• Presently, all futures contracts on MCX-SX are cash settled. There are no physical contracts.
• All trade on MCX-SX takes place on its nationwide electronic trading platform that can be accessed from dedicated terminals at locations of the members of the exchange.
• All participants on the MCX-SX trading platform have to participate only through trading members of the Exchange.
• Participants have to open a trading account and deposit stipulated cash/collaterals with the trading member.
• MCX-SX stands in as the counterparty for each transaction; so participants need not worry about default.
• In the event of a default, MCX-SX will step in and fulfill the obligations of the defaulting party, and then proceed to recover dues and penalties from them.
• Those who entered either by buying (long) or selling (short) a futures contract can close their contract obligations by squaring-off their positions at any time during the life of that contract by taking opposite position in the same contract.
• A long (buy) position holder has to short (sell) the contract to square off his/her position or vice versa.
• Participants will be relieved of their contract obligations to the extent they square off their positions.
• All contracts that remain open at expiry are settled in Indian rupees in cash at the reference rate specified by RBI.

Example 1:
Suppose an edible oil importer wants to import edible oil worth USD 100,000 and places his import order on July 15, 2008, with the delivery date being 4 months ahead. At the time when the contract is placed, in the spot market, one USD was worth say INR 44.50. But, suppose the Indian Rupee depreciates to INR 44.75 per USD when the payment is due in October 2008, the value of the payment for the importer goes up to INR 4,475,000 rather than INR 4,450,000. The hedging strategy for the importer, thus, would be:

Example 2:
A jeweller who is exporting gold jewellery worth USD 50,000, wants protection against possible Indian Rupee appreciation in Dec ’08, i.e. when he receives his payment. He wants to lock-in the exchange rate for the above transaction. His strategy would be:

The net receipt in INR for the hedged transaction would be: 50,000 *44.35 + 15,000 = 2,217,500 + 15,000 = 2,232,500. Had he not participated in futures market, he would have got only INR 2,217,500. Thus, he kept his sales unexposed to foreign exchange rate risk.

• The global production of pepper fluctuates between 3-3.5 lakh tons tons, with a production of 3.25 lakh tons recorded in 2003. 
• Vietnam (85000 tons), Indonesia (67000 tons), India (65000 tons), Brazil (35000 tons), Malaysia (22000 tons), Sri Lanka (12750 tons), Thailand, China are the major producers of pepper in the World. 
• Vietnam's sudden increase in production has resulted in the global production, increasing to 3-3.5 lakh tons from 1.9-2 lakh tons in the late nineties. Vietnam is the world's largest producer and exporter of pepper in the world now. 
• The global exports of pepper are around 2-2.5 lakh tons, with 2.29 lakh tons being exported in 2003. 
• The major exporters of pepper are Vietnam (82000 tons), Indonesia (57000 tons), Brazil (37940 tons), Malaysia (18500 tons) and India (17200 tons).

Major World Markets

• New York, Singapore and Rotterdam are major international trading centers for pepper. The primary international grades and their markets are Lampung at Panjang (Indonesia), Sarawak at Kuching (Malaysia), Vietnam at HCM City (Vietnam). However, Malabar grade of pepper from India traded at Kochi, Kerala is considered to be the premium grade of pepper and rules above the international grades.

Indian Scenario

• India harvests most of its pepper at the beginning of the year. During 2003, production of pepper in India was reported to be 65,000 tons against 80,000 tons in 2002. 
• Kerala accounts for 90% of India's pepper production. The other producers are Karnataka and Tamil Nadu. 
• During 2003, Indian exports of pepper amounted to 17,200 tons, registering a 31% fall compared to exports of 24,914 tons in 2002. The export in 2003 was the lowest quantity of pepper exported from India during the last four decades. This quantity was only 64% of the average export over the last five years. In terms of export share, India contributed only 8% to total producing country exports in 2003, a fall from the 14% of average share during last five years. 

Developments in the spice industry in India have significantly affected exports. During 2003, export of whole pepper from India was only 26% of the total production, against 31% during 2002. The main market for Malabar black was United States, which traditionally imported around 50% of India's exports, followed by Canada, Netherlands and Italy. However, during 2003, only 30% of India's export was shipped to the United States.

Major Indian Markets

• Kochi, Sulthan Bathery in Kerala are the major primary markets. Nagpur, Indore and Delhi have recently developed as the major up country markets for pepper.

Markets Influencing Factors

• Indian pepper is at a premium against all the international grades. However, the production and exports of pepper from other locations has a profound influence on Indian pepper prices too. 
• Weather and the annual production of a year. 
• Year ending stocks and stocks-to-consumption.
• Indian pepper arrives in the market in the beginning of the year. However, distress selling is not witnessed in pepper and the producers hold back the stock in anticipation of better prices.
• Government policies with regard to imports and exports.

Traders allege large-scale imports of pepper from Sri Lanka and re-export from India as a major price depressing factor and Government has been asked to take measures to stop this practice.

• The world’s economies have been built upon fossil fuels derived from crude oil. Crude oil is a mixture of hydrocarbons that exists in a liquid phase in natural underground reservoirs. Oil and gas account for about 60 per cent of the total world's primary energy consumption. Almost all industries including agriculture are dependent on oil in one way or other. Oil & lubricants, transportation, petrochemicals, pesticides and insecticides, paints, perfumes, etc. are largely and directly affected by the oil prices. Aviation gasoline, motor gasoline, naphtha, kerosene, jet fuel, distillate fuel oil, residual fuel oil, liquefied petroleum gas, lubricants, paraffin wax, petroleum coke, asphalt and other products are obtained from the processing of crude and other hydrocarbon compounds. The prices of crude are highly volatile. High oil prices lead to inflation that in turn increases input costs; reduces non-oil demand and lower investment in net oil importing countries.

• West Texas Intermediate (WTI) crude oil is of very high quality. Its API gravity is 39.6 degrees (making it a "light" crude oil), and it contains only about 0.24 percent of sulphur (making a "sweet" crude oil). WTI is generally priced at about a $2-4 per-barrel premium to OPEC Basket price and about $1-2 per barrel premium to Brent, although on a daily basis the pricing relationships between these can very greatly.
• Brent Crude Oil stands as a benchmark for Europe and is mostly drilled from the North Sea.
• India is very much reliant on oil from the Middle East (High Sulphur). The OPEC has identified China & India as their main buyers of oil in Asia for several years to come.

• 1 US barrel = 42 US gallons.
• 1 US barrel = 158.98 litres.
• 1 tonne = 7.33 barrels .
• 1 short ton = 6.65 barrels .
• Note: barrels per tonne vary from origin to origin.

Market Influencing Factors

• OPEC output and supply . 
• Terrorism, Weather/storms, War and any other unforeseen geopolitical factors that causes supply disruptions. 
• Global demand particularly from emerging nations.
• Dollar fluctuations.
• DOE / API imports and stocks.
• Refinery fires & funds buying.

Standard trading unit for crude oil is 100 barrels. The prices are quoted with respect to a single barrel. Initial margin is 5% and delivery margin is 25%. Trading time for crude oil, unlike other commodities extend to 11:30 pm.
Internationally Crude Oil is one of the commodities that are the focus of hedge funds and hence is actively traded. The impact of these futures price surges of oil have hit the world prices of petrol and diesel . Our country too has faced the increasing prices of crude.  Local market volumes are not as considerable as what is traded outside India, but it is one of the commodities to bet on.