you to understand Commodity Futures Trading:

1.       The commodity exchanges and commodity futures contracts are regulated by the government under the Forward Contracts (Regulation) Act, 1952. Since Sept 2015 after FMC was merged with SEBI, SEBI is the regulator of Futures Market.

2.       A commodity includes several goods that are allowed for futures trading under the platform of the commodity exchanges recognized under the FCRA.

3.       A company or an association or any other body corporate organizing futures trading in commodities is termed as “Commodity Exchange”.

4.       Futures contracts is a standardized Forwards contract which is exchange traded and is legal agreement to buy or sell a particular commodity at a Specified future time. There are many types of Futures contracts.

5.       Speculators can benefit from changes in prices with respect to futures contracts that mostly offset before their maturity and therefore scarcely end in deliveries.

6.       Price risk management and price discovery are two major economic functions of a commodity futures market. Price risk management is the backbone of a commodity futuresmarket. The need for Hedging (Price Risk Management) arises from price risks in most commodities.

Founded in 2005, ABans Group has grown from being a trading house to a dynamic and diversified business group. We provide expertise in Broking Services, Merchant Banking, Non-Banking Financial Dealings, Gold Refining and Realty and Infrastructure. In a nut shell ABans Group is a comprehensive Financial Services and Solution Provider, which aims to provide an end-to-end financial solution to all its clients.

Multiple Opportunities offered by MCX

Multi Commodity Exchange of India Ltd. (MCX) is one of the most advanced and  robust Exchanges through which  a potential investor, dealer and hedger can trade in multiple types of commodities. While in MCX it is even possible to get started with a small amount of money, MCX provides the best platform and infrastructure for traders who want to earn more by diversification of their risk through the commodities market. There are multiple and newer asset classes and products getting introduced in the Commodity derivative market segment on a regular basis. The top products that are usually dealt by major section of the investors include aluminum, gold, silver, zinc, copper and more. In addition to commodities, MCX through its subsidiary company Metropolitan Stock exchange of India Ltd (MCX SX) deals in the currency segment and has established itself with a consistent turnover since inception.

The Commodity and the Currency markets being the latest entrants in the Indian financial space have gained immense popularity in a short span of time. MCX has become one of the most successful exchanges in the commodity market space because of various advantages that it offers which are extensively used by millions of traders, hedgers and investors.

In addition to offering the most traded commodities in the commodities market, the salient features of MCX could be listed as follows:

1.       Regulated by a world renowed regulator SEBI

2.       Technologically sound Exchange with continuous upgradation and innovation on real time basis.

3.       It provides an end to end solution thus strengthening the Financial Ecosystem.

4.       It has the permissions to deal in options, futures, equity, derivatives and wholesale debt segment

 ABans Group – one of the most renowned commodity trading company suggests and advises its clients to always follow a systematic approach of investing in the commodities market by choosing the right platform, getting familiar with the environment, analyzing the relative trends before indulging in buying and selling in various commodities.

ABans Group – one of the most renowned commodity trading company, provides you unparallel expertise through its experienced team  who can handhold the investor to provide them with the best insights into the commodities market and provide customized solutions according to the risk appetite of the investor.

Founded in 2005, ABans Group has grown from being a trading house to a dynamic and diversified business group. We provide expertise in Broking Services, Merchant Banking, Non-Banking Financial Dealings, Jewelry manufacturing and Realty and Infrastructure. It is a comprehensive Financial Services and Solution Provider, which aims to provide an end-to-end financial solution to its clients.

Reliance Communication’s - Are you buying it?

There has been a lot of interest in Reliance Communication’s plans to reduce debt by 25,000 Cr. this year. The stock is up 10% since August 14, and investors seem to be buying into the turnaround story – Be it by merger, sale of assets, or financial restructuring.

Here are some numbers to think about:

Finance Costs: 3,500 Cr.

EBITDA = 5,392 Cr.

EBIT = 1,171 Cr.

EV = 57,973 (Debt) + 5,811 (Market Cap) – 1,300 (Cash) – 257 (Financial Investments) = 62,191 Cr.

EV/EBITDA = 11.53

Debt / Equity = 9.97

Now, with a 25,000 Cr. debt reduction (from sale of profitable business), 32,973 Cr. Debt will be left. Assuming a 40% loss of their revenue (equal to proportion of business sold to pay off the targeted 25,000 Cr. debt), no further deterioration in credit quality, and no further deterioration in operating margin:

Current Price = 23.50

EBITDA after sale of biz = Rs. 32,35 Cr.

EV after sale of biz = Rs. 37,191 Cr.

EV / EBITDA after sale of biz =11.49

Debt / Equity after sale of biz = 32,973 / 5,811 = 5.67

Okay, so it seems like the company will significantly deleverage its books, BUT these numbers do not include any operating liabilities, loss of revenue from transition, loss of synergy/integration, regulatory hurdles, interest accrued from non-payment of dues, increased competition, margin squeeze, business restructuring costs, legal fees, and potential for dilution of equity to fund future operations. Moreover, it assumes that the revenue contributed by the healthy portion of the business, which will soon be off the balance sheet, is equal in proportion to that from the portion of the business retained.

Evaluating the business in the rosiest possible scenario, the one that Mr. Anil Ambani is selling, it will still take more than 10 years for the company to redeem its debt on an EBITDA basis with the leftover business.

Let’s ‘get-real’ for a moment though – With the weak competitive, operating, bargaining, and financial position of the business, it’s highly unlikely that investors will ever see a positive bottom-line sans a (significant) dilution of their equity. So, the simple question is – Are you buying it?

Learn about Futures Trading

Futures Trading - whenever there is speculation in price of commodity and that too in the form of paper investment.You make a profit if you speculate correctly and vice versa. It is not necessary for you to hold the physical product in order to make money because of paper investment and commodity can be anything from currency to rice. The contract of the product will help you to speculate the prices.

Speculators and hedgers are main types of people who trade in futures. The manufacturers of products are hedgers and they protect themselves by trading in the event the price of the product changes. On the other hand, speculators do not have connection with the products as they do not produce the products. They are always interested in making money with the movement of market to their advantage. Benefits of futures trading are as follows:

High Returns: You can make a lot of money if there is a right speculation and this is because of futures that are highly leveraged investments. Sometimes the profits are multiplied tenfold on what you have speculated. You make a tidy profit and get back your margin if the market goes according to your speculation.

Dealing with Papers: In futures trading, you do not have to hold the actual product because you always work with papers.

No inside Information: If you consider other forms of trading then there are cases where some people do not have inside information and they make losses. But in futures trading, an official market report is released at the end of a training session and everyone interested can look into it.

Founded in 2005, ABans Group has grown from being a trading house to a dynamic and diversified business group. We provide expertise in Broking Services, Merchant Banking, Non-Banking Financial Dealings, Jewellery manufacturing and Realty and Infrastructure. It is a comprehensive FinancialServices and Solution Provider,which aims to provide an end-to-end financial solution to its clients.