INTRODUCTION TO COMMODITY TRADING KASB SECURITIES LIMITED KASB SECURITIES LIMITED

Transcription

1 INTRODUCTION TO COMMODITY TRADING KASB SECURITIES LIMITED KASB SECURITIES LIMITED

2 Commodity Trading KASB Securities One of the oldest and largest pure agency brokerage firms in Pakistan today providing a full spectrum of products and services Products & Services Sales/Trading/Research Equities Fixed Income FX Commodities We serve more than 15,000 clients Client Base Domestic as well as global client base Serviced through our online and offline trading platform Affiliation The only domestic house with a foreign affiliation on both the Equities Sales and Research front With our own domestic group strength and the global reach of the Bank of America Merrill Lynch (BofAML) platform, KASB provides an unrivaled breadth of knowledge and financial services Our relationship with Merrill Lynch, which has spanned almost two decades, gives us access to more than 60,000 professionals worldwide as well as unmatched access to one of the largest international distribution networks 2 KASB SECURITIES LIMITED

3 Commodity Trading Why KASB Market Leader Lowest Commissions Daily Research Report Superior Client Service Access to Commodity team till 12am Merrill Lynch Affiliation - Provides us with access to their Research and Trading teams Experienced team with extensive foreign markets experience Robust Risk Management Event Specific Research Reports 3 KASB SECURITIES LIMITED

4 Jun-09 Jul-09 Aug Sep Oct-09 Nov Dec Jan 10 Feb Mar Apr 10 May Jun 10 Jul 10 Aug Sep Oct 10 Nov Dec Jan 11 Feb Mar Apr 11 May Jun 11 Jul 11 Aug Commodity Trading Pakistan Mercantile Exchange Limited Pakistan Mercantile Exchange Limited (PMEX) formerly National Commodity Exchange Limited (NCEL) is the first technology driven, de-mutualized, on-line commodity futures exchange in Pakistan. PMEX s shareholders are Karachi Stock Exchange, Lahore Stock Exchange, Islamabad Stock Exchange, Pak Kuwait Investment Company (Pvt.) Limited, and Zarai Taraqiati Bank Ltd 118 Benefits of trading on the PMEX Only recognised platform for Futures Trading under law Regulated by SECP Guaranteed Settlement No Credit Risk Segregation of Funds Minimal Margin Requirements Direct Market Access / Ease of Trading Profit on Margin Account Balances T+0 Settlement PMEX Volume in PKR bn KASB SECURITIES LIMITED

5 Commodity Trading Global Perspective It is important to note that the Commodities Market is driven by Global Markets. As such, the ability to assess and understand the following is necessary: US Financial Crisis EU Stability Government and Central Bank Actions Possible introduction of Quantitative Easing Global Growth going forward Interest Rates Money Supply & Central Bank Action 5 KASB SECURITIES LIMITED

6 USD/Oz Commodity Trading Reasons For The Rise In The Price Of Gold SAFE HAVEN The global economic crises and uncertainty going forward has led to money flow into gold MONEY SUPPLY Printing of money not only in the US, but around the world DOLLAR Dollar movement has been erratic CENTRAL BANKS Uptick in central bank purchases INTEREST RATE Low Interest Rate environment ACCESS TO GOLD Investors have easier access to investing/trading gold via ETFs, Hedge Funds, Mutual Funds. The Rise Of Gold Year return 200% 3 Year return 107% 1 Year return 40% 6 KASB SECURITIES LIMITED

7 Commodity Trading Gold Breakdown INVESTMENT DEMAND 10-30% of total demand An alternate currency for central banks Perceived hedge against uncertainty Beneficiary of USD weakness ETFs- new investors Safe Haven Status JEWELLERY DEMAND 60-80% of total demand Display of wealth Cultural significance specially in the sub continent Demand linked to gold price and wedding season & religious events India and China account for 40% of world jewellry demand 7 KASB SECURITIES LIMITED

8 Commodity Trading 45.00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Gold Return & Inflation Hedge CPI 7.5% p.a. Gold 21% p.a. CPI Gold PKR Returns Gold Reserves Depreciation of PKR Vs USD 7.5% ANNUAL DEPRECIATION IN THE LAST 20 YEARS. 8 KASB SECURITIES LIMITED

9 Commodity Trading Why Commodities LONG AND SHORT - The ability to take Long and Short positions is a distinct advantage as it allows one to be able to not only hedge but take advantage of market movement in either direction CURRENCY HEDGE An ideal way to hedge against currency devaluation LEVERAGE Is available in Commodities [Oil 13:1, Gold 22:1, Silver 13:1]* at no cost TAXATION Commodities are not subject to withholding tax at the present time DIVERSIFICATION Given limited investment avenues in Pakistan, Commodities are an ideal way to diversify investments. INFLATION HEDGE Has historically been a hedge against inflation EXPOSURE TO THE GLOBAL ECONOMY One of the few ways to gain exposure to foreign markets NO MANIPULATION Due to the vast size of the Global Commodity Market, it is simply not possible to manipulate the Commodity Market SAFE HAVEN Safe haven status is intact as witnessed during the recent global Financial Crisis LIQUID INVESTMENT - More liquid as compared to the other asset classes buyers and sellers are always available at market price *Note: Margins are Subject to change by PMEX 9 KASB SECURITIES LIMITED

10 Commodity Trading Risks To The Price Of Gold Dollar Central Bank Buying / Selling Money Supply Risks High Gold Prices Inflation Economic Recovery 10 KASB SECURITIES LIMITED

11 Commodity Trading Product Specification & Commission Structure 11 KASB SECURITIES LIMITED

12 Physical Gold PMEX Physical Gold Contract Specifications Contract Specs Brands Storage & Insurance Delivery Trading Payment Market timings Market Maker Advantages Tola Gold ( Grams) 24 Karat, imported from Dubai ARY Gold can be stored at the PMEX vault. 1% annual charge is in place which covers both storage and insurance costs If a client wants to take a delivery, he/she would have to inform the Broker. Delivery is made within 5days of request. The minimum amount required for delivery is 10 Tola Bars. Gold would be handed over at PMEX with the broker present. (Please note that once delivered, PMEX will not accept the Gold back.) Physical Gold is tradable online from anywhere in the world 100% margin must be deposited in the account. 100% of the value of the transaction will be deducted at the time of order placement. Same as Futures (5.00 am to 2.00 am) Is in place to provide liquidity. Every purchase or sale is done via PMEX. The Market Maker currently buys or sells a maximum of 10 lots at a time. Market timings Online trading Buyer and seller always available at market price unlike local sarafa bazar Storage and insurance No leverage 12 KASB SECURITIES LIMITED

13 Physical Gold Process for Delivery of Physical Gold Physical Delivery Account Opened Deposit 100% Margin Trade Executed Maximum 5 day contract. Settlement date is one business day after expiry date. Physical Gold allocated in vault on settlement date Client provides withdrawal request for Physical delivery. PMEX takes 5 business days to complete the delivery process Broker notifies Client once Delivery is ready Client will go with Broker to PMEX vault to collect Delivery Note Minimum 10 Tola must be accumulated in vault to claim delivery. Once delivery is taken from PMEX vault, it cannot be re-deposited. Clients cannot view physical gold due to security reasons. External audit is done on Gold stored at the PMEX vault Recommendation For Shariah Compliance, it is recommended to buy/sell in the contract nearest to expiry. 13 KASB SECURITIES LIMITED

14 To Login to your Trading Account Click on Login Client Login NEXT Trading Terminal Login Based 14 KASB SECURITIES LIMITED

15 You will be directed to the following page. To Login to your Trading Account Click on the second option Continue to this website (not recommended) 15 KASB SECURITIES LIMITED

16 You will be directed to the following page. To Login to your Trading Account Input your TraderID and Password and click on Login tab. 16 KASB SECURITIES LIMITED

17 Main Screen 17 KASB SECURITIES LIMITED

18 Main Screen - Categories Contracts The different products available for trade in the commodity market Bid Price quoted by the buyer Bid Volume It specifies the quantity a buyer is willing to buy at a stated price Ask Price offered by the seller Ask Volume It specifies the quantity a seller is willing to sell at a stated price Last Price Price that has been hit in the most recent trade Last Volume Quantity traded in the most recent trade High Highest Price for the day Low Lowest price for the day Total Volume Quantity traded in any given day 18 KASB SECURITIES LIMITED

19 Move the cursor to Profiles and click Contract profiles. Add or Remove Contracts 19 KASB SECURITIES LIMITED

20 Following window will appear on your screen. Add or Remove Contracts 20 KASB SECURITIES LIMITED

21 Left column shows all types of contracts. Right column is to view contracts of your choice. Add or Remove Contracts Click on a contract in the left column and press to add it to the view contracts column. Repeat this process to add all the contracts that you want to display on your main page and then click save. 21 KASB SECURITIES LIMITED

22 Click on a contract in the right column Remove a Contract Click on a contract in the right column and press to remove it from view contracts 22 KASB SECURITIES LIMITED

23 Order Placement 1. Select BUY or SELL on the bottom of the screen. Click to buy a contract Click to sell a contract 23 KASB SECURITIES LIMITED

24 Order Placement 2. Press the buy tab to buy a contract or sell tab to sell a contract. The following window will pop-up on your screen 3. Drag the cursor to the contract window and select the contract you want to buy 24 KASB SECURITIES LIMITED

25 Order Placement 4. Drag the cursor on order type window and select your order. 5. Type the last 4 digits of your Trader ID in the trader window. 25 KASB SECURITIES LIMITED

26 Order Placement 6. Type the amount of lots. 7. Type the price if it s a limit or stoploss order. If you are placing a market order, the price section does not need to be filled. 26 KASB SECURITIES LIMITED

27 Order Placement 8. You can make use of Good Till Cancel (GTC) orders by placing a check in any of the following order type: Buy / Sell Limit Buy / Sell Stop loss limit Buy / Sell Stop loss Market A GTC order, once placed, remains in the system after every trading session until hit or cancelled due to any of the following reasons: Contract in which GTC has been selected, expires Cancelled voluntarily by trader/ user To maintain margin requirements All GTC orders shall be loaded at the start of trading session (5 am/3 am at this time). In a volatile market traders/ users can cancel their GTC orders in first 3 minutes of pre-open. 27 KASB SECURITIES LIMITED

28 Order Placement 9. Press the buy tab to execute the order. The following screen will appear for confirmation. Press OK to confirm the order or CLOSE to cancel the order. *Repeat the same steps to sell a contract. 28 KASB SECURITIES LIMITED

29 Working Orders Press the working orders tab to check your limits/ stoploss orders. 29 KASB SECURITIES LIMITED

30 Positions Press the POSITIONS tab to check your existing long or short contracts. 30 KASB SECURITIES LIMITED

31 Positions - Categories Net Liquidity- Total cash available in your portfolio. Margin Required- It is the amount of money required for booking a certain number of lots. Buying Power- Remaining purchasing power. Realized P/L- This is the profit/loss that has been booked during the trading day. Unrealized P/L- This is the profit/loss outstanding but not yet booked during the trading day % BP Used- This is the percentage of equity used in booking lots. 31 KASB SECURITIES LIMITED

32 Types of Orders Limit Orders It is an order that allows a trader to set a maximum or minimum limit to either buy or sell a commodity. For instance, Gold is trading at $1500 and the trader would like to purchase at a lower price of $1490. The trader in this case would place a buy limit of $1490. Whenever the market price reaches the buy limit price or lower, the trader s position will be executed at the buy limit price. Similarly, if gold is trading at $1500 and the trader would like to sell at a higher price of $1510, the trader in this case would place a sell limit of $1510.Whenever the market price reaches the sell limit price or higher, the trader s position will be executed at the sell limit price. Note: - These orders are automatically cancelled at the end of the day, unless GTC is enabled. Stop loss Market Orders It is an order that can protect a trader against a sharp market movement against his position. The main purpose is to limit the trader s loss. For instance, if a trader has bought gold at $1500 and if there is a potential for the market to go below $1490, the trader can place a stop loss order at $1490 to limit his losses to only 10$. Similarly, if a trader has sold gold at $1500 and if there is a potential for the market to go above $1520, the trader can place a stop loss order at $1520 to limit his losses to only $20. Placing stop loss is an integral part of trading success. Note: - These orders are automatically cancelled at the end of the day, unless GTC is enabled. Market Orders It is an order that allows a trader to buy or sell at a price prevailing in the market. Before placing an order, it is very important for a trader to check how many lots the market maker is offering to avoid execution of trade at random quotes. 32 KASB SECURITIES LIMITED

33 Calculations Margin Used: Assumptions: Offer Price x Number of lots x Exchange Rate x Margin Price = $1750/Oz Exchange Rate = PKRs.87 Margin = 6.25% Number of lots = 1 (1750 x 1 x 87 x 6.25%) = PKRs. 9, Profit Earned: Assumptions: (Purchase price-bid Price) x Number of lots x Exchange Rate Offer price = $1770/oz Bid Price = $1750/oz Exchange Rate = PKRs.87 Number of lots = 1 ( ) x 1 x 87 = PKRs Note: Gold prices, Exchange rate and Margin are subject to change. Above calculations do not include commissions. 33 KASB SECURITIES LIMITED

34 Calculations Break Even Price: Purchase Price + [Commission charged by KASB & PMEX fee x Number of lots] Exchange Rate Assumptions: Market Price = $1,750/oz Number of Lots = 1 Exchange rate = PKRs.87 Commission charged by KASB = PKRs.25 ( each side) Fee charged by PMEX = PKRs.25 (each side) [(25x2 + 25x2) x 1] = $ rounded to $ Breakeven Cost = ( ) $1.15 Note: Gold prices, Exchange rate and Margin are subject to change. 34 KASB SECURITIES LIMITED

35 Reports tab provides you with the following options: Reports 35 KASB SECURITIES LIMITED

36 Reports - Categories Client Portal- You can view various options which will provide you details to your account. News Wires- Displays daily news releases. Order Details- Displays orders placed, filled and cancelled during the day. Risk Watch- The color of details on this page turns Yellow when you are about to reach 90% of Buying Power used. It is Red when you exceed the above stated percentage. Economic Calendar- Displays daily economic data releases. 36 KASB SECURITIES LIMITED

37 You will be directed to the following page. Client Portal Input your TraderID and Password and click on the Login tab. 37 KASB SECURITIES LIMITED

38 You will be directed to the following page. Client Portal 38 KASB SECURITIES LIMITED

39 Client Portal General Ledger- Displays net balance, debit and credit of funds. Funds Detail- Displays inflow and outflow of cash to/from your account. Trade Details- Displays entire trading history in detail with time, date, buy/sell position etc. Position Summary- Displays current net positions taken. Account Statement- Displays mark-to-market net balance for the day. Daily Statement- Displays net balance with details of net positions taken. % BP Used: Buying power is the amount of excess margin you have available in your account. The percentage buying power is the percentage of total cash used in the account along with maximum margin available. 39 KASB SECURITIES LIMITED

40 Fundamental Analysis Economic Indicators Economic indicators facilitate investment decisions. They help anticipate growth of major economies that can affect commodities. Actual results of indicators are compared with expectations. The difference between the two, impacts commodity prices. Commodity Price Indices: These Indices track daily market prices of commodities and raw materials. Consumer Price Index (CPI): Consumer prices account for a majority of overall inflation. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates out of respect for their inflation containment mandate. Producer Price Index (PPI): It's a leading indicator of consumer inflation - when manufacturers charge more for goods the higher costs are usually passed on to the consumer. GDP (Gross Domestic Product): It's the broadest measure of economic activity and the primary gauge of the economy's health. Housing Data: It's an excellent gauge of future construction activity because obtaining a permit is among the first steps in constructing a new building. Industrial Production: It's a leading indicator of economic health - production reacts quickly to ups and downs in the business cycle and is correlated with consumer conditions such as employment levels and earnings SOURCE: 40 KASB SECURITIES LIMITED

41 Fundamental Analysis Economic Indicators Non Farm Payroll: Job creation is an important leading indicator of consumer spending, which accounts for a majority of overall economic activity. Trade Balance: Export demand and currency demand are directly linked because foreigners must buy the domestic currency to pay for the nation's exports. Export demand also impacts production and prices at domestic manufacturers. Current Account: It's directly linked to currency demand - a rising surplus indicates that foreigners are buying more of the domestic currency to execute transactions in the country. Money Supply: It's positively correlated with interest rates - early in the economic cycle an increasing supply of money leads to additional spending and investment, and later in the cycle expanding money supply leads to inflation. Oil Inventories: Change in the number of barrels of crude oil held in inventory by commercial firms during the past week. Unemployment rate: Although it's generally viewed as a lagging indicator, the number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labor-market conditions. Retail Sales: It's the primary gauge of consumer spending, which accounts for the majority of overall economic activity. Monetary Policy Statements and Interest Rate Decisions: A sudden unexpected change in interest rates will trigger sharp currency moves, impacting commodity prices. SOURCE: 41 KASB SECURITIES LIMITED

42 Technical Analysis Technical Analysis Technical analysis is used to forecast the direction of prices through the study of past market data; primarily prices and volumes. Support and Resistance Support It is an area where previous buying has occurred. Once breached, it becomes an area of resistance. Resistance It is an area where previous selling has occurred. Once breached, it becomes an area of support. One should ideally buy above the support levels and sell close to resistance levels. Trend lines They generally define the market direction. Daily price range of commodities are connected through their highs and lows to judge the market trend for a specific duration. Channels Sometimes the line connecting the highs and lows are roughly parallel, thus creating a channel formation. These channels depict major uptrends and downtrends in the markets. 42 KASB SECURITIES LIMITED

43 Technical Analysis Support And Resistance Red horizontal lines represent support and resistance levels. Once the support is penetrated it becomes the resistance, and vice versa. 43 KASB SECURITIES LIMITED

44 Technical Analysis Trend Lines 44 KASB SECURITIES LIMITED

45 Technical Analysis Upward Channel 45 KASB SECURITIES LIMITED

46 Technical Analysis Downward Channel 46 KASB SECURITIES LIMITED

47 Contacts KASB Sales and Trading Head of Commodities Contact Number Mustafa Sattar +92 (021) mustafa.sattar@kasb.com Trader Contact Number Karachi Ziyad Bin Zubair +92 (021) ext 453 ziyad.zubair@kasb.com Sharjeel Soomro +92 (021) ext 454 sharjeel.soomro@kasb.com Tahir Imam +92 (021) ext 335 tahir.imam@kasb.com Zubair Sattar +92 (021) ext 457 zubair.sattar@kasb.com Ahmed Hanif +92 (021) ext 458 ahmed.hanif@kasb.com Kamal Ahmed +92 (021) ext 456 kamal.ahmed@kasb.com Lahore Farhan Ahmed +92 (042) ext 203 farhan.ahmad@kasb.com Ghazanfar Ali +92 (042) ext 222 ghazanfar.ali@kasb.com Islamabad Zahid Mahmood +92 (051) ext 211 zahid.mahmood@kasb.com Junaid Ali +92 (051) ext 212 junaid.ali@kasb.com Atif Baig +92 (051) ext 217 atif.baig@kasb.com 47 KASB SECURITIES LIMITED

48 Contacts Commodity Contacts For additional information on Commodities please contact our Commodities Team: KASB Securities 5 th Floor, Trade Center, I.I.Chundrigar Road Karachi, Pakistan UAN: commodities@kasb.com 48 KASB SECURITIES LIMITED

49 Disclaimer This presentation and the analysis enclosed in this presentation should not be used as the sole base for any investment decision by any of the investors. KASB adheres to the code of conduct and ethical standards set by the CFA Institute and it encourages its clients to abide by these rules & guidelines. We hereby certify that the views expressed in this research presentation about securities and issues accurately reflect the respective research models applied in the analysis. This proposal is for discussion purposes only. KASB is not an expert on, and does not render opinions regarding, legal, accounting, regulatory or tax matters. You should consult with your advisors concerning these matters before undertaking the proposed transaction. 49 KASB SECURITIES LIMITED

50 KASB Securities Limited Offices Head Office - Karachi Lahore Islamabad 5th floor, Trade Centre, 2nd floor, Fountain Avenue Building No. 2, 90-91, Razia Sharif Plaza, Jinnah Avenue, I.I. Chundrigar Road 64, Main Boulevard, Gulberg Blue Area UAN: UAN: UAN: FAX: FAX: FAX: kasbho@kasb.com kasblhr@kasb.com kasbisb@kasb.com Gulshan-e-Iqbal Office Karachi Rahim Yar Khan Office Multan Friends Paradise, 1 st Floor, Plot No. 29, City Park Chowk, Ground Floor, SB-36, Block No. 13-B, Town Hall Road State Life Building, KDA Scheme # 24, Abdali Road Main University Road Phone: ,64,66 Phone: ,54 UAN: FAX: FAX: FAX: kasbdirect@kasb.com kasbdirect@kasb.com kasbdirect@kasb.com Gujranwala Peshawar 81, Ground Floor, First Floor, Gujranwala Development, State Life Building, Authority Trust Plaza, 34 The Mall, Peshawar Cantt., Gujranwala Peshawar Phone: Phone: FAX: FAX: kasblhr@kasb.com kasblhr@kasb.com 50 KASB SECURITIES LIMITED