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Commodity Futures Trading

Commodities are backbone of an economy and participants like individuals and industrial units trade in commodity market. Different commodities could be traded at an exchange (for e.g. at MCX). Derivative contracts in commodities provide opportunity to take position on price movement and hedge a position in the spot market.

An Overview of Commodity Derivatives

Broadly there are four different categories of commodities;

Bullion (comprises gold, silver, and other precious metals)

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Base Metals (comprises Aluminium, Copper, Lead, Nickel and Zinc)

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Energy (Crude Oil and Natural Gas)

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Agri Products (Cotton, CPO, Soybean, Soybean Oil, Guar gum etc.)

At MCX, there are different variants available for each commodity; for e.g. Gold Futures are available in 1 Kg as well as in 1 gm. Similarly, SILVER FUTURES are available in 30 Kgs and in 1 Kg.

Some of the unique features are: -

Futures are available on individual commodities and indices

Market is open from 9:00 AM to 11:30/11:55 PM

Different lot sizes; for e.g. Gold Mini (100 gms), Gold Petal (1 gm) provides opportunity to a broad range of participants

Commodity prices are derived on the basis of global factors. Thus, a very high level of transparency is seen in commodity derivatives market.

Commodity Futures

Margin requirement is low; usually in a range of 10-25% for different commodities.

Commodities in Bullion are available in variants (lot size) like; GOLD, GOLD MINI, GOLD GUINEA, and GOLD PETAL SILVER, SILVER MINI, and SILVER MICRO

Tick size differs for different variants and commodities

Contracts are compulsorily settled by delivery except in energy category.

I Sec currently doesn’t offer delivery settlement and an open position is squared off prior to start of delivery margining period.

In all cash settled contracts (i.e. Crude Oil and Natural Gas); a pre expiry margin would be levied during five days’ period to the expiry date (w.e.f April 1, 2021)

BULLDEX and METLDEX (Futures on Indices)

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MCX offers Futures on BULLDEX, METLDEX and ENRGDEX

BULLDEX is a composite index based on gold and silver

METLDEX is a composite index based on base metals.

ENRGDEX is a composite index based on crude oil and natural gas

All Sectoral Indices ,i.e. BULLDEX, METLDEX and ENRGDEX are cash settled

Margin requirement is low, i.e. in a range of 10-15%.

Pre-expiry margin is required in ENRGDEX.