Exchange Traded Commodity Derivatives

Want to learn about futures and options? This video simplifies equity derivatives with real-life examples and clear explanations. Find out how they work, why investors use them, and the differences between options and futures.

Watch this short video to learn how to set up commodity research recommendation notification on the ICICI Direct App

Watch this video to learn about the market timings for commodity derivatives trading in India

Is equity portfolio diversification only about investing in gold, real estate, or bonds? Wait…there’s a whole trading market you might be missing—the commodities market. But what exactly is it? How is it different from the stock market? Watch the video to learn all about it.

Watch this exciting conversation with industry experts to learn how to trade in bullion, energy

Watch this informative video featuring experts from ICICIdirect to learn about commodity trading on MCX

Dos

1. Do understand the commodity contract specifications.
2. Pay all applicable margins.
3. Understand the delivery and settlement procedure.
4. Understand and comply with the taxation and other relevant laws.
5. Collect or pay market to market margins on a daily basis.

Don’ts

1. Don't trade any contract without knowing the associated risk.
2. Don't undertake off market transactions.
3. Don't delay payments or deliveries to members.

Don't get misled by rumours during advertisements, promises, and bull or bear run of the market sentiments.

Hey there have you been hearing about the commodity Market? Have you been wondering how to start trading in commodities? Have questions? Let us try answering some of them today.

Is commodity trading for me?

It depends on the capital available, your risk profile, and understanding of the commodity markets. Commodities are traded as futures and options. Various commodity futures can be traded using margins starting from Rs 500 to 5 lakhs per lot, while options buying can be done using even lower capital.

I don't know anything about commodity trading. How do I get started with commodity trading?

To start commodity trading one should open an account with a broker registered with commodity exchange. Once the account is opened one can allocate margins for futures and options and start trading.

How much money would I require to start with commodity trading?

As low as rupees 500 is sufficient to trade in one lot of gold petal contract.

I heard commodities are volatile I do not want to risk much is commodities for me?

Commodities are real assets; they can be a hedge against inflation. It is good to diversify your portfolio with commodities, as commodities are a distinct asset class with returns that are largely independent of stocks and bond returns

What commodities are traded in India?

• Bullion: Gold, Silver, Bull decks.
• Energy: Crude oil, Natural gas
• Base Metals: Aluminium, Copper, Lead, Zinc and Nickel
• Agri: Cotton

What are commodity trading hours in India are holidays common with the equity markets?

In India, commodities can be traded from 9 am to 11:30 or 11 55 pm. Number of trading holidays are lesser compared to equity markets, as most of the days when equity markets are closed commodities are open in the evening session for trading.

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What are Derivatives?

Derivatives are financial products which obtain or derive their value from specific underlying assets, whose value keep changing based on market conditions. For example; petrol is a derivative of crude oil.

How does derivative trading work?

Traders trade derivative by predicting future price movements of underlying assets. Derivatives contracts are also used for hedging and arbitrage purposes.

Popular derivatives products in the Indian stock market

• Future contracts

  Futures contracts are standardized contracts between buyers and sellers to buy/sell an underlying asset at a predetermined price, size and date in future. These contracts are traded on stock exchanges.

• Option contracts

  Options contracts give buyers the right, but not the obligation to buy or sell an underlying asset at a predetermined price and future date. There are two types of options; call option and put option. A call option gives the right to buy and a put option gives the right to sell to the buyer of an option.

Derivatives are available in selected indices and stocks in India on the stock exchanges.

Derivative market participants

• Hedgers

• Speculators

• Arbitrageurs

Reasons to trade in derivatives

• Protects you against market volatility.

• Allows you to use the leverage by paying a small amount as margin or premium.

• Enables you to take positions in different scenarios including bullish, bearish, volatile, rangebound, etc.

How to trade in derivatives?

Traders should have an active trading account that permits derivative trading. With ICICIdirect traders can place their derivative trading orders online through their trading account.