Smart DISHA -Workshop-07 April 2017- Risk Management in Stock Market

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Workshop on Introduction to Commodity Market, Currency Market and Risk Management through Derivative Market wirh Career Options in Stock Market

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1 2 Days Workshop –Part-2 AT G. H. Patel College of Engineering and Technology Anand 06-07 April 2017

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BULL BEAR: Game called - INVESTMENT- M- 70436 90580 www.smartdisha.com

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www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780 Risk Management Through Derivative The Game called “INVESTMENT”

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WHAT IS RISK WHAT IS RISK Types of Risk Systematic Risk Unsystematic Risk Measures of Risk Standard Deviation Beta www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780 Session-4 Derivative Market Analysis

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MEANING MEANING Derivative is a contract whose value is derived from value of some other assets known as underlying. Its on wide range of underlying like Metals – gold silver zinc copper nickel etc. Energy – Oil Gas Coal Electricity Agri commodity – wheat sugar coffee Financial Assets – shares bonds currency www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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EVOLUTION EVOLUTION Forward Market Evolution Agriculture related products Future Market Evolution Standardized forward contract www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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HISTORY HISTORY 12th Century- In European trade fairs sellers signed contracts promising future delivery of the items they sold. 13th Century- There are many examples of contracts entered into by English Cistercian Monasteries who frequently sold their wool up to 20 years in advance to foreign merchants. 1634-1637 Tulip Mania in Holland. Fortunes were lost in after a speculative boom in tulip futures burst. www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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HISTORY HISTORY In 1848 The Chicago Board of Trade CBOT facilitated trading of forward contracts on various commodities In 1865 the CBOT went a step further and listed the first “exchange traded” derivative contract in the US. These contracts were called “futures contracts”. In 1972 Chicago Mercantile Exchange created International Monetary Market which allowed trading in currency futures. In 1975 CBOT introduced Treasury bill futures contract. It was the first successful pure interest rate futures. In 1983 Chicago Board Options Exchange decided to create an option on an index of stocks. www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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INDIAN DERIVATIVE MARKET INDIAN DERIVATIVE MARKET In 1999 The Securities Contract Regulation Act SCRA was amended to include “derivatives” within the domain of securities’ and regulatory framework was developed for governing derivatives trading. The exchange traded derivatives started in India in June 2000 with index futures contracts based on CNX Nifty and SP BSE Sensex. Later trading in Index options commenced in June 2001 and trading in options on individual stocks commenced in July 2001. Futures contracts on individual stocks started in November 2001. Futures contracts on Volatility Index were launched in 2014. www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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MARKET PARTICIPANTS MARKET PARTICIPANTS Hedgers Speculators/Traders Arbitrageurs www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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TYPES OF DERIVATIVE MARKET TYPES OF DERIVATIVE MARKET Organized Exchanges –Exchange Traded Derivatives Over The Counter Derivative Market www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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PRODUCTS IN DERIVATIVE MARKET PRODUCTS IN DERIVATIVE MARKET www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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FORWARD CONTRACT FORWARD CONTRACT Meaning: It is a contractual agreement between two parties to buy/sell an underlying asset at a certain future date for a particular price that is pre-decided on the date of contract. These are OTC contracts. www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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FORWARD MARKET FEATURES FORWARD MARKET FEATURES Operational Mechanism – Traded on OTC Specification – As per needs of parties involved Counter Party Risk – Exist reduced by guarantee Liquidity – Low Example – Currency Forward www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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FUTURE CONTRACTS FUTURE CONTRACTS Meaning: Exchange Traded Standardized Forward Contract www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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FUTURE MARKET FUTURE MARKET Operational Mechanism – Traded on Exchange Specification – Standardized Counter Party Risk – Exist but clearing agency becomes counter party Liquidity – High Example – Commodity Future Stock Future Index Future Currency Future www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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SWAPS SWAPS Meaning: A swap is an agreement made between two parties to exchange cash flows in the future according to a prearranged formula. Swaps are series of forward contracts. Swaps help market participants manage risk associated with volatile interest rates currency exchange rates and commodity prices. www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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OPTIONS CONTRACT OPTIONS CONTRACT Meaning: An Option is a contract that gives the right but not an obligation to buy or sell the underlying on or before a stated date and at a stated price. While buyer of option pays the premium and buys the right writer/seller of option receives the premium with obligation to sell/ buy the underlying asset if the buyer exercises his right. www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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FACTORS AFFECTING DERIVATIVE MARKET FACTORS AFFECTING DERIVATIVE MARKET Increased fluctuation in market price of financial assets Integration of financial market globally Use of latest technology Frequent innovation in derivative markets www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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PRICING FORWARD AND FUTURE PRICING FORWARD AND FUTURE CONTRACTS CONTRACTS www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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CASH AND CARRY ARBITRAGE CASH AND CARRY ARBITRAGE Forward Price Cash Price + Interest Cost + Carrying Cost FP SP eRT + Other Carrying Cost E exponential function R rate of interest T time period of holding www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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BUYER OF FORWARD / FUTURE BUYER OF FORWARD / FUTURE Obligation – to pay settlement price Margin requirement – Yes Risk – Unlimited if price goes down Profit – Unlimited if price goes up www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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BUYER OF FORWARD / FUTURE BUYER OF FORWARD / FUTURE If a stock future is bought 100 the pay-off diagram is as follow. -60 -40 -20 0 20 40 60 50 60 70 80 90 100 110 120 130 140 150 Series1 www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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SELLER OF FORWARD / FUTURE SELLER OF FORWARD / FUTURE Obligation – to deliver underlying Margin requirement – Yes Risk – Unlimited if price goes up Profit – Unlimited if price goes down www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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SELLER OF FORWARD / FUTURE SELLER OF FORWARD / FUTURE If a stock future is bought 100 the pay-off diagram is as follow. -60 -40 -20 0 20 40 60 50 60 70 80 90 100 110 120 130 140 150 Series1 www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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OPTIONS CONTRACT OPTIONS CONTRACT Meaning: An Option is a contract that gives the right but not an obligation to buy or sell the underlying on or before a stated date and at a stated price. While buyer of option pays the premium and buys the right writer/seller of option receives the premium with obligation to sell/ buy the underlying asset if the buyer exercises his right. www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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TERMS USED IN OPTIONS CONTRACT TERMS USED IN OPTIONS CONTRACT  Call Options – gives buyer the right to buy the underlying  Put Options - gives buyer the right to sell the underlying  Buyer of options pays premium  Seller/writer of options receives premium  Premium is a price of options contract  Strike Price / Exercise Price K – price of underlying at which it is purchased or sold www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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TERMS USED IN OPTIONS CONTRACT TERMS USED IN OPTIONS CONTRACT  Spot Price – Current Market Price  Exercise of options – buying/selling of underlying in an options contract by buyer of the options contract  Expiration day – the day on which options stops to exist  Tenor of options – life of options contract  Lot size – number of units of underlying in an options contract www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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MONEYNESS OF OPTIONS MONEYNESS OF OPTIONS CALL PUT IN – THE – MONEY S K S K AT – THE – MONEY S K S K OUTOF – THE – MONEY S K S K www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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POSITION OF CALL OPTIONS BUYER POSITION OF CALL OPTIONS BUYER  Right - Buy underlying at strike price.  Obligation - Nil.  Premium paid or received - Paid.  Margin requirement - No.  Risk profile - Limited to the extent of premium paid.  Profit potential - Unlimited if prices go up.  Breakeven point Strike price + Premium. www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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PAYOFF OF CALL BUY POSITION PAYOFF OF CALL BUY POSITION Price Cash In Flow Premiu m P L 490 0 -10 -10 495 0 -10 -10 500 0 -10 -10 505 5 -10 -5 510 10 -10 0 515 15 -10 5 520 20 -10 10 525 25 -10 15 530 30 -10 20 Bought/long Tisco call option with strike price of 500 Rs. 10/- -15 -10 -5 0 5 10 15 20 25 490 495 500 505 510 515 520 525 530 Series1 www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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POSITION OF CALL OPTIONS SELLER POSITION OF CALL OPTIONS SELLER  Right – Nil.  Obligation - Sell underlying at strike price / Pay settlement difference.  Premium paid or received - Received.  Margin requirement - Yes.  Risk profile - Unlimited if prices go up.  Profit potential - Limited to the extent of premium received.  Breakeven point Strike price + Premium. www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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PAYOFF OF CALL SELL POSITION PAYOFF OF CALL SELL POSITION Price Cash Flow Premium P L 490 0 10 10 495 0 10 10 500 0 10 10 505 5 10 5 510 10 10 0 515 15 10 -5 520 20 10 -10 525 25 10 -15 530 30 10 -20 -25 -20 -15 -10 -5 0 5 10 15 490 495 500 505 510 515 520 525 530 Series1 Sold/Write Tisco call option with strike price of 500 Rs. 10/- www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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POSITION OF PUT OPTIONS BUYER POSITION OF PUT OPTIONS BUYER  Right - Sell underlying at strike price.  Obligation - Nil.  Premium paid or received - Paid.  Margin requirement - No.  Risk profile - Limited to the extent of premium paid.  Profit potential - Unlimited if prices go down.  Breakeven point Strike price - Premium. www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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PAYOFF OF PUT BUY POSITION PAYOFF OF PUT BUY POSITION Price Cash Flow Premium P L 470 30 -10 20 480 20 -10 10 490 10 -10 0 500 0 -10 -10 510 0 -10 -10 520 0 -10 -10 Bought/long Tisco Put option with strike price of 500 Rs. 10/- -15 -10 -5 0 5 10 15 20 25 470 480 490 500 510 520 Series1 www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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POSITION OF PUT OPTIONS SELLER POSITION OF PUT OPTIONS SELLER  Right - Nil.  Obligation - Buy underlying at strike price / Pay settlement difference.  Premium paid or received - Received.  Margin requirement - Yes.  Risk profile - Unlimited if prices go down.  Profit potential - Limited to the extent of premium received.  Breakeven point Strike price – Premium. www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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PAYOFF OF PUT SELL POSITION PAYOFF OF PUT SELL POSITION Price Cash Flow Premium P L 470 30 10 -20 480 20 10 -10 490 10 10 0 500 0 10 10 510 0 10 10 520 0 10 10 Sold/Write Tisco Put option with strike price of 500 Rs. 10/- -25 -20 -15 -10 -5 0 5 10 15 470 480 490 500 510 520 Series1 www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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OPTIONS STRATEGIES OPTIONS STRATEGIES www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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LONG STRADDLE A Straddle is a volatility strategy and is used when the stock price / index is expected to show large movements. A long straddle is a combination of buying a call and buying a put both with the same strike price and expiration. Together they produce a position that should profit if the stock makes a big move either up or down. LONG STRADDLE Construction Buy 1 ATM Call Buy 1 ATM Put Unlimited Profit Potential By having long positions in both call and put options straddles can achieve large profits no matter which way the underlying stock price heads provided the move is strong enough. Limited Risk Maximum loss for long straddles occurs when the underlying stock price on expiration date is trading at the strike price of the options bought. At this price both options expire worthless and the options trader loses the entire initial debit taken to enter the trade. Max Loss Net Premium Paid

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SHORT STRADDLE The Opposite strategy to the long straddle is the short straddle. Short straddles are used when little movement is expected of the underlying stock price. He sells a Call and a Put on the same stock / index for the same maturity and strike price. It creates a net income for the investor. SHORT STRADDLE Construction Sell 1 ATM Call Sell 1 ATM Put Limited Profit In short straddle the profit potential is limited up to the premium received by the investor . Unlimited Risk Large losses for the short straddle can be incurred when the underlying stock price makes a strong move either upwards or downwards at expiration causing the short call or the short put to expire deep in the money. www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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LONG STRANGLE The long strangle also known as buy strangle or simply "strangle" is a neutral strategy in options trading that involve the simultaneous buying of a slightly out-of-the-money put and a slightly out-of-the-money call of the same underlying stock and expiration date. How to construct a Long Strangle. Buy 1 out-of-the-money put Buy 1 out-of-the-money call Looking for sharp move in underlying stock either up or down during the life of the options Max Loss The maximum loss is limited. The maximum loss occurs if the underlying stock remains between the strike prices until expiration. If at expiration the stocks price is between the strikes both options will expire worthless and the entire premium paid will have been lost. Max Gain The maximum gain is unlimited. The maximum gain occurs if the underlying stock goes to infinity and a very substantial gain would occur if the stock became worthless. The gross profit at expiration would be the difference between the stocks price and either a the call strike price if the stock price is higher or b the put strike price if the stock price is lower. The net profit is the gross profit less the premium paid for the options. There is no limit to the upside potential and the downside potential is limited only because the stock price cannot go below zero

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SHORT STRANGLE A Short Strangle is a slight modification to the Short Straddle. This strategy involves the simultaneous selling of a slightly out-of-the-money put and a slightly out-of-the-money call of the same underlying stock and expiration date. How to construct a Short Strangle. Sell 1 out-of-the-money put Sell 1 out-of-the-money call When to Use This options trading strategy is taken when the options investor thinks that the underlying stock will experience little volatility in the near term. Maximum profit loss. Max profit - limited to the net credits received. Max loss - unlimited. Large losses for the short strangle can be experienced when the underlying stock price makes a strong move either upwards or downwards at expiration

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Covered Call strategy You own shares in a company which you feel may rise but not much in the near term or would not get exercised unless the stock price increases above the strike price. You own shares in a company which you feel may rise but not much in the near term or at best stay sideways. You would still like to earn an income from the shares. The covered call is a strategy in which an investor Sells a Call option on a stock he owns netting him a premium. The Call Option which is sold in usually an OTM Call. The Call would not get exercised unless the stock price increases above the strike price. Anticipations A downward move in the underlying asset. Maximum Profit / Loss - short Call Max profit - limited. Max loss - unlimited. Creating Sell call option and buy underlying security. When to Use: This is often employed when an investor has a short-term neutral to moderately bullish view on the stock he holds. He takes a short position on the Call option to generate income from the option premium.

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IMPACT OF CHANGE IN OPTION IMPACT OF CHANGE IN OPTION PARAMETERS ON CALL AND PUT PARAMETERS ON CALL AND PUT PRICING FACTOR CALL OPTIONS PUT OPTIONS CMP INCREASE DECREASE STRIKE PRICE DECREASE INCREASE VOLATILITY INCREASE INCREASE TIME TO EXPIRATION INCREASE INCREASE INTEREST RATE INCREASE DECREASE Effect of an increase in each pricing factor on the option value holding other factors constant: www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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IMPORTANCE OF RISK MANAGEMENT IMPORTANCE OF RISK MANAGEMENT  Profit can be maximized  Loss can be minimized  Impact of uncertainty can be reduced  Minimization of loss by keeping profit potential can be attained  Consistency of earning profit can be maintained  Discipline in investment management can be developed  Peace of mind www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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THANK YOU THANK YOU END OF END OF SESSION SESSION- -4 4 www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780 Session-5A Commodity Market Analysis

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WHAT WHAT IS IS A A COMMODITY COMMODITY MARKET MARKET A commodity market facilitates trading in various commodities. It may be a spot or a derivatives market. In spot market commodities are bought and sold for immediate delivery whereas in derivatives market various financial instruments based on commodities are traded. These financial instruments such as futures are traded in exchanges. What is a Commodity Commodities are goods uniform in quality where each portion is the same as the other. For example oil is a commodity because one barrel of oil is the same as the next. Similarly 1 ounce of gold is the same as the next. www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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• There are two ways that commodities are traded in spot markets or as futures. Spot market refers to trades that take place literally on the spot. The commodity is traded right then and there usually for cash. This is spot trading. Futures is not the actual good that is traded for rather a contract to buy or sell that particular commodity for a particular price and for a certain date in the future. This is how most of the commodities trading is done. This is futures trading. Futures trading is organized in commodities permitted by the government. WHAT IS COMMODITY TRADING WHAT IS COMMODITY TRADING www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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• BULLION : Gold Silver Platinum • BASE METALS : Nickel Tin Copper Zinc Aluminum Lead • FERROUS METALS : Steel Long • CEREALS : Wheat Maize Barley • SPICES : Pepper Red Chilli Jeera Turmeric Cardamom • ENERGY GAS : Crude Oil Natural Gas Gasoline Heating Oil ATF Electricity Futures • OIL OIL SEEDS : Castor Seeds Soy Bean Refined Soy oil • FIBRE : Cotton • PULSES : Chana • PLANTATIONS : Rubber Coffee • OTHERS : Guar Seed Gur Sugar Guargum Mentha Oil Potato MAJOR COMMODITIES TRADED: MAJOR COMMODITIES TRADED: www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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 Trading in commodity futures and the relevant exchanges viz. MCX Multi Commodity Exchange of India Ltd. NCDEX National Commodity Derivatives Exchange Ltd. NMCE National Multi-Commodity Exchange of India Limited etc. are regulated by the Forward Markets Commission FMC. WHO REGULATES THE COMMODITY MARKET WHO REGULATES THE COMMODITY MARKET www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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• Lowest Margins –5 margins. • Extended Trading Hours –10.00am-11.30pm. So you can go trade even after your office hours. • Easy Access - Commodity trading uses a similar trading platform as that of shares and stocks. • Diversified Risk - Other than trading in Stocks Shares you can spread your risk by investing in Commodities that offer varied combination of risk-return trading strategies. • Hedge against inflation -Trading in Commodities is a hedge against inflation. • Global Opportunity – Gold when traded on Commodity Exchanges has international price benchmarking which does not allow anyone to manipulate prices. • Physical delivery of goods- not a compulsion. ADVANTAGES OF COMMODITY TRADING ADVANTAGES OF COMMODITY TRADING www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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• 7500 Mandis •27000 Haats Rural Market Place •5 Million Commodity traders •Daily Future turnover more than 23 000 Crores •World leader in 17 Agro Commodities

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Commodities Market In India New Delhi Prepared for :

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WHAT IS COMMODITY WHAT IS COMMODITY The word “Commodity” came into use in English in the 15 th century being derived from French word “Commodite” meaning “Convenience” in term of quality of service. Commodity is a product having commercial value which can be produced bought sold and consumed. A Commodity is something that is relatively easily traded that can be physically delivered and that can be stored for a reasonable period of time.  No Complicated Manufacturing process  Fairly standardized in quality  Available in large volumes  Presence of many competing buyers Sellers and adequate self life.

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BASIC HIERARCHY IN INDIAN EXCHANGES BASIC HIERARCHY IN INDIAN EXCHANGES SEBI NSE BSE FMC NCDEX MCX NMCE 21 Regional Exchanges Ministry of Finance Ministry of Consumer Affairs Commodities Equities www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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FMC FMC – – FORWARD MARKET COMMISSION FORWARD MARKET COMMISSION  Headquarter at Mumbai  Regulatory Authority for Commodity Derivative Market in India.  Body was setup in 1953 under Forward Contract Regulation act 1952.  FMC is supervised by Ministry of Consumer Affairs Food and Public Distribution Govt. of India. www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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20 Other Regional 20 Other Regional Exchanges Exchanges 20 Other Regional 20 Other Regional Exchanges Exchanges NMCE NMCE NMCE NMCE Commodity Commodity Exchanges Exchanges Commodity Commodity Exchanges Exchanges MCX MCX MCX MCX Structure of Indian Commodity Futures Exchanges National National exchanges exchanges National National exchanges exchanges Regional Regional exchanges exchanges Regional Regional exchanges exchanges FMC FMC FMC FMC NBOT NBOT NBOT NBOT NCDEX NCDEX NCDEX NCDEX www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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COMPARISON BETWEEN STOCKS AND COMPARISON BETWEEN STOCKS AND COMMODITIES COMMODITIES  Commodity is global and Stocks are local.  Supply of Stocks remains constant where as supply and demand of commodities vary widely.  World can’t do without commodities but It can do without stocks.  Commodities need logistics but stocks do not  Commodities has quality specification but stocks do not  Intrinsic value of stock can be zero but this is not in case of Commodity  Commodities are internationally co-related but stocks depend on company performance  Commodities you can feel touch and eat but stocks you can not  Commodity related news is more frequent stock news are quarterly.  Delivery of Commodity is a physical activity and delivery of shares is an electronic activity. www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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INDIAN STOCK MARKET VS COMMODITY MARKET INDIAN STOCK MARKET VS COMMODITY MARKET Criteria Commodity Timings Exchange Future Duration Delivery Market Regulator Sales Tax Quotation Transaction Tax Margin Underlying Asset 10 Am –11:55PM MCX/NCDEX 1-6 months possible FMC Applicable Per Unit Applicable 3 – 15 Commodity Stock Futures 9:00 Am- 3:30 Pm NSE/BSE 1-3 Months Not -Possible SEBI NA STT Per Share NA 20-25 Shares/Index www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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WHY INDIA NEED ORGANIZED COMMODITY WHY INDIA NEED ORGANIZED COMMODITY EXCHANGES EXCHANGES  Commodity Market have their presence in the country for over 120 Years.  Trade in Commodities has been unorganized in Regional markets and local mandis.  Physical Commodity Market size in India is estimated to be around 15 Lac crore per annum.  Need of Price Discovery and price risk management. www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780 End Of Session-5A

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www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780 Session-5B Currency Market

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THE THE EXCHANGE EXCHANGE OF OF ONE ONE CURRENCY CURRENCY FOR FOR ANOTHER ANOTHER OR OR THE THE CONVERSION CONVERSION OF OF ONE ONE CURRENCY CURRENCY INTO INTO ANOTHER ANOTHER CURRENCY CURRENCY. . FOREIGN FOREIGN EXCHANGE EXCHANGE ALSO ALSO REFERS REFERS TO TO THE THE GLOBAL GLOBAL MARKET MARKET WHERE WHERE CURRENCIES CURRENCIES ARE ARE TRADED TRADED VIRTUALLY VIRTUALLY AROUND AROUND- -THE THE- - CLOCK CLOCK. . THE THE TERM TERM FOREIGN FOREIGN EXCHANGE EXCHANGE IS IS USUALLY USUALLY ABBREVIATED ABBREVIATED AS AS " "FOREX FOREX" " AND AND OCCASIONALLY OCCASIONALLY AS AS "FX "FX. ." " Forex Market Forex Market www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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Currency Currency Code Nation United States dollar USD USA Euro EUR € Europe Union Japanese yen JPY ¥ Japan Pound sterling GBP £ United Kingdom Swiss franc CHF Fr Switzerland US Dollar USD The US Dollar is by far the most widely traded currency In part the widespread use of the US Dollar reflects its substantial international role as investment currency in many capital markets reserve currency held by many central banks transaction currency in many international commodity markets invoice currency in many contracts intervention currency employed by monetary authorities in market operations to influence their own exchange rates.

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Euro EUR Like the US Dollar the Euro has a strong international presence and over the years has emerged as a premier currency second only to the US Dollar Japanese Yen JPY The Japanese Yen is the third most traded currency in the world. It has a much smaller international presence than the US Dollar or the Euro. The Yen is very liquid around the world practically around the clock. British Pound GBP Until the end of World War II the Pound was the currency of reference. The nickname Cable is derived from the telegrams used to update the GBPUSD rates across the Atlantic. The currency is heavily traded against the Euro and the US Dollar but it has a spotty presence against other currencies. Swiss Franc CHF The Swiss Franc is the only currency of a major European country that belongs neither to the European Monetary Union nor to the G-7 countries. Although the Swiss economy is relatively small the Swiss Franc is one of the major currencies closely resembling the strength and quality of the Swiss economy and finance. Switzerland has a very close economic relationship with Germany and thus to the Euro zone. Typically it is believed that the Swiss Franc is a stable currency. Actually from a foreign

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Do you know what a currency pair is A currency pair are two currencies set together to illustrate currency valuation relative to one another in the Foreign Exchange Market . In currency market while initiating a trade you buy one currency and sell another currency. Therefore same currency will have very different value against every other currency. For example same USD is valued at say 45 against INR and say 82 against JPY. USD INR USD INR What is base and quoted currency Base currency Quoted currency The BC is the currency that is priced and its amount is fixed at one unit. The other currency is the QC which prices the BC and its amount varies as the price of BC varies in the market.

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In interbank market currency prices are always quoted with two way price. In a two way quote the prices quoted for buying is called bid price and the price quoted for selling is called as offer or ask price. Please note that these prices are always from the perspective of the market maker and not from the perspective of the price taker. What is two way quotes Example two way quotes Suppose a bank quotes USDINR spot price as 45.05/ 45.06 to a merchant. In this quote 45.05 is the BID PRICE and 45.06 is the offer price or ASK PRICE. This quotes means that the bank is willing to buy one unit of USD for a price of INR 45.05 and is willing to sell one unit of USD for INR 45.06. Let us look at market norm for quoting two way prices for popular currency pairs www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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THE CURRENCY EXCHANGE RATES ARE CONSTANTLY CHANGING. CHANGES IN RATES ARE EXPRESSED AS APPRECIATION OR DEPRECIATION OF ONE CURRENCY IN TERMS OF THE OTHER CURRENCY. EG. IF USD-INR MOVED FROM 4 45.00 TO 4 45.25 THE US DOLLAR HAS APPRECIATED AND THE RUPEE HAS DEPRECIATED. Appreciation / Depreciation Appreciation / Depreciation www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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RBI Reference rate As on 08 Jun 2012 release By RBI. RBI reference rate is the rate published daily by RBI for spot rate for various currency pairs. The rates are arrived at by averaging the mean of the bid / offer rates polled from a few select banks during a random five minute window between 11:45 AM and 12:15 PM. Underlying Rate USDINR 65.3650 EURINR 72.2125 GBPINR 92.6375 JPYINR 63.8800 Currency Market Timing In India OTC market is open from 9:00 AM to 5:00 PM. However for merchants the market is open from 9:00 AM to 4:30 PM and the last half hour is meant only for interbank dealings for banks to square off excess positions. Central bank has prescribed certain net overnight open position limit for various banks. Banks cannot exceed their overnight open position beyond the prescribed limits and therefore the last half hour of trading window is used to offload excess position to adhere to the guidelines. www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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THE CURRENCY MARKET TRACKS THE CENTRAL BANK MEETINGS THE CURRENCY MARKET TRACKS THE CENTRAL BANK MEETINGS AND POLICY DECISIONS. AND POLICY DECISIONS. THE IMPORTANT ANNOUNCEMENTS FROM CENTRAL BANK ARE THE IMPORTANT ANNOUNCEMENTS FROM CENTRAL BANK ARE INTEREST RATES AND CRR. INTEREST RATES AND CRR. IN US THE FEDERAL OPEN MARKET COMMITTEE IS RESPONSIBLE IN US THE FEDERAL OPEN MARKET COMMITTEE IS RESPONSIBLE FOR KEY DECISIONS I.E. INTEREST RATES AND THE GROWTH OF FOR KEY DECISIONS I.E. INTEREST RATES AND THE GROWTH OF THE MONEY SUPPLY. THESE DECISIONS AFFECTED THE THE MONEY SUPPLY. THESE DECISIONS AFFECTED THE CURRENCY MARKET. CURRENCY MARKET. SOMETIMES MARKET WILL GIVE LOT OF IMPORTANCE TO IT AND SOMETIMES MARKET WILL GIVE LOT OF IMPORTANCE TO IT AND FOCUS ON EMPLOYMENT NUMBERS AND INTEREST RATE FOCUS ON EMPLOYMENT NUMBERS AND INTEREST RATE SITUATION. SITUATION. Central Bank Meetings and Key Decisions Central Bank Meetings and Key Decisions www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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What Currency futures Currency futures is a standardized contract traded on an exchange to buy or sell a certain underlying asset or an instrument at a certain date in the future at a specified price. Here the underlying asses is Currency. History of currency future in India. Currency futures trading was started in Mumbai on August 292008. With over 300 trading members including 11 banks registered in this segment the first day saw a very lively counter with nearly 70000 contracts being traded. The first trade on the NSE was by East India Securities Ltd Amongst the banks HDFC Bank carried out the first trade. The largest trade was by Standard Chartered Bank constituting 15000 contracts. Banks contributed 40 percent of the total gross volume. Traded in NSE and MCX exchanges

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CURRENCY FUTURES ARE LINEAR CONTRACTS SO PROFITS OR CURRENCY FUTURES ARE LINEAR CONTRACTS SO PROFITS OR LOSSES ARE UNLIMITED DEPEND ON THE CONTRACT SIZE AND LOSSES ARE UNLIMITED DEPEND ON THE CONTRACT SIZE AND THE TICK V ALUE. THE TICK V ALUE. TICK IS THE MINIMUM SIZE OF PRICE CHANGE. THE MARKET TICK IS THE MINIMUM SIZE OF PRICE CHANGE. THE MARKET PRICE WILL CHANGE IN MULTIPLE OF THE TICK. THE TICK PRICE WILL CHANGE IN MULTIPLE OF THE TICK. THE TICK V ALUES FOR DIFFERENT CURRENCY PAIRS. V ALUES FOR DIFFERENT CURRENCY PAIRS. USD USD- -INR CURRENCY PAIR TICK SIZE IS 0.25 PAISA OR 0.0025 INR. INR CURRENCY PAIR TICK SIZE IS 0.25 PAISA OR 0.0025 INR. 1 TICK TICK CONTRACT SIZE. 1 TICK TICK CONTRACT SIZE. 1 TICK OF USD 1 TICK OF USD- -INR 1000 0.0025 2.50 INR INR 1000 0.0025 2.50 INR IF 5 CONTRACT OF USD IF 5 CONTRACT OF USD- -INR BY 4 TICK 5 4 2.5 50 INR INR BY 4 TICK 5 4 2.5 50 INR www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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Spot price security can be bought or sold at a specified time and place. Futures price trades in future market Contract cycle trades the index future contract have 3 months trading cycle Expiry date usably last Thursday of the month consider as expiry day Contract size In the case of USDINR it is USD 1000 EURINR it is EUR 1000 GBPINR it is GBP 1000 and in case of JPYINR it is JPY 100000. Initial margin the margin account at the time a futures contract is first entered into is known as initial margin Marking of each trading day the margin account is adjusted to reflect the investors gain or loss depending upon the futures closing price. This is called marking Spot price -The current price at which a particular security can be bought or sold at a specified time and place. Futures price – The price at which the future contract trades in future market. Contract cycle – The period over which a contract trades the index future contract have 3 months trading cycle. Expiry date –The last trading day of a future contract usably last Thursday of the month consider as expiry day Contract size –The quantity of assets that has to deliver . In the case of USDINR it is USD 1000 EURINR it is EUR 1000 GBPINR it is GBP 1000 and in case of JPYINR it is JPY 100000. Initial margin - The amount that must be deposited in the margin account at the time a futures contract is first entered into is known as initial margin Marking-to-market - In the futures market at the end of each trading day the margin account is adjusted to reflect the investors gain or loss depending upon the futures closing price. This is called marking-to-market. Spot price Future price Contract cycle Expiry date Contract size Initial Margin MTM margin Futures Terminology Exchange Traded Currency Futures

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THE PURPOSE FOR INTRODUCING CURRENCY FUTURES THE PURPOSE FOR INTRODUCING CURRENCY FUTURES MARKET IS DIVERSIFIED. BOTH RESIDENTS NONE MARKET IS DIVERSIFIED. BOTH RESIDENTS NONE RESIDENT PURCHASE DOMESTIC CURRENCY ASSETS. IF THE RESIDENT PURCHASE DOMESTIC CURRENCY ASSETS. IF THE EXCHANGE RATE REMAINS UNCHANGED FROM THE TIME OF EXCHANGE RATE REMAINS UNCHANGED FROM THE TIME OF PURCHASE OF THE CURRENCY NO GAIN OR LOSSES ARE PURCHASE OF THE CURRENCY NO GAIN OR LOSSES ARE MADE OUT OF FOREIGN CURRENCY. IF DOMESTIC CURRENCY MADE OUT OF FOREIGN CURRENCY. IF DOMESTIC CURRENCY DEPRECIATE OR APPRECIATE AGAINST FOREIGN CURRENCY DEPRECIATE OR APPRECIATE AGAINST FOREIGN CURRENCY THE EXPOSURE WOULD RESULT IN GAIN OR LOSS. THE EXPOSURE WOULD RESULT IN GAIN OR LOSS. UNPREDICTED MOVEMENTS IN EXCHANGE RATES EXPOSE UNPREDICTED MOVEMENTS IN EXCHANGE RATES EXPOSE INVESTORS TO CURRENCY RISKS. CURRENCY FUTURE INVESTORS TO CURRENCY RISKS. CURRENCY FUTURE ENABLE THEM TO HEDGE THESE RISKS. CURRENCY RISKS ENABLE THEM TO HEDGE THESE RISKS. CURRENCY RISKS COULD BE HEDGED MAINLY THROUGH FORWARDS FUTURES COULD BE HEDGED MAINLY THROUGH FORWARDS FUTURES SWAPS AND OPTIONS. SWAPS AND OPTIONS. Rationale behind currency futures Rationale behind currency futures www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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Settlement : Cash in INR Final Settlement Price : The reference rate fixed by RBI on last trading day or expiry day. Final Settlement Day : Last working day excluding Saturday of the expiry month will be same as for Interbank Settlements in Mumbai. Holidays declared by Foreign Exchange Dealer’s Association FEDAI www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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Base Price : Base price of the futures contracts on the first day of its life shall be the theoretical futures price. The base price for subsequent trading day will be previous days settlement price. Settlement Price Closing Price : Closing price for a future contract will be last half an hour average trading price of the future contracts or Theoretical Settlement Price if there is no trading in the last half an hour. www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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THE TENOR OF A CONTRACT MEANS TRADING THE TENOR OF A CONTRACT MEANS TRADING CYCLES OF THE CONTRACT. CYCLES OF THE CONTRACT. THE CURRENCY FUTURES CONTRACTS ARE THE CURRENCY FUTURES CONTRACTS ARE AVAILABLE FROM 1 TO 12 MONTHS. AVAILABLE FROM 1 TO 12 MONTHS. Tenor of Future Contracts Tenor of Future Contracts www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780 End Of Session-5B

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CAREER IN FINANCIAL MARKETS Certification in Financial Markets NSE Certified NCFM Modules- https://www.nseindia.com/ SEBI Certified NISM Modules- http://www.nism.ac.in/  NIFM- http://www.nifm.in/ www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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CAREER IN FINANCIAL MARKETS www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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CAREER IN FINANCIAL MARKETS Placements Opportunities Dealer Equity/ Derivative/ Commodity Relationship Manager/ Executive Wealth Mgr/Financial Planners/ Advisors Arbitrage Equity/ Derivatives Client Relationship Executive/ Manager Business Development Manager Technical Analyst Fundamental Analyst www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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CAREER IN FINANCIAL MARKETS Placements Opportunities Sales Officer/ Manager Back Office Executive Sub-Broker Branch Head Tele Callers E- Broking Executive- Client Acquisition Executive Customer Care E-Broking Financial Market Faculties Financial Market Counsellor www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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ALL THE BEST ALL THE BEST www.smartdisha.com infosmartdisha.com M-70436 90580 LL- 079 4800 7780

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