Developing the business of commodity future contract at Techcombank - from a marketing perspective

VIETNAM NATIONAL UNIVERSITY, HANOI
SCHOOL OF BUSINESS
M
— H S 13 —
1 HADKRSMiP KXC» I I hNCfc
Nguyen The Tung
DEVELOPING THE BUSINESS OF COMMODITY FUTURE CONTRACT
AT TECHCOMBANK - FROM A MARKETING PERSPECTIVE
Major: Business Administration
Code: 60 34 05
MASTER OF BUSINESS ADMINISTRATION THESIS
Supervisors:
1. Dr. Tran Doan Kim
2. Ph.I) Candidate Tran Phuong Lan
Hanoi - 2009
T A B L E O F C O N T E N T S
A c k n o w l e d g e m e n t i
A b s t r a c t ii
T ó m t ắ t
V
T a b l e o f c o n t e n t s vi
L ist o f T a b l e s
X
L ist o f F i g u r e s xi
P R E F A C E 6
C h a p t e r 1. L i t e r a t u r e R e v i e w 9
1.1 G e n e r a l t h e o r y o f M a r k e t i n g 9
1.1.1. D e fin itio n o f M a r k e t in g 9
1.1.2. E x tern al a n d Internal E n v ir o n m e n t s
9
1.1.2.1. M ac ro E n v ir o n m e n t1 9

1.1.2.2. In te rnal E n v i r o n m e n t 11
1.1.3. S e lec tin g M ar k e t S e g m e n t 1 12
1.1.4. P o sitio n in g 1 14
1.1.5. M ark e tin g M i x ' 16
1.1.5.1 P r o d u c t 16
1.1.5.2 P r ic e 17
1.1.5.3 P l a c e 17
1.1.5.4 P r o m o t io n 18
1.1.5.5 P e o p l e 19
1.1.5.6 P r o c e s s 2 0
1.1.5.7 P h y sic al E v i d e n c e 2 0
1.2. G e n e r a l C o n c e p t o f C o m m o d i ty F u t u r e C o n t r a c t 20
VI
1.2.1. D efin itio n o f C o m m o d ity F utu re C o n t ra c t

2 0
1.2.2. T y p e s o f C o m m o d it y F u tu re C o n t ra c t 22
1.2.3. T h e d e v e l o p m e n t o f c o m m o d i t y fu ture co ntra ct in th e w o r ld 1

22
1.2.4. B en efits o f C o m m o d it y F u tu re C o n t r a c t
24
1.2.4.1. T a rg et c u sto m e rs o f the C o m m o d ity F u tu re C o n tr a c t

24
1.2.4.2. B e ne fits o f c o m m o d i ty futu re c o n tr a c t
25
1.2.5. Issues o n d ev e lo p in g C o m m o d ity Fu tu re C o n t r a c t 27
1.2.5.1. T h e S ta ge o f e c on o m ic d e v e lo p m e n t 2 7
1.2.5.2. P ric ing C o m m o d ity Fu tu re C o n t r a c t 28

1.2.5.2.1. G e ne ra l P ricin g M e t h o d s 2 9
1.2.5.2.2. P ricin g M e th o d for C o m m o d ity F u tu re C o n tr a c t

30
1.2.5.3. T h e d istrib utio n c h a n n e l s 31
1.2.5.4. P ro c ess in d e liv erin g c o m m o d it y fu ture c o n tr ac t 32
1.2.5.5. S p e c ific atio n o f th e C o m m o d i ty F u tu re C o n tr a c t 35
1.2.5.6. P e o p l e 3 6
1.2.6. O v e rv ie w o f th e d e v e lo p m e n t o f c o m m o d ity fu ture c o n tra ct in V ie tn a m
3 6
Chapter 2. Analyzing the marketing situation of TechcombankDs
Commodity Future Contact Business
38
2.1.

Overview of Techcombank
38
2.1.1. In tro d uc tio n ab o u t T e c h c o m b a n k 3 8
2.1.2. V isio n a n d M is s i o n 41
2.1.3. M a n a g er ia l S tru c tu re 41
2.1.4. B ra n d C o m m i tm e n t 4 4
2.1.5. C o re V a l u e 4 4
2.2. External and internal Environment 45
2.2.1. P E S T 'a n a ly s is 4 5
2.2.1.1 . Po litic al F a c to r s 4 5
2 .2 .1.2. E c o n o m i c F a c t o r s 4 6
2.2 .1.3. S o cia l F a c to rs 4 7
2.2 .1.4 . T e c h n olo g ic a l F a c to r s 4 8
2.2 .1.5. In tern atio nal F a c t o r s 4 8
2 .2.2 S W O T a n a ly s is 50

2.2 .2.1. S tre n g th F a c to r s 50
2 .2.2 .2. W e a k n e s s F a c t o r s 51
2.2 .2.3. O p p o rtu n ity F a c to r s 51
2.2 .2.4. T h r e a t F a c to r s 52
2.3. T a r g e t S e g m e n t
53
2.4. P o s it io n in g 54
2.5. M a r k e t i n g M i x 55
2.5.1 P r o d u c t 55
2.5.2. P ric e 56
2.5 .3 P l a c e 57
2 .5.4 P r o m o t io n 5 7
2.5 .5 P e o p l e 57
2.5 .6 P r o c e ss 58
2 .5.7 Ph y sic al E v id e n c e 60
2.6. R e m a i n e d p r o b l e m s 61
2.6.1. E x t e r n a l 61
2.6.2. I n t e r n a l 62
C h a p t e r 3. M a r k e ti n g R e c o m m e n d a ti o n s f o r d e v e l o p in g th e b u s in e s s of
C o m m o d i t y F u t u r e C o n t r a c t s a t T e c h c o m b a n k 64
3.1 . S trateg ic O b je ctiv e s o f T e c h c o m B a n k 6 4
3.1.1 T h e w h o le B a n k 's O b je c tiv e s 64
3.1.2 T h e C o m m o d ity F u tu re C o n tra ct O b je c tiv e s at T e c h c o m b a n k

65
3.2 M ark e tin g R e c o m m e n d a tio n s for d e v e lo p in g the b u sin e ss o f

6 6
C o m m o d i ty F u tu re C o n tr ac ts at T e c h c o m b a n k
66

3.2.1 E x tern al f a c t o r s 6 6
3.2.2 In ternal f a c to r s 67
3.2.2.1. T a rg et S e g m e n t 67
3.2.2.2. P o s it io n in g 6 7
3.2.2.3. M ark e tin g M i x 68
3.2.2.4. B u d g et for M a rk e tin g 75
3.2.2.5. C h a n n e l D iffe re n tia tio n 76
3.2.2.6. P u b lis h in g a h a n d b o o k for C u s to m e r s 77
C o n c l u s i o n 7 9
R e f e r e n c e 81
A p p e n d i x 1: Q u e s ti o n n a ir e 83
A p p e n d i x 2: P rice D ifferen tial o f C ru d e O il an d G o l d 93
A p p e n d i x 3 : H e d g in g R e gu la tio ns an d M eth o d s 95
A p p e n d i x 4 : 9 6
2.7.1. C o m m o d it y F u tu re C o ntra ct for R u b b e r 9 6
2.7.2. C o m m o d i ty F u tu re C o n trac t for C o f f e e 101
2.7.3. C o m m o d i ty F u tu re C on tra ct for C b o t 103
2.7.4. C o m m o d ity F u tu re C on tra ct fo r M e ta l 104
List of Tables
ab le 2.1. M an a g e ria l S tru ctu re at T e c h c o m b a n k
ab le 2.2. C o m m o d ity F u tu re C o n tra ct at T e c h c o m b a n k
x
List of Figures
T a b le 1.1. P rice D iffe re ntia l o f C ru d e O il to Ju ly 2 0 0 8 88
T a b le 1.2. P rice D if f ere ntia l o f G o ld to J uly 2 0 0 8 89
f a b le 2.3 R u b b e r - P rices a nd T ra d in g V o l u m e 92
T a b le 2.4. P rice D iffe ren tia l o f R u b b e r to O c to b e r 2 0 0 8

95
T a b le 2.5 P ric e D iffe re ntia l o f C o ffe e R o b u s ta to O c to b e r 2 0 0 8

9 7
T a b le 2 .6 Initial & M ain te n a n c e M a rg in E x c h a n g e M in im u m M a r g i n s

98
T a b le 2.7. P rice D iffere ntial o f S o y b e a n to O c to b e r 2 0 0 8 9 9
T a b le 2.8. P ric e D iffe ren tia l o f T in to O c to b e r 2 0 0 8

101
XI
Preface
G lo b a liz a tio n a n d In teg ratin g into intern atio nal e c o n o m y are the
in d is p e n sa b le te n d e n c y to o u r c o u n try ’s e c o n o m y , e sp e cia lly w h e n V ie tn a m
h as jo in e d W T O . T h e s e w ill b rin g bo th m a n y o p p o rtu n itie s a n d c h allen g es to
th e field o f B a n k in g an d F in an c e o f V ie tn am . It is p oss ib le to sa y that,
in te rn atio n al ch a n g e s h a v e m o re an d m o re im p orta n t im p ac ts o n the B a n k in g
a n d F in a n c e o f th e C o un try , th e se re qu ire that the B a n k in g In du stry h a s to be
ex p lic it in in fo rm atio n , e n co u r ag e th e liq uid atio n ab ility an d to b e ac tive to
h a v e m et h o d s a n d too ls to p re ve n t the risk to d im in is h th e risk. A m o n g th em ,
d e v e lo p in g D e riv ativ e s M a rk e t in g en eral a nd F utu re M ark e t in p artic u lar is
o n e o f im p o rta n t so lutio ns. B ec au se, th e D e riv a tiv es M a rk e t w ill co n trib u te to
th e e n c o u r a g e m en t o f three m a in serv ices, in clud ing : sh a rin g th e risk,
liq u id atio n a n d in fo rm a tio n that th e fin an cial m a rk e t h as pro v id ed .
T e c h c o m b a n k w ith o v e r 15 y ea rs o f e sta b lis hm e n t a nd d e v e lo p m e n t h as
b e e n a w a r e o f this te n d e n c y as w e ll as a cc ep te d by th e G o v e r n m e n t an d the
S tate b a n k o f V ie tn a m , b e c o m in g the first ba nk o f V ie t n am to p ro v id e the
C o m m o d i ty F u tu re C o n tra ct to V ie tn a m e se E nte rp ris es w ith a v ie w to
p r e v e n tin g risk fro m price d iffe ren tial w h e n th ey de liv er p hy sic al
c o m m o d iti e s in a h u g e m a rk e t w ith m a n y ch a ng e s. T e c h c o m b a n k ha s b e en
tr y in g its be st to p ro v id e this s erv ice activ ely a n d effic ien tly but m o re an d

m o re B a n k s ha v e p ro v id e d this serv ice so T e c h c o m b a n k ha s to im p ro v e this
se rv ic e m o re to attract n e w c u sto m e rs a n d m a in tain c u rre n t o n es to e n s ure its
b u s in e ss be tter a nd better. T h erefo re , the this th esis is a im e d to stu dy an d
p r o p o s e s o lu tio n s to b oth d e ve lo p the se rv ice p la y in g an im p o rta nt ro le in
b u s in e s s res ult o f th e B a n k as w ell as a tool to he lp e nte rp rises av o id risks
fro m p ric e d ifferen tial w h e n d o in g b usin ess.
1
1. Research Objectives
• L ite ra ture re v ie w a b o u t S erv ic e M a rk e tin g as w ell as F u tu re M a rk e t
• A n aly sis a n d p ro p o se s olu tio ns to d e v e lo p th e bu sin e ss o f C o m m o d ity
F u tu re C o n tra ct at T e ch c o m b a n k .
2. Methodology
C a s e S tud y
3. Research questions
T h e the sis u ses s o m e q ue stio n s as fo llo w s to m a k e it cle ar ab o u t the
situ atio n o f T e c h c o m b a n k an d p ro p o se s so lu tion s :
W ha t T e c h c o m b a n k h as d o n e so far to d e ve lo p th e b u sin e s s o f
C o m m o d i t y F u tu re C o n tra ct?
W h a t C o n d itio n s a nd P re-req uisite s w ill it ne ed to d e v e lo p this serv ice
fro m a m a rk e tin g p e rsp ec tiv e ?
4. Scope of work
T h e th esis stu d ies on F utu re M a rk e t as w e ll as facto rs influ en ce a nd
m e a s u re b u sin e ss activities at T e c h c o m b a n k fro m 2 0 05 to 2 0 0 8
5. Data source
T h e th esis base s o n te x tb o ok o f O p tio n s - F u tu re a n d o th e r D eriv ativ e,
M a rk e tin g M a n a g e m e n t, S ale s F o rc e M a n a g e m e n t as w e ll as s o m e w e bs ite s
an d d o c u m e n ts relatin g to this to pic also use to co llect in fo rm a tio n for th e
th e o ry part, to an a ly ze b us in ess activities at T e c h c o m b a n k .
6. Significance
T h e thesis stu dy a n d an a ly ze the bu sin e ss activ ities at T e c h c o m b a n k w ith

a v ie w to p ro p o sin g s olu tio n s to d e v elo p th e b us in ess o f C o m m o d i ty F u tu re
C o n tra c t at T e c h c o m b a n k .
7. Limitation
T h e th esis o n ly s tu d ie s at the B o ard o f C o m m o d i t y - T re a su ry C e n te r o f
T e c h c o m b a n k , th e da ta a n d in fo rm atio n are c olle cte d fro m this B oa rd.
8. Expected Results.
S tu d y in g o n the th e o ry o f M a rk e tin g as w ell as th e th eo ry o f F u tu re
M a rk e t a n d a n a ly z in g th e c ase o f T e c h c o m b a n k to p ro p o s e so lutio ns in o rd er
to d e v e lo p C o m m o d it y F u tu re C o n tra ct at T e c h c o m b a n k an d m a k in g it
b c c o m e o n e o f th e le ad in g b a n k s o f V ie tn a m to p ro v id e financ ial in strum en ts.
9. Structure
E x c lu d in g P re fac e, c o n clu s io n a n d re fe re n ce part, th ere are 3 p a rts in this
th esis as c h a p te r 1, c h a p te r 2 an d ch a p te r 3.
C h a p te r 1 : S h o w i n g th e g ene ral th eo ry o f Serv ice M a rk e tin g as w ell as
C o m m o d it y F u tu r e C o ntra ct, an d the o v e rv ie w o n d e v e lo p m e n t o f
C o m m o d it y F u tu re C o n tra c t in V ie tn am .
C h a p te r 2: A n a ly z in g the m a rk e tin g situa tion o f T e c h c o m b a n k ’s
C o m m o d it y F u tu re C o n tr ac t B u sin e ss.
C h a p te r 3: M a rk e tin g pro p o sa ls for d e v elo p in g the b u s in es s o f
C o m m o d it y F u tu re C o n tr ac t in c o m in g y ea rs an d as a result o f this is that the
b us ine ss re su lt o f th e B a n k w ill b e b etter as w ell as p ro v id in g a be tter
financial too l fo r e n te r prise s to a v oid risks in p rice differe n tial u n d er the
p olic y o f th e P a rty a n d th e G o v e rn m en t w h e n V ie tn a m jo i n e d W T O fro m 1st
J an u a ry 20 0 7.
3
Chapter 1. Literature Review
1.1 General theory of Marketing
1.1.1. Definition of Marketing
T h e re are m a n y de fin itio ns o f m a rk etin g . T h e y are fo cu s ed o n cu sto m e r
o rien tatio n a nd satisfa ctio n o f c u s to m e r need s. A s for Ph ilip K o tle r :

M a rk e tin g is th e social p ro c ess b y w h ic h in div idu als an d g ro u p ob tain w h a t
the y n e ed an d w a n t th ro u g h c re atin g an d e x c h a n g in g p ro d uc ts a n d va lu e w ith
others.
1.1.2. External and Internal Environments
1.1.2.1. Macro Environment1
B e c au s e the b u sin e ss e n v iro n m e n t is m o re a n d m o re c h an g in g
ab n o rm a lly in sid e an d ou ts id e th e c ou ntry . T h ere fo re , it n e ed s to sp ecify these
ex ternal facto rs b e c o m in g an in dis pe n sa b le role in b u ild in g strate gy for
en terp rises. T h e se a re m a c ro fac tors in the m a c ro -e n v ir o n m e n t effe ctin g the
ex isten ce o f a n y o rg an iza tio n . T h e y are po litic al factors, social factors,
e c o n o m ic facto rs, tec hn o lo g ica l factors, e n v iro n m e n ta l factors, legal factors
an d inte rna tion a l factors. T h e re are se v eral m o d e l u se d to a n aly z e m a c ro
e n v iro n m en t, th ey are P E S T ( P olitical, E c o n o m ic , S ocial, T e c h n o lo g ic a l ),
P E S T E L (P olitica l, E c o n o m ic , S ocial, T ec h n o lo g ic al, E n v iro n m e n ta l, L e ga l ),
S L E P T (S o c ia l, L ega l, E c o n o m ic , Political, T e ch n o lo gic al) .
Political factors'.
T h e s e re fer to g o v e rn m e n t p olic y s uc h as the d e g re e o f
in terv en tion in th e e c o n o m y . W h a t g o o d s a n d se rvice s d o e s th e G o v e r n m e n t
w a n t to pr o v id e ? T o w h a t ex te nt d oe s it b elie v e in s u bs id iz in g firm s? W h a t
are its p rio rities in term s o f b us in ess s up p o rt? P olitical d e cis io ns c an h av e a
'C h ap te r 5 - U n d e rs ta n d in g m ark et, M a rk e t D e m an d an d the m a rk e t
E n v ir o nm e n t, M ac ro -e n v iro n m e n t T re n d s a n d F orc es
M a rk e tin g M a n a g e m e n t. S e co n d E d itio n - P hilip K o tle r
4
c o n sid e ra b le im p a c t on m a n y vital a rea s for b us in e ss s uc h as th e ed u c atio n o f
the w o rk fo rc e, th e h e alth o f the n atio n a nd the q ua lity o f the in fra stru ctu re o f
th e e c o n o m y su c h as th e ro a d a n d rail sy ste m .
Economic factors
: T h e s e in clu d e interest rates, tax a tio n c ha ng e s,
e c o n o m ic g ro w th , in flation a n d ex c h a n g e rates, in c o m e d istrib utio n, sav ing ,

d e bt an d cre dit av ailab ility . F o r ex a m p le :
- h ig h er inte rest rates m a y d ete r in v es tm e n t b e ca u s e it co sts m o re to
b or r ow .
- a stro ng c u rre n c y m a y m ak e difficu lt e x p o rtin g b e ca u s e it m a y raise the
p ric e in term s o f fo re ig n cu rre nc y.
- inflation m a y p r o v o k e h ig h er w a g e d e m a n d s fro m e m p lo y e e s an d raise
costs.
- h ig h er n a tio na l in c o m e g ro w th m a y b oo st d e m a n d for a firm 's p ro du cts .
Social factors:
C h a n g e s in soc ial tren d s ca n h av e a c o n sid e ra ble im p ac t
o n th e d e m a n d for a firm 's p ro d u cts a nd the av aila bility an d w illin g n ess o f
in d iv id ua ls to w o rk . A g e , p op u latio n , g e n d er, race, ed u ca tio n, religion ,
m arita l status, la n gu a g e, m o bility , sex u al orie n tatio n, o w n e rsh ip , in c o m e are
so cial factors n e e d to b e ta k e n into co nsid era tion . In V ie t N a m , for ex a m p le ,
th e p op u latio n ha s b e e n y o u ng . T h is h as in cre as ed th e c o sts for th e
G o v e r n m e n t a nd F irm s to b uild in frastru ctu res fo r th e Y o u th to en tertain
th e m s e lv e s a fter a ha rd w o r k in g d a y b e c au s e its staffs are still yo u n g.
Technological factors
: N e w te ch n o lo g ies n ot on ly c rea te n e w p ro d u cts
a n d new ’ p ro c es se s bu t als o pla y an im p o rta n t ro le in re d u cin g co st, im p ro v in g
q ua lity an d le a d in g to in no v atio n . T h e s e d e v e lo p m e n ts c an b en efit c o n su m e rs
as w e ll as th e o rg a n iz atio n s that are p ro v id in g p ro d u cts a n d service s. M P 3
p lay ers, c o m p u te r g a m e s , o nlin e g a m b lin g a nd h ig h d efin itio n T V s are all
n e w m a rk e ts cre ate d by te ch n o lo g ic a l a dv an c e s. O n lin e s h op p in g , b ar c o d in g
5
a n d c o m p u te r a ide d d e sig n are all im p ro v e m e n ts to th e w a y w e d o bu s in ess as
a result o f b ette r te ch n o lo gy .
Environmental factors
: These in clu de ch a n g e s o f w e a th e r a nd c lim a te
w h i c h c an h a v e an im p o rta n t im p ac t on m a n y in du strie s like tex tile &

g a rm e n t, farm in g , tou rism . A n o th e r issue o f e n v iro n m e n ta l facto rs is the
g r o w i n g d esire to p ro tec t th e e n v iro n m e n t fro m th e G o v e r n m e n t that w ill
in c re as e o p e ra tin g co sts o f m a n y firm s
Legal factors:
T h e se are legal re gu la tio n s o f th e G o v e r n m e n t in u sin g
lab or, tre a tm e n t to e m p lo y e e s, m in i m u m w a g es , re cy clin g, etc. T h e se law s
c an in flu e n ce a firm ’s c osts as w e ll as the d e m a n d for its pro du ct.
B es id es, glo bal facto rs are als o m a cr o -e n v iro n m e n ta l factors th at are
ta k e n in a n aly sis recently. G lo b aliz atio n , free tra d e are as b ila tera l/m u ltilate ra l/
tra de a g re e m e n ts, cultural e x c h an g e , etc. ca n in flu en ce th e bu s in ess o f a firm .
International factors'.
V ie tn a m is in teg ra ting into the w o rld a nd reg ion al
e c o n o m y . O n e e n v ir o n m e n t is s a id th at It w ill b e v e ry s ev er e for V ie tn a m e s e
en te rp ris es. D o in g re se arc h o n in terna tion al e n v ir o n m e n t fac to r w ill h e lp
sp e cif y its in fluen tial level to th e o p era tio n o f V ie tn a m e s e en terp rise s.
In te gra tin g is w h e n V ie tn a m r em o v e ba rriers so V ie tn a m e s e a nd foreig n
e n te rp ris es will jo in o n e m a rk e t tha t h as m o re e x citin g an d se ve re
e n v ir o n m e n t.
1.1.2.2. Internal Environment
B e lo w is ve ry use ful fac tors for e nte rp rise to m a k e d ec isio n in its
e n te rp r is e relatin g to th e e x iste n ce a nd d e v e lo p m e n t o f th e F irm . T h e y are
S tre ng th , W e ak n e ss , O p p o rtu n ity , T hreat.
Strength Factors:
T h e y are co re an d o b v io u s c o m p e te n c e s o f o n e
e n te rp ris e as well as th e abilities to d e v e lo p th e c o m p e titiv e a d va n ta ge , su ch
as: p aten t, w e ll k n o w n a nd fa m o u s b ran d , ge tting lo w co st b e c au s e o f co re
6
m a n u fa c tu re , abilities to a p p ro ac h the lu xu ry n atu ra l re so u rc e s an d
d istrib utio n n etw o rk .
Weakness Factors:

T h e F irm tha t has n o stre ng th fa cto r is o n e o f
w e a k n e s s factor. A n d in s o m e ca ses, o n e w e a k n e s s facto r w ill b e ab le to b e a
stre ng th fa cto r an d vice v ersa , for e x am p le : h ig h pro d u ctiv ity is co n s id e re d as
o n e o f s tre n gth facto rs that no an y c o m p e tito r h as it b ut it is also a w e a k n e ss
fa cto r if th e F irm d o es fo cu s on in ve stin g m o r e in pro du ctiv ity, this w ill m a k e
th e firm u n a b le to edit q u ic kly to satisfy the d e m a n d o f cu sto m e rs.
Opportunity Factors:
E x tern al e n v iro n m e n t ca n o p e n m o r e o p po rtu nities
to cre ate p ro fit a nd d e v elo p for th e F in n , su ch as: c u s to m er ’s d e m a n d is
u ns atisfie d, th e a p p e ar an c e o f n e w te ch n olo g y, w e a k m a n a g e m e n t o f law , the
a b o lis h m e n t o f intern atio nal c o m m e r c e b arriers
Threat Factors:
T h e c h a n g e s o f the co n ditio n s a n d e n v iro n m e n t ca n
m a k e th rea ts fo r the firm , su ch as: the c h a n g es o f c u s to m e r s ’ a ttitu de fro m
o n e p r o d u c t o r serv ice o f the firm to an oth er, th e a p p e a r an c e o f s ub stitu tio na l
p ro d u ct/se rv ic e, n e w la w sy ste m , n e w c o m m e rc ia l barriers.
1.1.3. Selecting Market Segment1
A m a rk e t se g m e n t is a s u b g ro u p o f p e o p le or org a n iz atio n s s ha rin g o n e o r
m o r e ch ara cte ris tics that c au s e th e m to h a ve sim ila r p ro d u c t a n d /o r se rv ice
n ee ds. A tru e m a rk e t s eg m e n t m e ets all o f th e fo llo w in g criteria: it is d istin ct
fro m o th er s e g m e n ts (d iffe rent s eg m e n ts h a v e d iffere nt n eed s), it is
h o m o g e n e o u s w ith in the s e g m e n t (e xh ibits c o m m o n n e ed s); it re sp o n ds
sim ilarly to a m a rk e t stim u lus , an d it ca n be re a c h e d by a m a rk e t in terv en tion .
T h e te rm is also u se d w h e n co n s u m e rs w ith iden tical pr o du c t a n d /o r serv ice
n e e d s are div id e d u p into g ro u p s so th ey c an be c h a rg e d d iffe ren t a m o un ts.
C h a p te r 9 - Id en tify ing M a rk e t S e g m e n ts an d se lec tin g targ et m a rk ets.
M ark e tin g M a n a g e m e n t, S e c o n d E d itio n - P hilip K o tler
7
1 h e se ca n b ro a d ly b e v ie w e d as 'positive' an d 'neg ative ' ap p lic atio n s o f the
s am e idea

In o rd e r to e v alu a te an d c h o o se the m a rk e t s e g m e n t, th e firm m u st look
at tw o factors: the se g m e n t's ov erall attrac tiv en ess an d th e c o m p a n y ’s
o bje c tiv e s a n d re so u rce s. First, th e firm m u s t ask w h e th e r a p o ten tial s e g m e n t
h as the c ha ra cte ristic s th at m a k e it g en era lly attractive, su c h as size, g ro w th ,
profitab ility, s ca le e c o n o m ie s a n d lo w risk. S e c o n d the firm m u st c o ns id e r
w h e th e r in ve stin g in th e se g m e n t co u ld m a k e s se n se giv e n th e fir m ’s
o bje ctiv e s a n d re so u rc es. S o m e attrac tiv e s eg m e n ts c o u ld be d is m is se d
b e ca u se th e y d o n ot m e s h w ith th e c o m p a n y 's lo ng te rm o bjec tiv e s, so m e
s ho u ld b e d is m is se d if th e c o m p a n y lac kin g o n e or m o re o f th e c o m p e te n c ie s
n e e de d to o ffe r s u p er io r valu e. T h e re are five p atters o f targ et m a rk e t
sele ction , su ch as: S in g le - S e g m e n t C o n ce n tra tio n , S e lec tiv e S pe cia liza tion ,
P r o d u c t Sp e cia liz atio n , M a rk e t S p ec ializ a tio n an d Full M a rk e t C o v e ra g e
Single-Segment Concentration'.
T h r o u g h c o n ce n tra te d m a rk e tin g , th e
F irm g a in s a th o ro u g h u nd e rsta n d in g o f th e c h o se n s e g m e n t ’s n e ed s an d
ac h ie v e s a s tro n g m a rk e t p re se nc e. F u r th erm o re , e ac h firm e n jo y s op e ra tin g
e c o n o m y b y s p e c ia liz in g in its p ro d u ctio n , distrib utio n a n d p ro m o tio n . If it
g ain s lea de rsh ip , it ca n earn a h igh retu rn o n in v estm e nt. H o w e v er,
c o n ce n tra te d m a rk e tin g in vo lv es risks; the s e g m e n t m a y turn s o ur b e c au s e o f
c h a n g e s in b u y in g p atte r or n e w c o m p e titio n . F o r th ese re aso ns , m a n y F irm s
p re fe r to o p e ra te in m o re tha n o n e se gm e n t.
Selective Specialization'.
T h e firm selec ts a n u m b e r o f se g m e nts , that are
q uite o b je ctiv e ly attra ctiv e a nd a pp ro priate . A n d ea ch s eg m e n t p ro m is es to be
a m o n e y m a k er. T h is stra teg y h as th e ad v a n ta g e o f d iv e rsif yin g the fir m ’s
risk.
8
Product Specialization:
A n o th e r a p p ro a c h is to sp ec ia lize in m a k in g a
ce rta in p r od u c t for s e ve ral se g m e n ts. T h e firm m a k e s d ifferen t m ic ro sc o p es

fo r d iffe re nt c u s to m e r g ro u p s an d b uild s a s tro n g rep u tatio n in the sp e cific
p r o d u c t area. T h e d o w n s id e risk is that the p ro d u c t m a y b e s u p p la n te d b y an
e n tire ly n e w te ch n o lo g y .
Market Specialization:
T h e F irm c o n ce n tra te s o n se rv in g m a n y n e ed s o f
a pa rtic u la r c u s to m e r g ro up . T h e F irm g a in s a stro ng re p u ta tio n in se rv in g this
c u s to m e r g ro u p a n d b e c o m e s a ch a nn el for fu rthe r p ro du c ts th at the c u sto m e r
g r o u p c an use. T h e d o w n s id e risk is tha t th e c u s to m e r g r o u p m a y su ffe r fro m
b u d g e t cuts.
Full Market Coverage:
T h e F irm atte m p ts to se rv e all c u s to m e r g ro u p s
w ith all th e p r o d u c ts th ey m ig h t need . O n ly v ery larg e firm s su ch as I B M ,
G e n e r al M o to rs C o c a C o la ca n u n d e rta k e a full m a rk e t c o v e ra g e strategy.
L a r g e F irm s c a n c o v e r a w h o le m a rk e t th ro u g h u n d iffe re ntia te d m a rk e tin g -
th e firm ig n o re s se g m en t d iffe ren ce s an d g o es after the w h o le m a rk e t w ith
o n e m a r k et o ffe rin g o r d iffe ren tiated m a rk e tin g - the firm o p era tes in se veral
m a r k e t se g m e n ts a n d d e sig n s diffe re nt p ro g r am s fo r e ac h se g m e n t.
1.1.4. Positioning1
P o sitio n in g is th e act o f d e sig n in g the c o m p a n y ’s o ffe rin g a n d im a g e to
o c c u p y a d is tin ctiv e pla c e in the targ et m a r k e t’s m in d. T h e e nd result o f
p o s itio n in g is th e su cc es s fu l c re atio n o f a m a rk e t - fo c u se d v alu e p ro po sitio n ,
a c o g e n t re aso n w h y th e target m a rk e t s h o u ld b u y the p ro d uc t.
Two views of positioning:
T h e w o r d p os itio n in g w a s p o p u la riz ed by
tw o a d v ertisin g ex e c u tiv es. T h e y are se en p os itio n in g as a c rea tiv e ex erc ise
d o n e w ith an e x is tin g p ro du ct.
'C h a p te r 10 - D e v e lo p in g , P ositio n ing an d D iffe re ntia tin g P ro d u c t th ro u gh
th e L ife C y cle . M ark e tin g M a n a g e m e n t, S e co n d E d itio n - Ph ilip K o tler
9
Positioning

starts w ith a pro du ct. A p ie ce o f m e rc h a n d is e, a serv ice, a
c o m p a n y , a n in stitu tion o r e v e n a p e rso n hu t p o s itio n in g is no t w h a t y ou do to
a p ro du ct.
Positioning
is w h a t y o u d o to the m in d o f th e p ro sp ec t. T h a t is, y o u
p os itio n th e p ro d u c t in th e m in d o f th e p rospect.
R ie s a n d T r o u t a rg u e that w e ll- k n o w n p ro d u cts g en e ra lly h o ld a
d istin ctiv e p o sitio n in c u s to m e r s’ m in d. C o c a -C o la , for e x a m p le , h o ld s the
p o sitio n o f w o r ld ’s larg est so ft-d rin k firm. T o c o m p e te ag a ins t this k in d o f
p ositio n, a rival c an s tre n g th en its o w n cu rre n t p os itio n in th e c o n s u m e r’s
m i n d ( the w a y 7- U p A d v e r tis ed itse lf as the U n c o la ), g ra b an u n o cc u p ie d
p ositio n ( a s S n a p p le d id w ith its te a-b as ed b e ve ra ge s), or im p ly that it is in
the c lu b w ith th e “ b e st” .
T r ea c y a n d W ie r s e m a p r o p o se a d iffe ren t p o sitio n in g fra m e w o r k ca lled
Value disciplines.
W ith in its in du stry, a firm c o u ld asp ire to be the
product
leader,
the
operationally excellent firm
o r the
customer intimate firm.
T h is is
b as ed o n th e n o tio n th at e v ery m a rk e t c o n ta in s a m ix o f three ty pe s o f
c u s to m e r. S o m e c u s to m e r s fa v or th e firm that is a d v a n c in g th e tec hn o lo g ica l
fro ntiers (p ro d u c t lead ers hip), o th er c u s to m e rs w a n t hig hly re liab le
p e r fo rm a n c e ( o p e ra tio n a l e x c e llen ce ), an d still o th ers w a n t re sp o n s iv e n es s in
m e e tin g their in d iv id ua l n ee d s ( cu s to m e r in tim a c y). T o s u cc e ed , a bu sin es s
sh o u ld b e c o m e th e b e st at o n e o f th ese v alu e d iscip lines, p e rf o rm a d eq u ate ly
in the o th e r d isc ip lin e s an d c o n tin u e im p r o v in g in all d isc iplin es to fen d o f f

rivals.
E a c h F ir m m u s t d e c id e h o w to stre ss in its p os itio nin g . R ies an d T ro u t
fa vo r o n e c o n s is te n t p o sitio n in g m e ss ag e. W ith this ap p ro a ch , ea c h bra n d is
to u ted a s “ n u m b e r o n e ” o n a p artic u lar attribu te, s uc h as “ be st q u ality ”, ’'b est
se r v ic e ”, “ lo w e r p ric e ” o r ‘ m o s t a d v a n c e d te c h n o lo g y ” . If a F ir m h a m m e r s
10
a w a y at o n e p o sitio n in g a n d d e live rs o n it, it w ill p ro b ab ly be be st k n o w n an d
re ca lled fo r this strength.
1.1.5. Marketing Mix'
E v ery o n e k n o w s that, the s uc ce ss fu l m a rk e tin g c a m p a ig n d e p e n d s on
a d d re ssin g s o m e k e y issues. T h e y are issues, su ch as: w h a t a firm is g o in g to
m a n u fa c tu re , h o w w ill it b e in p os itio n in g in c u s to m e r ’s m in d , h o w will it
d eliv er to c u sto m e rs , h o w m u c h d o es it c ost as w ell as h o w w ill c u sto m e rs tell
ab o u t the se rv ic e w h ic h the y h a v e pu rc h ase d. A s this stu dy is related to a
ba nk , the relev an t m a rk e tin g m ix to b e s tu die d sh o u ld be the 7 Ps o f
M a rk etin g . They are: P rod uct, Price, pla ce, p ro m o tio n , p eo ple , pro c ess a n d
p hy sic al e v id en c e.
1.1.5.1 P r o d u c t
It’s n o u s e to d e v elo p a p ro d u ct o r s erv ice th at n o o n e w a n ts to b u y it.
M an y firm s d e cid e to p ro d u c e first an d th an ex p ec t to find c u sto m e rs for th eir
p ro d u c ts an d service s. V ic e ve rsa , m a n y su cc es sfu l firm s w ill fo cu s on
fin din g o u t w h a t c u sto m e rs w a n t or n ee d a n d th e n th ey p ro d u c e the righ t
p ro d u ct o r se rv ic e w ith th e righ t level o f q u ality to m e e t th e n ee d s o f
cu sto m e rs .
T h e F irm m u s t g iv e its c u sto m e rs w h a t th ey w a n t, n o t w h a t the F irm
th in ks th at C u s to m e rs w a nt. T h e F irm m u s t s h o w that this is th e p erfec t
p ro d u c t o r s erv ic e by p ro v id in g its v a lu e in th e ey e s o f the b eh o lde rs.
T h e re is a lw a y s an in su ra n ce p olic y w ith th e p r o d u c t / se rv ice o f the
F irm to a p p ro v e th e p e rfe ctn ess o f the m .
A lw a y s c h e ck in fo rm a tio n fro m c u sto m e rs to k n o w w h a t c u sto m e rs th ink

a b o ut the p ro d u c t / service , a b o u t the su p p o rtin g s erv ice a n d w h a t th ey w a n t
’M a rk e tin g a n d T h e 7 P s
T h e C h a rte d Institute o f M a rk e tin g
11
n o w in o r d e r for the F irm to ha v e tim e ly c h a n g es to m e et its c u sto m e rs.
T h e sc o p e o f a s erv ice that a ba n k o fferin g in clu de s p riv ac y as we ll as
su p p o rtin g ele m e n ts su ch as w a rra nties , g ua ra n te es an d su pp ort. O n e thing
that is v ery im p orta n t is that, w e h a ve to crea te v alu e m o r e th an ex p ec ted . W e
m u s t cre ate e x ce ed in g ex p ec ta tio n s fro m c u sto m e rs , so c u sto m e rs w ill find us
w h e n they h a v e d e m a n d to use. E x c e e d in g e x p ec ta tio n is th e w a y by w h ic h
v a lu e is c re a ted an d they g et sold. T h e firm c an e x ce ed e x p ec ta tio n s in price,
q ua lity o r se rv ice a n d e v en p os sib le all th re e facto rs bu t th e F irm m u st
u n d ersta n d w h a t it really m e a n s to ex c ee d e x pe cta tio n s b efo re th e F irm ca n
ac tually do it.
1.1.5.2 P ric e
T h e p ro d u c t or se rv ice is w o rth by z ero if c u sto m e rs d o n 't d ec id e to b u y
it. T h ere fo re , the price n e ed s to be c om p etitiv e, but this do e s no t m e a n that
th e price is m u c h c h e ap e r th an th os e o f rivals. B e c a u s e n o on e w o rk s n o
salary so th e F ir m c an a dd m o re s o m e e le m e n ts fo r th e p ro d u c t / serv ice w ith
th e s a m e p rice c o m p a re d to tho se o f rivals. T h e F ir m ’s p ric ing p ro v id es n ot
on ly a profit, b ut also m a k e s s u re that the m o re th e F irm ch arg es, the m o re
v alu e o r qu ality its c u sto m e rs w ill ex p ec t to g et w h e n b u y in g its p ro d u ct o r
serv ice.
B a se d o n d e m a n d , cost, price a nd e x p e n se s o f riv a ls w ill b e th e
fo u n da tio n for the F irm to p ric e its pro d uc t/se rv ice , in clu din g: M a r k u p
P ricin g, T a rg e t - R etu rn P ricing , P e rce iv ed - V a lu e Pricin g, V a lu e P ricing ,
G o in g R a te P ric in g w ith a v ie w b oth to re co v e rin g the initial co st an d g a in in g
profit.
1.1.5.3 P la c e
T h e p la c e w h e re the c u s to m e r d e cid e s to b u y p r o du ct o r s erv ice is v ery

im p o rta nt, this reflects th e m e a n s o f distrib utin g p ro d u c t o r se rv ice to
c u sto m e rs . It's no t o nly ap p ro p ria te hu t also c o n v e n ie n t fo r cu sto m e rs to
p u r c h a se its p ro du ct/se rv ice. 1’his is "d istrib u tio n c h a n n e l'’. T h is will s h o w
h o w b ig y o u r d istrib utio n is, is it en o u g h to c o v e r all a rea s inside a nd o uts ide
th e c o un try . T h er e are s o m e m e m b e rs to d istrib ute p ro d u c t/se rv ic e to
c u sto m e rs, in clu din g : D irect S elling , s uc h as w ith an o u tb o u n d sales fo rce o r
v ia m ail ord er, interne t a n d tele p h o n e sales. A g en t, w h o typ ically sells
d irec tly on be h a lf o f the p ro du ce r. D is trib uto r (w h o les ale r) w h o sell to
retailers. R etaile r ( d ea le r o r rese ller) w h o sell to e n d in g c u s to m ers .
B u t th e p ro d u ct/s erv ic e m u s t b e e n su re d to be a v a ila ble in the right p lace,
at the rig ht tim e a n d th e right q uan tity, w h ile k e e p in g s tora g e, in ve nto ry an d
d istrib u tio n co sts to an a cc ep ta b le costs.
1.1.5.4 Promotion
P ro m o tio n is the w a y that a Firm c a n c o m m u n ic a te w h a t it d o e s a n d w h a t
it c an o ff er c u sto m e rs. It in clu des activities, su c h as: B ra n d in g , P R ,
a d ve rtisin g , c o rp o ra te identity, sales m a n a g e m e n t, sp ecia l offers an d
e x h ib itio n as w ell as im p le m e n tin g an u n iq u e sellin g p ro po sa l. Pro m o tio n
m u s t g a in a tten tio n, be ap p ea lin g , tell a co n sis ten t m e s sa g e a nd a b o v e all else
g iv e c u s to m e r s a re aso n to c h o o s e th e p ro d u c t or se rv ic e o f the F irm rath e r
th an that o f rivals. R e m e m b e r that g o o d p ro m o tio n is n ot on ly o n e -w a y
c o m m u n i c a ti o n bu t also a d ia lo g u e w ith c us to m e rs, it sh o u ld c o m m u n ic a te
th e b en efits tha t c u sto m e rs ga in fro m th e pro d u ct o r s erv ice - n ot th e featu res
fro m it. T h e p ro m o tio n s ho u ld b e ea sy to rea d a n d it en a b le c u sto m e rs to
id en tify w h y th ey s h ou ld bu y th e p ro d u ct o r serv ice.
M o r e o v e r, P r om o tio n d oe s not o nly m e a n c o m m u n ic a tin g to the
c u s to m e r s bu t also e n s ure th e internal sta k e h o ld ers w h o are a w a re o f th e v alu e
a n d a ttrib ute fro m the p ro d u ct o r serv ice o f the F irm . In a dd ition , this m e an s
13
c o m m u n i c a ti n g to th e staffs, e m p lo y e e s so that th ey ca n b e k n o w le d g e ab le
a n d sh a re e x p e rtis e w ith cu sto m e rs.

1.1.5.5 People
P e o p le h ere ca n b e all staffs w o r k in g for th a t F irm , e v en the director.
B e c a u s e ea ch p o sitio n w ill re qu ire e ac h p ro fes sio n al k n o w le d g e a n d m a n a g e
e a c h sp ec ific m a rk e tin g . T h e re are fo ur g ro u p s o f pe op le , in clu din g:
C o m m u n ic a tin g g r o u p o f p eo ple: T h is g ro u p us ua lly c on ta cts to
c u sto m e rs, ha s h igh po sitio n in the Firm , m a k in g d ec isio n in
b u sin e ss strate gy a n d g iv in g o ut m a rk e tin g c am p a ig n .
A ctiv ity gr o u p o f p eo ple : T his g ro u p h as sm a lle r p os itio n in th e
F irm , usu a lly c o m m u n ic a te s w ith c u s to m e rs , u nd e rs ta n d s w h a t
c u s to m e rs w a n t an d finds the w a y to m e e t th e d e m a n d o f
c u sto m e rs .
T h e effe ct g ro u p o f p eo p le: T h is g ro u p d o es no t co n tac t to
c u s to m e rs a n d im p le m e n t the serv ice . T h e s e p e o p le ha v e an
im p a c ts o n m a rk e tin g strateg y, r e se ar ch in g m a rk e tin g plans,
in n o v atin g ne w pro d u cts o r se rv ice s as w e ll as o th er m a rk e tin g to
attract n e w cu s to m e rs an d m a in ta in c urre nt c u sto m e rs.
The in d e p e n d e n t g ro u p o f p eo ple : T h is g r o up h a s ea ch p os itio n in
th e F irm , d o e s no t o fte n c o nta c t to c u s to m e rs a n d im p le m e n t the
se rvice .
P e o p le h ere a re s ale -m e n o r a ctivity g ro u p o f p e o p le so a n y o n e c o m in g
into c o n ta ct w ith c u s to m e rs m u st m a k e an im p re ss io n a nd p u t p ro -fo u n d
im p a c t on c u s to m e r’s satisfac tion . T h erefo re, th e y m u s t b e ap p ro p ria tely
train ed , w ell m o tiv a te d an d h av e a righ t attitude. M a k in g su re that, the p e rso n
w h o h a s c on tac t w ith c u s to m e rs is not o nly th e p ro p e rly train ed p e rso n bu t
a ls o th e righ t k in d o f th e p ers o n for the jo b . T h e level o f after-sale s s up p o rt
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an d a d v ic e p ro v id e d b y the p eo p le that th e F irm a ss ig n ed are o n e w a y o f
a d d in g v a lu e to w h a t the F irm offers, an d c an g iv e the F irm an im p o rta nt ed g e
o v er the co m p e tito rs . M a y b e, this w ill b e c o m e m o re im p o rta n t th an p rice
w h e n c u s to m e rs start to b u y at th e first tim e.

1.1.5.6 Process
T h e p r o ce s s o f g iv in g a serv ice, an d th e b e h a v io u r o f tho s e w h o de live r
are cruc ial to c u s to m er s’ satisfaction. Issu es su c h as: w a itin g tim e s, th e
in fo rm a tio n giv e n to c u sto m e rs a n d the he lp fu ln e ss o f s ta ff a re vital to ke ep
c u sto m e rs h ap p y . C u s to m e rs are no t inte rested in detail o f h o w th e F irm runs.
W ha t m a tte rs to th em is that sy ste m w o rk s.
1.1.5.7 Physical Evidence
A
se rv ic e ca n 't b e ap p re cia ted be fo re it is d eliv e re d to cu sto m e rs. T h is
m e a n th at c h o o s in g to u se a serv ice c a n be p e rc e iv ed as a risk y b u sin e ss
b e ca u se y o u are b u y in g s o m e th in g intan gible. U n ce rta in ly , this ca n be
re du c e d by h e lp in g p oten tial cu sto m e r s s e e w h a t th ey a re b uy in g. T h e
p hy sic al e v id e n c e d em o n s tra te d by an o rg an iz atio n m u s t co n fir m th e
a ss u m p tio n s o f c usto m ers. A financial se rv ice p ro d u c t w ill n e e d to d eliv er in
a fo rm al s ettin g w h ile a ch ild re n ’s birth d ay e n te rta in m e n t c o m p a n y s h o uld
ad o pt a m o re re lax e d ap p ro ac h.
E a c h e le m e n t o f the m a rk e tin g m ix is a k ey to su cce ss. N o o n e e le m en t
ca n be c o n sid e re d in isolation. Fo r ex a m p le : Y o u c a n 't d e v e lo p a p ro d u c t
w ith o u t c o n sid e rin g the price o r h o w w ill it rea ch for cu sto m er.
1.2. General Concept of Commodity Future Contract
1.2.1. Definition of Commodity Future Contract
T o fully un d e rsta n d a bo u t the C o m m o d ity fu ture C o ntra ct, y o u n e ed to
k n o w w h a t c o m m o d itie s an d F u ture F ac to rs are. T h e M er ria m - W e b s te rs
d ictio n ary d efin e s th e m as "articles for sale". In th e financial w o rld , the y are
15
o fte n k n o w n as ra w m a teria ls. C o m m o d itie s a re o fte n item s that yo u see
e v e ry d a y . T h e s e inc lu de oil, grains, su gar, an d m a n y m o re. T h e s e item s a re
b o u g h t a n d s old b y inv esto rs, pro d uc ers , an d users. T h e f utu re Fa cto rs here
a re that, th e p rice s o f the se c o m m o d itie s w ill be fo rec aste d so th ey flu ctu ate
g re atly b a se d on su pp ly, d e m a n d a n d ex tern al factors. W h e n the re is less

d e m a n d o r m o r e s up p ly o f a p ro d uc t, the pric e drop s. W h e n th e d e m a n d is
h ig h e r o r th e s u pp ly is low er, th e c o m m o d ity is in g re ate r d e m a n d b y th e
p u b lic so th e p ric e rises. F o r e x a m p le , if the re is tu rm o il in th e M id d le E ast,
th e pric es o f oil w o u ld rise b ec a u s e it w o u l d th rea ten o u r oil supp lies.
H o w e v e r, if th e M id d le E ast a n n o u n c es that th ey are go in g to in crea se
p ro d u c tio n , th en p rice s w o u ld fall b e ca u se th ere w o u ld be g re ate r su pply .
T h e s e p ric es a re c o nsta ntly c h a n g in g a n d h e re is w h e r e th e fu ture s c on tra c ts
c o m e in.
So, A C o m m o d it y futu res c o ntra ct is a firm c on tra ctu a l a g re e m e n t m a d e
a n d tra d ed on th e E x c h a n g e b e tw e e n a b u y e r a n d a se ller for sp ecifie d
c o m m o d ity o n a fix ed d ate in th e future. T h e co n tra ct p ric e w ill v ary
a c c o rd in g to th e m a rk e t p lace but it is fixed w h e n the tra de is m a d e. T h e
c o n tra c t a lso h a s a sta nd a rd sp ec ific atio n so bo th p artie s k n o w ex a c tly w h a t is
b e in g t r a d e d 1.
S in c e b oth the parties are u n a w a r e o f ea ch other, th e ex c h a n g e p ro v id e s a
m e c h a n is m to g iv e th e p a rty a ss u ra n ce o f h o n o re d co ntra ct. T h e risk to th e
h o ld e r is un lim ite d, a n d b ec a u se th e p ay o ff pa ttern is sy m m e tric al, the risk to
th e s eller is u n lim ite d as w ell
M o n e y lost a nd g a in ed b y e ac h p arty o n a fu tures c on tra ct are e qu al a n d
o p p os ite . In o th er w o rd s, futures tra din g is a z e ro -s u m g a m e . T h e se are
b as ic ally fo rw a rd co ntra cts, m ea n in g th ey re p res en t a p le d g e to m ak e a ce rtain
n) O p ti o n s - F u tu re a nd o th e r D eriv ativ es
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tra ns ac tion at a fu ture date. T h e e x c h a n g e o f asse ts oc cu rs on the date
sp ec ifie d in th e co ntra ct. T h e s e a re re gu lated b y o v e rs ee in g a ge nc ie s, a nd are
g u a ra n te e d by c le a rin g h o u se s. H e d g ers o fte n tra de fu ture s for th e p u rp o s e o f
k e ep in g p ric e risk in c h eck .
F u tu re c on tra cts a re o ften u se d by c o m m e r c ia l e nte rp rise s as ‘h e d g in g
to o ls ’ to re d u c e the risk o f e x p e c te d fu ture pu rc h a se s or sales o f th e
u n d e rly in g asset. If u se d to spe cu late , risk in creases. S o risk de p e n d s on the

u n d e rly in g in stru m e n t a n d the use o f the future.
1.2.2. Types of Commodity Future Contract
F r o m th e b e g i n n in g y e a r o f 184 8, the re w a s o nly C h ic a g o B o a rd o f T ra d e
( C B O T ) in tro d u c ed to tra d e F utu re co ntrac t. A n d n ow , th ere are 4 ty pe s o f
C o m m o d it y F u tu re C o n tra c ts , in clu din g : M e tals, S o fts, E n e rg y an d G ra in s &
O ilse ed s. It’s sa id that C o m m o d ity F utu re C o n tra c ts h a v e b o th d e v elo p e d in
q ua lity a n d q u a ntity w h ic h are s h o w e d sp ec ifica lly b e lo w .
- C o m m o d it y F u tu re C o n tra c t o f M e tals inclu d es: B ase, P re cio us ,
S trateg ic / M in o r
- C o m m o d i ty F u tu re C o n tra ct o f S o ils (A g ric u ltu re ) in clu de s : C offee ,
c o c o a, s u g a r a n d o th ers
- C o m m o d it y F u tu re C o n tra ct o f E n e rg y in clu d es : C ru d e, O il P ro du cts,
- C o m m o d it y F u tu re C o n tra ct o f G ra in an d O ilse e d s in clu d es : G ra in s,
O il S e ed s, L iv e S to c k a n d Fibers
1.2.3. The development of commodity future contract in the world1
T h e m o d e r n c o m m o d i t y m a rk e ts h a v e their roo ts in the tra din g o f
ag ric u ltu ra l p ro d u cts . W h ile w h e a t a n d c o m , cattle a n d pigs, w e re w id ely
tra d ed u sin g s ta n d a rd in str um e nts in the 19th ce n tu ry in the U n ite d States,
1 h ttp ://. w w 'w .c ftc. go v
G a s
17
DA! H O C w u O C G im hrt
RUNG TAM THONG TIN THL
TIN THU VIEN
o th e r b asic fo o ds tu ffs s u ch as s o y b e an s w e re o n ly a d d e d qu ite re ce ntly in
m o s t m a rke ts. F o r a c o m m o d it y m a rk e t to b e e sta blis he d , th e re m u s t be v ery
b ro a d c o n s e n su s o n th e va riatio ns in the pro d u c t tha t m a k e it a c ce p ta b le for
o n e p u rp o se o r a n o th e r
F ro m b e g in n in g y e a r o f 1848, C o m m o d i ty F u tu r e C o n tr a c t w a s tra de d
sep ara tely , all tra n sa c tio n s w e re tra de d w ith b ro k e r o r E x c h a n g e , at th e fixed

p lace. W h e n C o m m o d i ty Fu tu re C o n tra ct b e c a m e p o p u la r in U S A a n d
o utsid e, this tr a d in g w a s c on tro lled by th e G o v e r n m e n t w ith sp ecific
re q u ir e m e n ts as fo llo w : R e q u ir em e n ts for D e sig n a tio n as a C o n tr ac t M a rk e t
u n d e r the F u tu re T r a d in g A c t o f 1921 an d R e q u ire m e n ts fo r D e sig n a tio n as a
C o n tr ac t M ar k et u n d e r th e G rain F u tu re s A c t o f 1 92 2 w ith a v ie w to m ak in g
c u sto m e rs tra de m o r e c o m fo rta b ly , safely a n d leg ally th a n b e fo re .
H o w e v e r, th e C o m m o d it y statu s o f livin g th in g s is a lw a y s su b je c t to
d o u b t it w a s ha rd to v a lid ate the he alth o r e x is te n ce o f sh e e p o r g oa ts.
E x c u se s fo r n o n -d e liv e ry w e r e no t u n k n o w n , a n d th e re a re re c o v e re d
S u m e ria n letters tha t c o m p la in o f sic kly goa ts, sh e ep th at h a d a lre a d y b e e n
flee ced , etc. If a seller's re pu tatio n w a s go o d , in d iv id u a l "b a ck e rs " o r
"b a n k e rs" c o u ld d e c id e to ta k e the risk o f "cle arin g" a trade. T h e o b s er v atio n
th at trust is a lw a y s re qu ir e d b etw e e n m a rk e t pa rtic ip an ts late r led to cred it
m o n e y . B ut until r e lativ ely m o d e rn tim e s, c o m m u n ic a tio n a n d cre dit w e r e
p rim itiv e.
B u t fro m tha t tim e to 197 4, trad in g activ ities w e re o n c h a o s s o it n e e d e d a
c o m m itte e to c o ntro l activities. T h a t’s w h y the C o m m o d it y F u tu re T ra d in g
C o m m is s io n ( C F T C ) w a s es tab lish ed in 19 74 as an in d e p e n d e n t a g e n c y w ith
th e m a n d a te to re g u la te c o m m o d i t y futu res a n d o p tio n m a r k e ts in th e U n ite d
Sta te s. T h e a g e n c y 's m a n d a t e h as b e en r e n e w e d an d e x p a n d e d se ve ra l tim e s
18