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Introduction Depository
Introduction
Introduction

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SerivesFAQ

Here's how a retail investor can get started:

    What is commodity trading?

  • These are derivative contracts financial contracts which derive their value from a spot price, which is called the "underlying" which gives right to buy or sell underlying commodity at certain date at certain price.For example investor can buy future contracts of gold,silver,crude oil etc.
  • Where does commodities are trading?

  • National Commodity and Derivative Exchange (NCDEX), Multi Commodity Exchange of India Ltd (MCX) and the National Multi Commodity Exchange of India Ltd(NMCE). All three have electronic trading and settlement systems and a national presence.
  • Does commodity trading helps to small traders/investors?

  • Yes.Investor have to pay margins range from 5-10 per cent of the value of the commodity contract. For trading in GOLD investor can start with minimum 8gm gold by paying 5% of total contract value.For example market rate of gold for 8gm is Rs.15000, investor have to pay 5% margin i.e. Rs.750 only.Same thing for 100gm & 1kg gold contract.

    For trading in SILVER investor can start with minimum 5kg silver by paying 5% of total contract value.For example market rate for 1kg silver is Rs.45000,investor can buy 5kg silver worth Rs.2,25,000 by paying 8% amount i.e. Rs.18,000.
  • Do I have to give delivery or settle in cash?

  • You can do both. All the exchanges have both systems - cash and delivery mechanisms. The choice is yours. If you want your contract to be cash settled, you have to indicate at the time of placing the order that you don't intend to deliver the item.

    If you plan to take or make delivery, you need to have the required warehouse receipts. The option to settle in cash or through delivery can be changed as many times as one wants till the last day of the expiry of the contract.
  • What are the brokerage and transaction charges?

  • The brokerage charges range from 0.05-0.10 per cent of the contract value. The brokerage will be different for different commodities.
  • Who is the regulator?

  • The exchanges are regulated by the Forward Markets Commission(FMC). Unlike the equity markets, brokers don't need to register themselves with the regulator.
  • Who can participate in commodity derivatives trading?

  • The commodities market will have three broad categories of market participants apart from brokers and the exchange administration - hedgers, speculators and arbitrageurs. Brokers will intermediate, facilitating hedgers and speculators. Hedgers are essentially players with an underlying risk in a commodity - they may be either producers or consumers who want to transfer the price-risk onto the market. Producer-hedgers are those who want to mitigate the risk of prices declining by the time they actually produce their commodity for sale in the market; consumer hedgers would want to do the opposite.

    For example, if you are a jewellery company with export orders at fixed prices, you might want to buy gold futures to lock into current prices. Investors and traders wanting to benefit or profit from price variations are essentially speculators. They serve as counterparties to hedgers and accept the risk offered by the hedgers in a bid to gain from favourable price changes.
  • What happens if there is any default?

  • Both the exchanges, NCDEX and MCX, maintain settlement guarantee funds. The exchanges have a penalty clause in case of any default by any member. There is also a separate arbitration panel of exchanges.
  • How much margin is applicable in the commodities market?

  • As in stocks, in commodities also the margin is calculated by (value at risk) VaR system. Normally it is between 5 per cent and 20 per cent of the contract value.

    The margin is different for each commodity. Just like in equities, in commodities also there is a system of initial margin and mark-to-market margin. The margin keeps changing depending on the change in price and volatility.
  • What are trading hours of MCX & NCDEX?

  • MCX opens 10.00am and closes on 11.30pm(currently 11.55pm) & NCDEX opens at 10 in morning & closes at 5pm.
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