By Owais Javaid Qureshi {321} MFC Batch 2010-12 Under the guidance of Dr. Nilanjan Ghosh Sr. Vice President and Head, Research and Strategy, MCX Submitted in the partial requirements for the Degree of Masters in Finance & Control Department Of Business & Financial Studies University Of Kashmir Certificate This is to certify that the project entitled “Factors Affecting the Success and Failure of Futures Contracts” is research work done by Owais Javaid Qureshi, under my supervision, during March-April, 2012, submitted to the Department Of Business and Financial Studies, University Of Kashmir in partial fulfillment for the award of the Degree of Masters in Finance & Control _____________________ Dr. …show more content…
The Exchange was the fifth largest commodity exchange, among all the commodity exchanges considered in the Futures Industry Association survey, in terms of the number of contracts traded for the six months ended June 30, 2011. MCX offers more than 40 commodities across various segments such as bullion, ferrous and non-ferrous metals, energy, and a number of agri-commodities on its platform. Today MCX is the world's largest exchange in Silver, the second largest in Gold, Copper and Natural Gas and the third largest in Crude Oil futures, based on the comparison of the trading volumes of our Exchange with those of the leading global commodity futures exchanges in the world, for the calendar year 2010 and the six months ended June 30, 2011. Background Of the study: Commodity futures have become very powerful instruments that are being used by many for varied purposes. They provide excellent opportunities to hedgers and speculators. In this regard the exchanges have been trying to develop varied types of products that satisfy the ever growing needs of the futures markets. Futures contracts provide a number of benefits including price discovery, volume (liquidity), and risk transfer through hedging, to name a few. There are also indirect benefits to the economy like the creation of warehouses that store the commodities being traded. Unfortunately, many of the futures contracts that are introduced in the futures markets do not
Margin requirements on commodities contracts (2-10 percent) are much lower than those on stock transactions, where 50 percent of the purchase price has been the requirement since 1974. Furthermore, in the commodities market, the margin payment is merely considered to be a good-faith payment against losses. There is no actual borrowing or interest to be paid.
Commodity prices – parallel to stock prices – can boom and bust without warning affected by numerous reasons. For this reason alone, having an agreed minimum price is a great importance for farmers. For an instance, a large-scale crop failure leads to not enough rice, but higher prices. Bearing this in mind, agreed prices becomes an interest for the end users, therefore making both the retail merchants and end users obtain advantages from the futures contract to have a solidified market transaction.
For the purposes of this report, I analyzed the July corn futures market from a long position in contrast to my short position in the cash market. I took out one contract with a size of 5000 bushels of corn. I tracked this market since January 16th and collected futures and cash market prices throughout that whole period. In addition, I also analyzed hedging with futures and hedging futures with options dating back to February 21st. This report shall cover all aspects of this analysis including a compare and contrast section on each of the net prices from each hedging option.
Question 4: Who, in addition to security dealers, would you expect to engage in index-futures arbitrage?
Red Rock Capital’s strategy is to identify major capital flows that manifest themselves as sustainable price trends regularly occurring around the globe. The firm is operated by two people, Tom Rollinger and and Scott Hoffman, both men own 10% or more financial interest in their fund. The two of them are investing their own capital in the fund and they believe that managing money for clients via CTA is an extension of what they are already doing. It proves that they believe in what they are doing and is a good selling point for potential investors. Scott Hoffman started trading futures with Red Rock Capital Management in 2004, since then he has been developing and analyzing sophisticated algorithmic execution models that minimize transaction costs for Red Rock Capital’s quantitative strategies, explaining in part why their management fee is lower than the industry average.
Swap is defined as an agreement or contract between counterparties for the purpose to manage their exposure to risk. Our paper will specifically discuss about one of the commodity derivatives called as Agricultural Swap and referring to the the Agriculture Swap Contract Product (ASC) Disclosure Statement issued by Westpac Banking Corporation dated in 10 February 2016. The main purpose of entering into Agricultural Swap is to manage the exposure of the agriculture price’s movement by locking the price of the agriculture for a long period (Barned 2012). Agriculture seller or buyer is entitled to exchange a floating price for a fixed price for a specified commodity (Westpac Banking Corporation 2016).
2) In the corn futures contract a number of different types of corn can be delivered (with price
Virtually all of the futures exchanges in the United States date from the late nineteenth or early twentieth century. They all started as commodity exchanges, but since the early 1980s trade in financial futures has become more and more important for most of them. Until 1998, the Chicago Board of Trade used to be the world=s largest futures exchange, but is now the second-largest place with a volume of 255 million contracts in 1999 (11 per cent of total world volume). The Chicago Mercantile Exchange, the world=s fourth-largest, accounted for about 8.5 per cent of world volume, while the New York Mercantile Exchange (former NYMEX and COMEX), the world=s
Cex.io – Establihsed in 2013, CEX.io aims to provide quality crypto exchange services and mining. It caters to new traders, miners, and experienced investors. Choose from multiple cryptocurrency pairs and make the most of your profit-making opportunities.
Based on a previously done research on comparing currency futures and currency options as a hedging instrument. Chang and Shanker (Summer 1986) provide a preliminary comparison of the hedging effectiveness of futures and option synthetic futures contracts. Based on a risk-return framework, the authors find that currency futures provide a more effective hedge for a covered position than do currency option synthetic futures. Thus, for a covered hedge, futures offer both an appropriate risk profile and greater hedging effectiveness. These results, however, must be interpreted with caution. First, Chang and Shanker (Summer 1986) used data from the first year of options trading at the International Options Market of the Montreal Exchange. Thus, lack of liquidity and depth of the options market may have contributed to the findings of their study.
- If an investor wishes to take advantage of favourable yields but is aware this may increase interest rate exposure, the financial futures markets will provide an opportunity to hedge against possible loss.
To minimize counterparty risk to traders, trades executed on regulated futures exchanges are guaranteed by a clearing house. The clearing house becomes the buyer to each seller, and the seller to each buyer, so that in the event of a counterparty default the clearer assumes the risk of loss. This enables traders to transact without performing due diligence on their counterparty.
I started exchanging on the February 12, 2015 by purchasing shares in 3 different organizations. The names of the organizations and the quantity of shares purchased are as per the following:
According to Eun and Resnick(2014), a future contract is an agreement to buy or sell a standardized quantity and predetermined currency with predetermined exchange rate on the maturity date on organized exchanges. Future contracts have specified delivery months (at end of March, September or December in the forthcoming year).
After calculating the future prices, the next stride was to determine arbitrage and if we could take advantage of it. It was achieved by spot and future parity calculation. The above calculation used the assumption that law of one price such as that of goods sold in one country is equal to another country. Therefore, the F calculated measures the commodities future price and it is very different from spot price in a contract C using the cost holding money of an asset. Therefore, there is a difference between the three rates namely F (Future price), the purchase price, and the opportunity for arbitrage. We calculated the future prices using the formula = S erT = 1341.5*e^5 %*( 580/366) = USD 1500.4