Frequently Asked Questions
Q: What is the history of the First Commodities Exchange of India ?
A: The First Commodities Exchange of India Limited ( FCEI ) was incorporated in the year 2000 and started operating as a commodity exchange in 2001. FCEI became an online degital exchange in 2004.
Q: Does the Exchange still trade Coconut products?
A: We trade mainly on coconut oil and its derivatives. Today, the Exchange is the world's preeminent coconut oil futures market.
Q: What is the difference between stocks and commodities?
A: Even though stocks and commodity futures are traded on exchanges, they are different instruments. A share of stock represents a position of ownership in a company. A commodity futures contract is an obligation for the holder of the contract to buy or sell a specific quantity of a particular commodity at a specific price and location at a specific date in the future. It is not tied to the product of a particular company, but rather a standardized product that is widely accepted throughout the relevant industry
Q: What is a Derivative?
A: A derivative is a term that derives its value from the price or index or prices of the underlying asset. The underlying asset can be stock, securities, commodities, currencies etc.
Q: What are the different types derivative contract?
A: Derivatives contract are – forward contracts, futures contract and option contract.
Q: What is a futures contract?
A: A futures contract is a binding, legal agreement between a buyer and a seller for delivery of a particular quantity of a commodity at a specified time, place, and price. Futures are used as a proxy for cash, or physical, transactions before actual purchases or sales. This allows the buyer to assess his costs in advance of purchase and the seller to value his inventory in advance of sale.
Q: What is an options contract?
A: An options contract gives the holder of the contract the right, but not the obligation to buy or sell the underlying futures contract at a certain price for a specified time. On the opposite side, the seller, or writer of an options contract incurs an obligation to perform should the options contract be exercised by the purchaser.
Q: What is a forward contract?
A: Forward contract is an agreement to buy or sell an asset at a certain future time for a certain price. It is traded over the counter – usually between financial institutions. They are commonly used to hedge foreign currency risks.
Q: Who are the different types of participants in the derivatives market?
A: There are three types of traders/participants in the derivative markets. They are hedgers, speculators and arbitrators.
Hedgers manage the price risk of an asset by entering into a counter balancing futures contract. Speculators are lured into the futures by the reason of the opportunity to realize a profit on their anticipation of a price change.
Arbitrators are in the business to take advantage of a discrepancy between prices in two different markets.
Q: What is Bull and Bear markets?
A: A period of rising prices is called a Bull market. A phase of declining prices are known as Bear market.
Q: What is Long and Short position in derivative market?
A: Long position is an accumulated buying position while Short position is an accumulated sold position of a commodity.
Q: What is the difference between volume and open interest?
A: Trading volume is the total number of contracts traded in a designated time (such as daily, monthly, annually). Open interest is the number of open or outstanding contracts at a given point in time for which the holders are obligated to the Exchange because no offsetting sale or purchase has been made against it. Open interest is frequently used as an indicator of the level of commercial as opposed to speculative activity in a particular futures or options contract, since hedgers are much more likely to hold long-term positions.
Q: How do I become a member of the Exchange?
A: Membership information and application forms can be found in the Download section of Exchange website.
Q: What is the difference between hedging and speculation?
A: Hedgers and speculators have different goals. Hedgers use the futures markets to help stabilize revenues or costs because they have an offsetting position in the physical market. They do not necessarily seek to profit in the futures markets because a gain or loss in the futures market is usually offset to some degree by the corresponding loss or gain in the physical market. Speculators, or investors, on the other hand, enter the market in order to profit from market volatility and the movement of futures prices because they have no offsetting physical positions. Speculators play a valuable role in assuming the risk of market losses that hedgers are seeking to shift, as well in providing liquidity and narrowing the gap between bids and offers that benefits the markets as a whole.
Q: Does the Exchange set prices?
A: The Exchange does not set prices. The Exchange provides a neutral, orderly, and transparent trading forum where buyers and sellers can come together and publishes the prices that result from those transactions. The prices that emerge from trading are determined by supply and demand. If there are more buyers than sellers, the price goes up. If there are more sellers than buyers, it goes down.
Q: Why is the settlement price different from the closing price?
A: Contract settlements are based on the weighted average of trades during the closing range so the settlement and last trade usually will not be identical. The closing price is the last five minutes’ weighted average, while the settlement price is last thirty minutes’ weighted average.
Q: Can I find spot cash prices on your site?
A: The Exchange offers trading in futures contracts based on delivery in the future. The closest month is commonly referred to as the delivery month because its prices move in tandem with the spot/cash market but these transactions on the Exchange are not considered part of the cash market
Q: How does the clearinghouse protect market participants against counterparty default?
A: The clearinghouse is made up of the clearing members of the Exchange who accept responsibility for all trades cleared through them. Orders are "cleared" because the clearinghouse ultimately acts as the buyer to every seller and seller to every buyer once a trade has been accepted by the Exchange Clearing members must also make a deposit to the guarantee fund of the clearinghouse. In the event a clearing member fails to meet a margin payment, funds would be appropriated from 1) that clearing member's assets under Exchange control; 2) the Exchange's surplus as determined by the board of directors; 3) the guarantee fund; 4) funds based on a pro-rated assessment of other clearing members.
Q: Are there any regulations or procedures in place to prevent physical delivery?
A: Anyone who holds an Exchange futures contracts until expiration is obligated to make or take physical delivery. Following the termination of trading, the counterparties are matched by the Exchange clearinghouse, obligating both parties to meet the terms of the contract.
Q: Who is a market-maker?
A: Market-makers, also known as locals, provide critical liquidity in the futures and options markets by risking their own capital while seeking to profit from the market fluctuations during the trading day. Market makers compete in the market alongside floor brokers who act on behalf of customers. This differs from a specialist market maker which is an Exchange-designated trader who provides liquidity to a designated market by facilitating any trade within an established bid/ask spread and accepting all limit orders that it is required to execute.
Q: Can the Exchange's contracts be traded electronically?
A: The Exchange's futures contracts are available for trading on FCEI’s Electronic Trading Platform only from 2004 onwards and accessible through internet.
Q: Where can I get help if I have a problem with my account?
A: If you have a dispute arising out of your commodity futures or options account, first try to resolve the problem through our helpline Tel. No. 0484 3258983 which is available throughout the trading hours. If problem persists, contact the Chief Executive on Tel. No. 0484 2335747.
