NAME: AMNA TABBASUM

REG # FA16-BBA-002
DATE: DECEMBER 10, 2019
ASSIGNMENT: 04
SUBMITTED TO: SIR ABDUL GHAFOOR KHAN
 student have taken two contracts from two different categories of products of PMEX (for her
assignment) which are following:
1. Gold (PMEX 100 ounces gold futures contract)
2. Silver (PMEX 500 ounces silver futures contract)

1. SPECIFICATIONS OF PMEX 100 OUNCES GOLD FUTURES

CONTRACT
Different specifications and conditions of Pakistan mercantile exchange are given below in detail.

Trading Hours:
Trading hours of the 100 ounces gold futures contract are twenty-one hours daily. Trading days of
contract are Monday to Friday, exchange specified holidays are not included in trading days.
Pacific standard time (PST) for contract trading is 5am to 2am, while at the last trading day of
week trading ends at 4pm.

Unit of Trading:
Unit of trade of contract are 100 troy ounces.

Trading System:
Trading system of the contract is Pakistan Mercantile Exchange (PMEX), Engineering and
Technical Services (ETS).

Price Quotation:
Price of contract is quoted in US Dollars per troy ounces and the price is quoted up to two decimal
places.

Tick Size:
Tick size of the contract is $0.1 per troy ounce.

Tick Value:
Tick value of the contract is $10.

Contract Months:
Mostly contract months are first three months. In case of discretion of exchange additional contract
month would made available it depends on the need of market.

Last Trading Day:

Trading dismisses at the last day of trading month when business is closes. Sometime exchange
itself decide a day as a trade closing day.
Holiday Settlement:
In case if last trading day comes in the exchange holiday then the previous day of trade is
considered as closing day and settlement is done at that day.

Settlement Mode:
Cash settlement of contract price is done in Pakistani currency.

Daily Settlement Price:

Daily settlement price is calculated through specific methodologies of Pakistan mercantile
exchange. Settlement price include
• volume weighted average price during last twenty minutes of trading
• session consensus price
• theoretical future price

Final Settlement of Contract:

Final settlement of 100 ounces gold futures contract is resulted in form of the delivery of amount
of cash settlement in rupees at the date of final defrayal. This amount of cash settlement is
considered as profit or loss by compare it with final clearance price of contract.

Position Limit:
Position limit of contract is two thousand (2000) contracts for each broker and hundred (100)
contract for each client of broker.

Margin Requirements:
Exchange determine the amount of margin payable by each broker for their outstanding contracts.
Due to the risk management strategies and market condition exchange can change margin
requirements with time. The important thing to consider is that all margin prices is collected in
Pakistani currency.

Initial Margin:
Initial margin is calculated by using the methodology of 99% assurance interval over one day time
vista and rounded up to the 0.25%. This 0.25 can be change by the exchange according to market
requirements.

Special Margin:
Exchange has the right of special margin which it uses during the time of extreme volatility. This
margin is calculated by enhancing look forward period or by doing any other change in VaR
methodology of exchange.

Spread Discounts:
Having position in two different offsetting Pakistan mercantile exchange gold futures contract with
different termination date can be entitled for spread discount.

Spread Contracts:
Pakistan mercantile exchange may open spread contracts to fulfil the market requirements.

Further Regulation:
100 ounces gold futures contract shall be subject to the regulations of PMEX where it may
appropriate and applicable.

<------------------------------->

2. SPECIFICATIONS OF PMEX 500 OUNCES SILVER FUTURES

CNTARCT
Different specifications and conditions of Pakistan mercantile exchange 500 ounces silver futures
contract are given below in detail.

Trading Hours:
Trading hours of the 500 ounces silver futures contract are twenty hours daily. Trading days of
contract are Monday to Friday, exchange specified holidays are not included in trading days.
Pacific standard time (PST) for contract trading is 10am to 6am, while at the last trading day of
week trading ends at 5pm.

Unit of Trading:
Unit of trade of contract are 500 troy ounces.

Trading System:
Trading system of the contract is Pakistan Mercantile Exchange (PMEX), Engineering and
Technical Services (ETS).

Price Quotation:
Price of contract is quoted in US Dollars per troy ounces and the price is quoted up to three decimal
places.

Tick Size:
Tick size of the contract is $0.001 per troy ounce.

Tick Value:
Tick value of the contract is $0.5.
Contract Months:
Mostly contract months are first three months. In case of discretion of exchange additional contract
month would made available it depends on the need of market.

Last Trading Day:

Trading dismisses at the last day of trading month when business is closes. Sometime exchange
itself decide a day as a trade closing day.

Holiday Convention:
In case if last trading day comes in the exchange holiday then the previous day of trade is
considered as closing day and settlement is done at that day.

Settlement Mode:
Cash settlement of contract price is done in Pakistani currency.

Daily Settlement Price:

Daily settlement price is calculated through specific methodologies of Pakistan mercantile
exchange. Settlement price include
• volume weighted average price during last twenty minutes of trading
• session consensus price
• theoretical future price
It may use any other methodology specified by exchange in advance.

Final Settlement:
Final settlement of 500 ounces silver futures contract is resulted in form of the delivery of amount
of cash settlement in rupees at the date of final defrayal. This amount of cash settlement is
considered as profit or loss by compare it with final clearance price of contract.

Position Limit:
Position limit of contract is twenty thousand (20,000) contracts for each broker and one thousand
(1,000) contract for each client of broker.

Margin Requirements:
Exchange determine the amount of margin payable by each broker for their outstanding contracts.
Due to the risk management strategies and market condition exchange can change margin
requirements with time. The important thing to consider is that all margin prices is collected in
Pakistani currency.

Initial Margin:
Initial margin is calculated by using the methodology of 99% assurance interval over one day time
vista and rounded up to the 0.25%. This 0.25 can be change by the exchange according to market
requirements.

Special Margin:
Exchange has the right of special margin which it uses during the time of extreme volatility. This
margin is calculated by enhancing look forward period or by doing any other change in VaR
methodology of exchange.

Spread Discounts:
Having position in two different offsetting Pakistan mercantile exchange silver futures contract,
with different termination date, can be entitled for spread discount.

Spread Contracts:
Pakistan mercantile exchange may open spread contracts to fulfil the market requirements.

Further Regulation:
100 ounces gold futures contract shall be subject to the regulations of PMEX (previously National
Commodity Exchange Limited) where it may appropriate and applicable.
12 Cardinal Mistakes of Commodity Trading
I am going to explain 12 cardinal mistakes of commodity trading in easy and understandable
wording.

1. Taking Small Profits & Letting Your Losses Run:

Getting small profits and allowing losses run is a very ordinary mistake in commodity futures
trading. Most traders after losing one or two trades, take on a small profit on the next trade to avoid
larger risk, although that trade can become a chance of greater profit that can compensate all
previous losses of trader. While mostly new futures traders use the strategy of allowing the losses
run. When a trader enters into the market, he/she does not know where to get out.
Trader should follow some game plans to eliminate the losses otherwise those losses will increase
with each trade.

2. Prolonging Your Position:

Prolonging the position or failing to obtain profits at a predetermined period is also a common
mistake taken place in commodity trading. If market achieves the price objective of trader, then
he/she decide to overstay the position. But the price can change quickly, and the paper profit of
trader disappear sharply, so that paper profit can turn into loss. Large profit can convert into larger
loss.
This mistake can be conquered by using trailing stops as the price objective of trader is achieved.

3. Averaging a Loss:
Averaging a loss is commonly a holdover from trading stocks. A most common approach is that if
a trader bought a future and price of that future decreases than trader will figure out either it was a
good buy than or a better buy now. If we bought at lower price that just small move is needed to
reach at a breakeven point but if prices continuously move against us, then we have to face double
loss.
This mistake can be eliminated through a strict rule that we will never average a loss until we do
not hit our predetermined game plan to buy at a lower price with an unmovable loss or stop order.

4. Lack of Game Plan:

90% commodity traders do not use a proper game plan. Having no game plan means traders do
not know what they should do in a specific situation. Traders can turn their profits into larger losses
due to the lack of game plan. A proper game plan can be developed by using following guidelines:
▪ Know how and where you are going to enter the market.
▪ Know how much money you are risking on each trade.
▪ Know how and where you will get out if you are wrong.
▪ Know how and where you are going to make a profit if you are right.
▪ Prevent security in case of unforeseen market conditions.
 5. Lack of Money Management:
Commodity trader mostly focus on the investment that might loss them $100 in case of wrong
decision and can become an opportunity of $300 profit in case of right decision. But this is not a
good approach we should focus on right chances of making money instead of profit and loss
through right and wrong decision. Good money management means that you know the purpose of
your profit and the probabilities of it being right or wrong and try to control your risk with stops.
This mistake can be overawed by emerging effective money management strategies.

6. Failure to Use Protective Stops/Loss Orders:

Once a commodity trader enters into market it is a failure for his/her to use stop or loss order. If a
predetermined stop or loss order occur, it means that trader’s analysis and game plan was incorrect.
With a mental pause, as the market has passed by traders stop price, you will no longer act like a
rational man. Traders are more likely to make mistakes because they are working on fear and hope.
An indestructible rule and discipline to follow it, is the only way to correct this mistake. That stop
/ loss order must be placed to enter the market each and every time. When the market is closed, do
homework and place your order before the open.

7. Meeting Margin Calls:

Mostly, completing a margin call will increase the trader's losses. Margin call means the trader is
wrong and his condition must be closed in the market. Margin calls occur because people don't
want to confess to being wrong and suffer harm because they expect that the market will ultimately
go in their direction. The margin call is the consequence of making one or more of the 12 cardinal
lapses.

8. Increasing Your Commitment with Success:

One of the most serious mistakes that traders can make is to rise their exposure as they become
more productive. Successful traders take the risk of more dollars per trade.
Merchants can overcome this mistake by not allowing them to increase their percentage
commitment and by retaining stop or loss discipline.

9. Overtrading Your Account:

It is also after a period of success when traders know that what the market is going to do. They are
so sure that this is going to be a really big step that they take more risk than the determined 10%
of their equity.
To prevent this mistake from happening, traders should have a hard and fast rule that they cannot
take too much risk to a sure percentage of their equity.
 10. Failure to Eliminate Profits from Your Account:
It is a very common rule that a trader see in the trading market this rule allow the trader in the
market in a given period of time, only earn so much money and then he has to start giving
something back. Mostly traders leave profits in their account and move towards big trade and
usually eradicate their profit.
This can be overcome by presenting an equity level at which the trader withdraws profits from his
account. When the trader makes a profit in the commodity markets, he withdraws some money
and keeps it somewhere. They should withdraw money from their account when it is lucrative.

11. Changing Your Strategy During Market Hours:

During market hours the trader is subjected to emotional effects of fear and materialism more than
he is when the market is shut. Has any businessman ever noticed that when he sits in the night
earlier to the business day, he can find out what he wants to do the next day; Yet, soon when the
market opens and does exactly the opposite of what he had intended? Traders can overcome this
mistake by forming a trading strategy and discipline not to change the game plan during the day.

12. Lack of Patience:

All commodity traders do not trade just for the purpose of making money. Many trades because
they want action or trading for the excitement. Trader should not expect to make money in every
trade though. If a trader does not make any of 12 cardinal blunders of commodity trading, he/she
is more likely to make money over a period of time.
A trader must evaluate his/her own trade and determine whether he/she actually trades to make
money, or either for action or excitement. To overcome this mistake, a trader must build patience,
do his/her homework, and study market for high probability trades.