Basics
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COMMODITY TRADING IN INDIA
The history of organized commodity derivatives in India goes back to the nineteenth century when the Cotton Trade Association started futures trading in 1875, barely about a decade after the commodity derivatives started in Chicago. Over time the derivatives market developed in several other commodities in India. Following cotton, derivatives trading started in oilseeds in Bombay…
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DEMATERIALISATION
Dematerialisation is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited in the investor’s account with his Depository Participant [DP]. In order to dematerialise his certificates, an investor first has to open an account with a Depository Participant. He then has to request for the dematerialisation of his certificates by filling up a dematerialisation request form…
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WARRANTS
A warrant, like an option, gives the holder the right but not the obligation to buy an underlying security at a certain price, quantity and future time. However, unlike an option, an instrument of the stock exchange, a warrant is issued by a company. The security represented in the warrant (usually share equity) is delivered by the issuing company instead of an investor holding the shares.
Companies will often include warrants as part of a new-issue offering to entice investors into buying the new security. A warrant can also increase a shareholder’s confidence in a stock, if the underlying value of the security actually does increase overtime.
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S&P (STANDARD & POOR’S)
S&P owns the most important index in the world, the S&P 500 index, which is the foundation of the largest index funds and most liquid index futures markets in the world. When S&P came to India to look at market indices, they focused
upon the S&P CNX Nifty as opposed to alternative indices. They now stand behind the S&P CNX Nifty, as is evidenced by the name “S&P CNX Nifty” This is a unique occasion; S&P has never endorsed a market index before. -
FREE FLOAT INDEX
Under the ‘full market capitalization’ methodology, the total market capitalization of a company, irrespective of who is holding the shares, is taken into consideration for computation of an index. However, if instead of taking the total market capitalization, only the Free-float market capitalization of a company is considered for index calculation, it is called free-float methodology.
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GOLD STANDARD
A monetary system in which a country’s government allows its currency unit to be freely converted into fixed amounts of gold and vice versa. The exchange rate under the gold standard monetary system is determined by the economic difference for an ounce of gold between two currencies. The gold standard was mainly used from 1875 to 1914 and also during the interwar years.
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SUBPRIME MORTGAGE
A class of mortgage used by borrowers with low credit ratings. Borrowers who use subprime loans generally do not qualify for loans with lower rates because they have damaged credit or no credit history, and are thus considered risky by lending agencies. Because the default risk for poor credit borrowers is greater than of other borrowers, lenders charge a higher interest rate on subprime loans.
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CORPORATE STOCK
An instrument that signifies an ownership position, or equity, in a corporation, and represents a claim on its proportionate share in the corporation’s assets and profits. However, the claim to a company’s assets and earnings of most stockholders is subordinated to the claim that the company’s debtors have on its assets and earnings. also called equities or equity securities or corporate stock.
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MONETARY RESERVE
A government’s stockpile of foreign currency and precious metals. Monetary reserves are useful both for
settling transactions involving foreign counterparties and for undertaking trading in foreign exchange and
commodity markets. In general, the larger the monetary reserve, the better the country is able to engage in transactions with foreign countries. -
DIRTY STOCK
Stock that is not granted a good delivery status due to missing or incorrect transfer documentation or
endorsements. Dirty stock will usually disrupt the transaction process. -
BRIC ETF
An exchange-traded fund that invests in stocks and listed securities associated with the countries of Brazil,
Russia, India and China. BRIC ETFs are designed to give holders diversified exposure to these growing
countries. Assets are invested in both locally issued stocks and shares that trade on exchanges in the U.S. and
Europe. The portfolio allocation among the four counties may vary from fund to fund, but all ETFs in the space
should be passively invested around an underlying index. -
VENDOR FINANCING
A loan from one company to another which is used to buy goods from the company providing the loan. In this
way, the vendor increases sales, earns interest, and may sometimes also acquire an interest in the customer.
This increases the risk profile of a company if it is carried out on a large scale, since many companies do not
have the skill to conduct credit analysis. Large, creditworthy buyers are unlikely to make use of this
arrangement, since they will be able to borrow money at lower rates from other sources. -
FORWARD MARKET COMMISSION
Forward Markets Commission (FMC) headquartered at Mumbai, is a regulatory authority which is overseen by the Ministry of Consumer Affairs and Public Distribution, Govt. of India. It is a statutory body set up in 1953 under the Forward Contracts (Regulation) Act, 1952…
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COMMODITY EXCHANGES IN INDIA
Multi-Commodity Exchange of India Limited (MCX): MCX an independent multi-commodity exchange has permanent recognition from Government of India for facilitating online trading, clearing and settlement operations for commodity futures markets across the country. Key shareholders of MCX are Financial Technologies (India) Ltd., State Bank of India, NABARD, NSE, HDFC Bank…
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ARBITRAGEURS
Arbitrage is the concept of simultaneous buying of securities in one market where the price is low and selling in another market where the price is higher.
Arbitrageurs thrive on market imperfections. Arbitrageur is intelligent and knowledgeable person and ready to take the risk He is basically risk averse. He enters into those contracts were he can earn risk less profits. When markets are imperfect, buying in one market and simultaneously selling in other market gives risk less profit. Arbitrageurs are always in the look out for
such imperfections. -
SPECULATORS
If hedgers are the people who wish to avoid price risk, speculators are those who are willing to take such risk. speculators are those who do not have any position and simply play with the others money. They only have a particular view on the market, stock, commodity etc. In short, speculators put their money at risk in the hope of profiting from an anticipated price change. Here if speculators view is correct he earns profit. In the event of speculator not being covered, he will loose the position. They consider variousfactors such as demand supply, market positions, open interests, economic fundamentals and other data to take their positions.
