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Saffron Future Contracts Being Launched by IME

Iran Mercantile Exchange is seeking to launch saffron future contracts in order to provide the daily price discovery, risk management of price fluctuations for market participants, and putting an end to a vague and beneficial business for other countries, and, after all, becoming a price reference for this product in the world.
Saffron Future Contracts Being Launched by IME

The share of Iran in the global production of saffron is about 90%, but our country as the largest saffron producer in the world is not the main price reference for this product and unfortunately the famous brands of saffron in European countries and some intermediate countries exporting saffron to consumer countries, specify the price of saffron. Also, according to some statistics, Iran’s share of saffron turnover of about $8 billion in in the world is less than $300 million a year that is not proportional to Iran's pivotal role in saffron global production.

One of the solutions to eliminate this shortfall and to increase the profitability of our saffron farmers is to launch the future market for saffron, aiming at attracting the attention of all famous saffron merchants and brands to this market for daily and even instantaneous discovery of this strategic agricultural product. In this regard, Iran Mercantile Exchange is going to launch future contracts for saffron.

What are the main features of the future contracts?

Futures contracts are considered to be derivative contracts that are welcomed by market participants because of their unique features and are one of the most popular and commonly used financial instruments in the world. In these contracts, customers are committed to buy or sell base assets at a future time, and of course the transaction price will be determined on the day of trading the contract. Therefore, considering delivery in the future, there is no need to pay the full value of the transaction before the maturity of the contract. Individuals should deposit an amount of money in their account at the IME’s clearing house as a percentage of the total value of the base commodity. For example, a person with a $500 as a margin can trade $5000 saffron on the exchange. Profits and losses of individuals will also be adjusted and settled on a daily basis in line with changes in prices.

What kind of products is traded on IME through future contracts and why saffron?

Currently, futures contracts are traded on gold coin on IME which are being considered by many industry and commercial activists as a hedging tool. In this area, the IME has always considered futures contracts to hedge agricultural and industrial commodities, which has led to studies and work on saffron as a base asset. Saffron is the most expensive agricultural product and is also a great example of profitability, durability and user-centric production. Currently, Iran produces over 90 percent of the world's saffron, and the producer of this product and being a price reference for this commodity has always been a concern of the agricultural sector, Ministry of Agriculture Jihad and Saffron farmers. Therefore, the launch of the Saffron futures market can achieve this important goal, which is the most important prospect of the IME regarding important national commodities.

What are the advantages of these contracts for the agricultural economy and especially the country's saffron product?

Establishing a saffron price reference in the world can play an effective role in transferring part of the benefits of saffron transactions from other countries to our country. Leading investment-friendly capital in the productive part of the country's economy to trade this product in the futures market can discover the real price of saffron in the country, and transfer the benefits of vague and very beneficial transactions by other countries, to a transparent and profitable domestic market. Futures contracts are one of the most important tools for commodity exchanges being offered to commodity market actors to help them hedge price fluctuations. This tool can help ensure that saffron buyers and sellers are more likely to be able to trade the product in the future at a price that they already agree on; this will reduce the risk of activities in this sector. Thus, the IME has provided extensive studies to assist saffron market actors and promote transparency in this market, and the main purpose of launching futures contracts is to hedge the price fluctuations of saffron in Iran. From this perspective, the important feature of futures contracts in hedging pricing of goods can greatly overcome one of the important concerns of saffron market players, including suppliers and consumers. Currently, with traditional trading of this asset, there is no risk coverage for saffron market makers and traders, while the launch of these contracts will enable risk management and hedging, so that producers and market actors can cover their rewards against the risks of price fluctuations. Also, the possibility of long-term planning and management of supply and demand is provided by the activists of this market. At the same time, derivatives instruments transactions as one of the main pillars of the development of the capital market of the country will be developed.

So far, has saffron been traded on IME?

Saffron is offered on IME in the certificate of deposit and in physical market in the form of cash, SALAM and cash. Launching certificates of deposit for saffron on IME has helped to transparent discovery of prices and various types of saffron are being priced on a daily basis which has helped to resolve the ambiguities in this market. Thus, market participants on the IME can monitor the prices of these products on a real basis every day, which is a positive development. Therefore, we expect booming transactions for the saffron future contracts, as the saffron market activists become more aware and familiar with this product.

Who can participate on this market?

By launching saffron futures contracts on IME, it will be possible to conduct transactions on this asset across the country and through brokerage firms. Entrants to this market trading this product in the form of future contracts are first required to obtain a trading account for derivatives transactions through the brokerage of authorized by IME. Also, according to the recent approval of the Futures committee, activists will be required to study the guidelines and regulations of this market and participate in a test that is conducted around these regulations. Due to leveraged transactions and the possibility of a product transaction with the payment of a part of the price (up to one tenth) and a multiplication of the profits or losses of investors, it is necessary to get acquainted with the rules and the nature of this market.

Author: International Affairs and PR

ID: 50069880

Published on: Saturday, April 28, 2018 18:00

Source: IME

View count: 3

Tuesday, July 17, 2018 01:36

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