C. D. Commodities Broking Ltd. is a comprehensive commodities broking house, with memberships of NCDEX, MCX, ACE Commodities Exchanges. Also, it provides depository participant services and is a DP of COMTRACK.
Our endeavor has always been to provide personalized and efficient services to our esteemed client, and give full benefits of our robust infrastructure to the client.
CASH CARRY ARBITRAGE
Cash and Carry Arbitrage
Indian Commodities Markets have approximately 10 year history now and have been constantly evolving in terms of its systems and procedures, risk management structures, participants and reach.
Like in any other mature market, spot segment as well as derivatives segment are the two essential parts of the market, and each segment has its own importance, necessity and its robustness helps the participants in various ways. The concept of cash and carry arbitrage in commodities markets, is by the meaning of it the same concept, which can be used in any matured market, the only difference here being, since agri commodities are involved, these commodities have a limited life and have to be consumed within this limited life span. So the technical specifications of agri commodities assumes more significance than lets say precious metals, as these agri commodities have a limited life span and also within this life span, its proper storage assumes importance as if not stored in a proper environment, there would be chances of deterioration in its quality and thus, knowledge of the commodity, its technical specifications, its life span, its proper storage assumes more importance here, to mitigate the risks involved in such cash and carry arbitrage.
As a concept, cash and carry arbitrage means, that buying the commodity in spot markets and simultaneously selling the same in derivatives markets and thus earning the arbitrage difference between the two markets (here the arbitrage difference can be calculated as spread earned by selling in derivatives and buying in spot minus the financing costs and storage / warehouse expenses). On the expiry of the derivatives contract, the sale position on derivatives can be delivered on the stock exchange (which will close the arbitrage position) or carrying forward the sale position into the next derivatives contract (provided the technical specifications of the commodity permits the roll over of the same into the next month contract).
Thus, this strategy is a widely adopted strategy by arbitrageurs who have good knowledge about the technical specifications of the commodity and during volatility in the prices of commodities, these strategy can be suitably adopted to earn a relatively risk free return on the capital invested.
Also, the same strategy can be deployed for precious metals, where though there are exchange mandated technical specifications, the quality of such a commodity is not hampered by passage of time and thus, managing risks on the quality part is a lot simpler in such type of commodities.
Cash Carry Arbitrage : An Example
To understand this concept, let us take an example of an agri-commodity called Jeera
Let us assume that Jeera commodity (quality specifications as per exchange) is available in Spot Market for Rs. 3000 per 100 kgs. The same commodity futures (one month) listed on NCDEX is at Rs. 3045. So an arbitrageur buys 100 kgs of Jeera @ Rs. 3000 and sells 100 kgs of Jeera One month futures @ Rs. 3045. The physical (or demat) stock bought from the spot market has then to be given for warehousing as per the exchange norms. Thus this is a completely hedged position, as on one side we have physical stock of the commodity and on the other side, we have a sale position of the same commodity and same quantity on the futures (commodities exchange). While, based on the daily closing prices of Jeera on the derivatives exchange, there would have to be Mark to Market settlement of the position in futures markets, on the day of expiry, assuming that the rates are the same i.e. Rs. 3045 per 100 kgs., the arbitrageur submits the physical / demat delivery from the warehouse to the exchange and thus earns a risk-free gross profit of Rs. 45 on his investment of Rs. 3000 for one month. Assuming financing cost @ 12% p.a. which comes to Rs. 30 per month, monthly warehousing cost @ Rs. 5 and exchange transaction costs @ Rs. 2, the total costs come to Rs. 37 and the net profit in this whole transaction is Rs. 7.
On the Commodities Exchanges, for those transactions that are converted into deliveries, the exchanges like NCDEX, MCX have exchange designated warehouses, where the client needs to deliver physical / demat commodities in case of their pay-in to the exchanges, and will receive physical / demat commodities in case of a pay-out from the exchange. The rules & regulations of these exchange designated warehouses are governed by the commodities exchanges & FMC, and our company, being governed by these compliances of the commodities exchanges and FMC, these rules and regulations are to be strictly followed.
In addition to these warehouses, our company has also made provisions for its own warehousing facility and in case of need by our esteemed clients, these additional services of warehousing can be arranged for, with a prime focus on giving service and comfort to our clients. The company has ensured proper warehousing with insurance etc., so that safety and security of stock is not compromised and clients can avail of these facilities, based on the availability of space and mutual consent about additional charges for such a facility.
For further details on the warehousing facility provided by the company, you may get in touch with-
DEMAT SERVICES : COMTRACK
As of now, there are separate provisions by regulatory authorities on Demat Accounts being maintained for Capital Markets and Commodities Markets. As a result, demat accounts meant for converting commodities into dematerialized form have to be opened separately and exclusively and the same shall be operated only for the purpose of Commodities being converted from physical into demat form.
C. D. Integrated Services Ltd. is a DP of Comtrack, which is a participant for Dematerialized Commodities Services and offers the full range of demat services provided under Comtrack. The KYC formalities are to be conducted separately for opening demat account with us, on Comtrack.
For further details on how to open a Comtrack account, you may get in touch with
CD Integrated Services Ltd. 2005 All rights reserved | SEBI SINGLE REGISTRATION NUMBER: INZ000190932 | NSE SEBI Registration No. Cash Segment: INB-231094237 |
NSE SEBI Registration No. F&O Segment: INF-231094237 | NSE SEBI Registration No. CDS: INE-231094237 |
BSE SEBI Registration No. Cash Segment : INB011094233 | BSE SEBI Registration No. F&O Segment : INF011094233