commodity trading - where to begin

KASB SECURITIES LIMITED

INTRODUCTION TO COMMODITY TRADING


2 KASB SECURITIES LIMITED

Commodity Trading

KASB Securities

FXFixed IncomeEquities Commodities

Sales/Trading/Research

Products & Services

Client Base We serve more than 15,000 clients

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

One of the oldest and largest pure agency brokerage firms in Pakistan today providing a full spectrum of products and services


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

Commodity Trading


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

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. PMEXs shareholders are Karachi Stock Exchange, Lahore Stock Exchange, Islamabad Stock Exchange, Pak Kuwait Investment Company (Pvt.) Limited, and Zarai Taraqiati Bank Ltd

Pakistan Mercantile Exchange Limited

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PMEX Volume in PKR bn

Commodity Trading


Global Perspective

Money Supply & Central Bank Action

US Financial Crisis

EU Stability

Government and Central Bank Actions

Possible introduction of Quantitative Easing

Global Growth going forward

Interest Rates

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:

Commodity Trading


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.

Reasons For The Rise In The Price Of Gold

The Rise Of Gold

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US

D/O

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5 Year return 200%

3 Year return 107%

1 Year return 40%

Commodity Trading


Gold Breakdown

An alternate currency for central banks

Perceived hedge against uncertainty

Beneficiary of USD weakness

ETFs- new investors

Safe Haven Status

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

INVESTMENT DEMAND 10-30% of total demand

JEWELLERY DEMAND 60-80% of total demand

Commodity Trading


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CPI Gold PKR Returns

Gold Return & Inflation Hedge

1999 - 2009CPI 7.5% p.a.Gold 21% p.a.

Gold Reserves Depreciation of PKR Vs USD

7.5% ANNUAL DEPRECIATION IN THE LAST 20 YEARS.

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

Commodity Trading


Risks

Risks To The Price Of Gold

High Gold Prices

Money Supply

Inflation

Economic Recovery

Dollar

Central Bank

Buying / Selling

Commodity Trading


Product Specification & Commission Structure

Commodity Trading

commoditiesPlaced Image


Contract Tola Gold (11.664 Grams)

Specs 24 Karat, imported from Dubai

Brands ARY

Storage & Insurance Gold can be stored at the PMEX vault. 1% annual charge is in place which covers both storage and insurance costs

Delivery 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.)

Trading Physical Gold is tradable online from anywhere in the world

Payment 100% margin must be deposited in the account. 100% of the value of the transaction will be deducted at the time of order placement.

Market timings Same as Futures (5.00 am to 2.00 am)

Market Maker 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.

Advantages Market timingsOnline tradingBuyer and seller always available at market price unlike local sarafa bazarStorage and insuranceNo leverage

PMEX Physical Gold Contract Specifications

Physical Gold


Physical Delivery Account Opened

Maximum 5 day contract. Settlement date is one business day after expiry date.

PMEX takes 5 business days to complete the

delivery process

Client will go with Broker to PMEX vault to collect

Delivery

Physical Gold allocated in vault on settlement date

Client provides withdrawal request for

Physical delivery.

Deposit 100% Margin

Trade Executed

Broker notifies Client once Delivery is ready

Process for Delivery of Physical Gold

Recommendation

For ShariahCompliance, it is recommended to buy/sell in the contract nearest to expiry.

Note

Minimum 10 Tolamust 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

Physical Gold


To Login to your Trading Account

Click on Login Client Login NEXT Trading Terminal Login Based

The Trading Platform



You will be directed to the following page.

Click on the second option Continue to this website (not recommended)





Input your TraderID and Password and click on Login tab.



Main Screen



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


Add or Remove Contracts

Move the cursor to Profiles and click Contract profiles.




Following window will appear on your screen.




Left column shows all types of contracts. Right column is to view contracts of your choice.

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.



Remove a Contract

Click on a contract in the right column

Click on a contract in the right column and press to remove it from view contracts



Order Placement

Click to sell a contract

Click to buy a contract

1. Select BUY or SELL on the bottom of the screen.



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



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.



Order Placement

6. Type the amount of lots.

7. Type the price if its a limit or stoploss order. If you are placing a market order, the price section does not need to be filled.



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 cancancel their GTC orders in first 3 minutes of pre-open.



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.



Working Orders

Press the working orders tab to check your limits/ stoploss orders.



Positions

Press the POSITIONS tab to check your existing long or short contracts.



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.


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 istrading at $1500 and the trader would like to purchase at a lower price of $1490. The trader in this case would place a buy limitof $1490. Whenever the market price reaches the buy limit price or lower, the traders position will be executed at the buy limitprice. Similarly, if gold is trading at $1500 and the trader would like to sell at a higher price of $1510, the trader in this casewould place a sell limit of $1510.Whenever the market price reaches the sell limit price or higher, the traders position will beexecuted 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 thetraders loss. For instance, if a trader has bought gold at $1500 and if there is a potential for the market to go below $1490, thetrader 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 ifthere 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 importantfor a trader to check how many lots the market maker is offering to avoid execution of trade at random quotes.



Calculations

Margin Used:

Offer Price x Number of lots x Exchange Rate x MarginAssumptions:

Price = $1750/OzExchange Rate = PKRs.87Margin = 6.25%Number of lots = 1

(1750 x 1 x 87 x 6.25%) = PKRs. 9,515.625

Profit Earned:

(Purchase price-Bid Price) x Number of lots x Exchange RateAssumptions:

Offer price = $1770/ozBid Price = $1750/ozExchange Rate = PKRs.87Number of lots = 1

(1770 1750) x 1 x 87 = PKRs. 1740

Note: Gold prices, Exchange rate and Margin are subject to change. Above calculations do not include commissions.



Calculations

Break Even Price:

Purchase Price + [Commission charged by KASB & PMEX fee x Number of lots]

Assumptions:

Market Price = $1,750/ozNumber of Lots = 1Exchange rate = PKRs.87Commission charged by KASB = PKRs.25 ( each side)Fee charged by PMEX = PKRs.25 (each side)

1750 + [(25x2 + 25x2) x 1] = $1751.149 rounded to $1.15

Breakeven Cost = (1751.15 1750) $1.15

Note: Gold prices, Exchange rate and Margin are subject to change.

Exchange Rate

87



Reports

Reports tab provides you with the following options:



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 Powerused. It is Red when you exceed the above stated percentage.

Economic Calendar- Displays daily economic data releases.



Client Portal


Input your TraderID and Password and click on the Login tab.



Client Portal




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 poweris the percentage of total cash used in the account along with maximum margin available.



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 currencyvaluation 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 thehigher 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 inconstructing a new building.

Industrial Production: It's a leading indicator of economic health - production reacts quickly to ups and downs in the businesscycle and is correlated with consumer conditions such as employment levels and earnings

SOURCE: www.forexfactory.com

Fundamental Analysis


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: www.forexfactory.com

Fundamental Analysis

Economic Indicators


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.

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.

Technical Analysis

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Trend Lines

Technical Analysis


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Upward Channel

Technical Analysis


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Downward Channel

Technical Analysis



KASB Sales and Trading

Head of Commodities Contact Number Email

Mustafa Sattar +92 (021) - 111-222-000 [email protected]

Trader Contact Number Email

Karachi

Ziyad Bin Zubair +92 (021) - 111-222-000 ext 453 [email protected]

Sharjeel Soomro +92 (021) - 111-222-000 ext 454 [email protected]

Tahir Imam +92 (021) - 111-222-000 ext 335 [email protected]

Zubair Sattar +92 (021) - 111-222-000 ext 457 [email protected]

Ahmed Hanif +92 (021) - 111-222-000 ext 458 [email protected]

Kamal Ahmed +92 (021) - 111-222-000 ext 456 [email protected]

Lahore

Farhan Ahmed +92 (042) - 111-222-000 ext 203 [email protected]

Ghazanfar Ali +92 (042) - 111-222-000 ext 222 [email protected]

Islamabad

Zahid Mahmood +92 (051) - 111-222-000 ext 211 [email protected]

Junaid Ali +92 (051) - 111-222-000 ext 212 [email protected]

Atif Baig +92 (051) - 111-222-000 ext 217 [email protected]

Contacts


Commodity Contacts

For additional information on Commodities please contact our Commodities Team:

KASB Securities5th Floor, Trade Center, I.I.Chundrigar Road

Karachi, PakistanUAN: 111-222-000

Email: [email protected]

Contacts


Disclaimer

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


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: +92 21 111 222 000 UAN: +92 42 111 222 000 UAN: +92 51 111 222 000

FAX: +92 21 3263 0202 FAX: +92 42 3578 7545 FAX: +92 51 227 2841

email: [email protected] email: [email protected] email: [email protected]

Gulshan-e-Iqbal Office Karachi Rahim Yar Khan Office Multan

Friends Paradise, 1st 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: +92 21 3498 0763,64,66 Phone: +92 68 587 3252,54 UAN: +92 61 450 0273-76

FAX: +92 21 3498 0761 FAX: +92 68 587 3251 FAX: +92 61 450 0272

email: [email protected] email: [email protected] email: [email protected]

Gujranwala Peshawar

81, Ground Floor, First Floor,

Gujranwala Development, State Life Building ,

Authority Trust Plaza, 34 The Mall, Peshawar Cantt.,

Gujranwala Peshawar

Phone: +92 55 382 2501- 04 Phone: +92 91 527 6025-28

FAX: +92 55 382 2505 FAX: +92 91 527 1537

email: [email protected] email: [email protected]

commodity trading - where to begin

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