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Stock Market Operations
Notes To investors: An investor has alternative investment instruments where he can take a
position as to future price and the spot price at a particular date in future and buys and sells
options. He is not interested in taking deliveries of the commodities.
To commodity trader: A commodity trader can use these to ensure that he is protected
against any adverse changes in the prices. He can enter into a futures contract for purchase
of a certain quantity of the underlying at a particular price on a particular date, or he can
enter into a futures contract for sale of a particular quantity on a particular date at a
particular price and be assured of the margins because both his purchase price as well as
the sale price are fixed. Traders do a good arbitrage in gold and silver. Whenever they find
gold moving up, they short silver and similarly whenever they find silver moving up and
gold likely to move down, they hedge.
To exporters: Futures trading is very useful to the exporters as it provides an advance
indication of the price likely to prevail, help the exporter in quoting a realistic price and
thereby secure export contracts in a competitive market. Having entered into an export
contract, it enables exporters to hedge theirs risk by operating in futures market.
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Caution Option trading in commodity is, however, presently prohibited.
Self Assessment
Fill in the blanks:
6. Commodity future is a ……………………… instrument for the future delivery of a
commodity on a fixed date at a particular price.
7. The number of retail investors participating in the market is increasing gradually after the
introduction of commodities ………………………
8. Futures trading is very useful to the exporters as it provides an advance indication of the
price likely to ……………………….
9. A ……………………… of a commodity can sell the futures of the commodity, thereby
ensuring that he can sell a particular quantity of his commodity at a particular price at a
particular date.
Task What is the need for the exchange-traded commodity derivatives market?
13.3 Legal Framework
After Independence, the Constitution of India adopted by Parliament on 26th January, 1950
placed the subject of “Stock Exchanges and Futures Market” in the Union list and therefore the
responsibility for regulation of forward contracts devolved on Government of India. The
Parliament passed the Forward Contracts (Regulation) Act, 1952 which presently regulates
forward contracts in commodities all over India. The features of the Act are as follows:
The Act applies to goods, which are defined as any movable property other than security,
currency, actionable claims.
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