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Futures Market



COW AS A MEDIUM OF EXCHANGE



RICE TICKETS• In Japan, people started storing rice kept in warehouse and raised receipt as cash.

• Rice tickets gets issued by storing rice and it become general currency



HISTORY ……The first commodity exchange was established in Chicago under the name Chicago Board of Trade



What are Commodity Exchanges??

• Multiple Buyers and sellers trade commodity linked contracts on basis of terms and conditions laid down by exchange.

• Platform for trading, clearing, settlement, warehousing and information dissemination.

• Futures trade is organised in a wider sense



Role of commodity exchanges

• Provide platform for trade• Efficient price discovery.• Develop contract specifications.

• Fixation of quality specification of commodities.

• Price dissemination to ensure that farmers can view them.



…………• Provision of delivery platform.

• Ware house logistics

• Quality assurance for buyers.



HISTORY in india……• History of organised commodity derivatives goes back to 19th century when Cotton trade association started in 1875 in Mumbai

• Thus Cotton is the first commodity to attract futures trading in India.

• 1893-Bombay Cotton Exchange Ltd



…….• 1900-Gujarat Vyapar Mandali for groundnut,castor, cotton.

• 1913- Chamber of Commerce,Hapur-Wheat

• 1919- Culcutta Hessian Exchange for raw jute and jute



……

• 1920-Futures trading in bullion in Mumbai.

• 1927-East India Jute Association.

• 1939-Govt banned futures trade • 1952-Ban withdrawn, Forward Contract Regulation act,1952.

• 1953-FMC



Future tradingInvestment which involves speculation on the price of a commodity going up or down in the future.

Mainly speculative 'paper' investing, i.e. it is rare for the investors to actually hold the physical commodity, just a piece of paper known as a futures contract.



Traders in future contract• A hedger is a producer of the commodity

i.e. a farmer, an oil company, a mining company who trades a futures contract to protect himself from future price changes in his product.

• Speculators: Independent floor traders and private investors who make a profit buying a futures contract they expect to rise in price or sell a futures contract they expect to fall in price.



Advantages • Futures are highly leveraged investments.

• Speculating with futures contracts is basically a paper investment.

• An investor can make money more quickly on a futures trade.

• Futures trading markets are usually fairer than other markets.

• Most futures markets are very liquid

• Commission charges are small



Technical Analysis• Technical analysis studies trends and uses them to forecast price movements of both single commodities and entire commodities alike.

• Forecast future price movements by examining past supply and demand changes as that are reflected in changes in prices over time.

• security analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume


http://en.wikipedia.org/wiki/Security_analysis

http://en.wikipedia.org/wiki/Prices


WHY IS TECHNICAL ANALYSIS IMPORTANT?

1.Market action.2.Trends in price moves.3.The fact that history repeats itself.4.Faster change in information.



What is a trend?

• Systematic pattern of price movement direction

• Is a valuable tool used in recognizing bullish, bearish, or sideways position.

• Usually studied in 3 time frames i.e. short term, intermediate term, and long term.

• The longer the market has been in a trend, the more signi cant the trend lines are. fi

• Bullish trends consist of higher highs and higher lows and bearish trends to consist of lower lows and lower highs.



Future market analysis

Technical• Analysis based on price

and volume transformations & other market information.

• Depend on historical past trend.

• Subjective approach

Fundamental• Analysis facts of the

company, market, currency or commodity.

• Depend on demand & supply forces.

• Scientific approach



Setback of technical analysis• It has not received the same level of academic scrutiny and

general acceptance.

• It violate efficient-market hypothesis which states that past prices cannot be used to profitably predict future prices.

• It is based on subjectivity

• Difficult to Master

• Accuracy and Reliability

• Paralysis of Analysis

• Validation of a Biased View



How it stated?• Ticker tape reading: 1960s, "tape reading" was a popular form of technical analysis.

• It consisted of reading market information such as price, volume and order size from a paper strip which ran through a machine called a stock ticker.

• Market data was sent to brokerage houses, homes and offices of the most active speculators.


http://en.wikipedia.org/wiki/Stock_ticker


2. Quotation board•Use for interpretation of stock market data on a Chalk board located in the stock exchanges.•It was manually updated with chalk and data being transmitted outside of exchanges (such as brokerage houses, bucket shops, etc.) via telegraph, telephone and later telex.•Both spot and future mainly by market professionals for day trading and scalping, as well as by general public through the printed versions in newspapers showing the data of the negotiations of the previous day, for swing and position trades.

•Analysis via quotation board is another form of technical analysis that has fallen into disuse by the majority


http://en.wikipedia.org/wiki/Brokerage_firm

http://en.wikipedia.org/wiki/Bucket_shop_(stock_market)

http://en.wikipedia.org/wiki/Telegraphy

http://en.wikipedia.org/wiki/Telephone

http://en.wikipedia.org/wiki/Telex

http://en.wikipedia.org/wiki/Day_trading


3. Charts

Candlestick chart – Of Japanese origin and similar , candlesticks widen and fill the interval between the open and close prices to emphasize the open/close relationship. In the West, often black or red candle bodies represent a close lower than the open, while white, green or blue candles represent a close higher than the open price.

Line chart – Connects the closing price values with line segments.

Open-high-low-close chart – OHLC charts, also known as bar charts, plot the span between the high and low prices of a trading period as a vertical line segment at the trading time, and the open and close prices with horizontal tick marks on the range line, usually a tick to the left for the open price and a tick to the right for the closing price.

Point and figure chart – a chart type employing numerical filters with only passing references to time, and which ignores time entirely in its construction.



Technical Analysis software

1.Trader Code is a comprehensive library of technical indicators and technical analysis functions for use with Microsoft Excel.2. Pro Real Time is an online charting software for analysis & trading. It is high quality charts and analytic tools as well as reliable market data make it a powerful decision

support tool.3. Meta stock4. Spider5. Am broker 5.706. Precision technical7. Best technical analysis software for Indian stock



Conclusions




