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FAQ
What is a commodity market?

A commodity is a product having commercial value that can be produced, bought, sold, and consumed. A commodity market is the place where these commodities are traded.

Who regulates the commodity market?

Just as SEBI regulates the stock market, Forward Markets Commission (FMC) regulates commodity market.

Which are the major commodity exchanges in India?

There are 24 commodity exchanges in India. There are three national level commodity exchanges to trade in all permitted commodities. They are:

A. Multi Commodity Exchange of India Ltd, Mumbai (MCX)

www.mcxindia.com

MCX is an independent and de-mutualised multi commodity exchange. MCX features amongst the world`s top three bullion exchanges and top four energy exchanges. Its key shareholders are Financial Technologies (I) Ltd., State Bank of India and its associates, National Bank for Agriculture and Rural Development (NABARD), National Stock Exchange of India Ltd. (NSE), Fid Fund (Mauritius) Ltd. - an affiliate of Fidelity International, Corporation Bank, Union Bank of India, Canara Bank, Bank of India, Bank of Baroda, HDFC Bank and SBI Life Insurance Co. Ltd.

B. National Commodity and Derivative Exchange, Mumbai (NCDEX)

www.ncdex.com

A consortium of institutions promotes NCDEX. These include the ICICI Bank Limited (ICICI Bank), Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development (NABARD) and National Stock Exchange of India Limited (NSE).

C. National Multi Commodity Exchange of India Ltd, Ahmedabad (NMCE)

www.nmce.com

It is the first de-mutualised electronic multi-commodity Exchange of India. Some of its key promoters are Central Warehousing Corporation (CWC), National Agricultural Co Operative Marketing Federation of India Limited (NAFED), Gujarat Agro Industries Corporation Limited (GAIC) and Punjab National Bank (PNB).

D. National Spot Exchange Limited (NSEL)

National Spot Exchange Ltd (NSEL) is a state-of-the-art electronic, de-mutualised commodity spot market. The Exchange is promoted by Financial Technologies (India) Ltd (FTIL) and National Agricultural Cooperative Marketing Federation of India Limited (NAFED). It provides an electronic, transparent, well organized and centralized trading platform with the facility to access and participate in the market remotely.

Why invest in commodities?

Diversification:

Commodity returns have historically had low or negative correlations with the returns of other major asset classes, and may be used to diversify a portfolio. Other factors remaining same, diversified portfolios with low aggregate correlation tend to have lower volatility of returns. Therefore, diversification may improve risk-adjusted returns.

Transparent:
The large participation has ensured commodity futures are transparent.

Simple:
Commodity trading is about the simple economics of demand and supply. More the demand for a commodity higher is its price and vice versa.

Trade on Low Margin:
Commodity Futures traders are required to deposit low margins, roughly 5 to 10% of the total value of the contract, much lower compared to other asset classes.

Inflation protection:
Changing macroeconomic factors (like inflation) tend to impact commodities differently from other financial products. Prices of goods and services rise in tandem with input prices, while prices of stocks and bonds tend to decline because of rising commodity input prices which put pressure on the economy and lower the value of future cash flows.

Wide Participation:
The online trading platform and the transparent policy has attracted a wide participation in commodity market

Fair Pricing:
The pricing defines for commodities would be more practical and less irrational leading to Fair Price Discovery Mechanism based on the number of participants in the market.

Hedging:
It provides a platform for producers to hedge their positions according to movement of the prices of the commodity.

What are the tradable commodities?

Bullion: Gold and Silver

Oil & Oilseeds: Castor Seeds, Soy Seeds, Castor Oil, Refined Soy Oil, Soy meal, Crude Palm Oil, Groundnut Oil, Mustard Seed, Mustard Seed Oil, Cottonseed Oilcake, Cottonseed

Spices: Pepper, Red Chilli, Jeera, Turmeric, Cardamom
Metals: Steel Long, Steel Flat, Copper, Nickel, Tin, Steel, Aluminium, Zinc ingots
Fibre : Kapas, Long Staple Cotton, Medium Staple Cotton
Pulses: Chana, Urad, Yellow Peas, Tur, Yellow Peas
Grains: Rice, Basmati Rice, Wheat, Maize, Sarbati Rice, Jeera
Energy: Crude Oil, Natural Gas, Brent Crude
Others: Rubber, Guar Seed, Guar gum, Cashew, Cashew Kernel, Sugar, Gur, Coffee, Silk, Sugar.

What is a forward contract in commodity market?

A forward contract is an agreement for delivery of goods or the underlying asset on a specific date in future at a price agreed on the date of contract. Under Forward Contracts (Regulation) Act, 1952, all the contracts for delivery of goods, which are settled by payment of money difference or where delivery and payment is made after a period of 11 days, are termed as forward contracts.

What is a forward contract in commodity market?

A forward contract is an agreement for delivery of goods or the underlying asset on a specific date in future at a price agreed on the date of contract. Under Forward Contracts (Regulation) Act, 1952, all the contracts for delivery of goods, which are settled by payment of money difference or where delivery and payment is made after a period of 11 days, are termed as forward contracts.

What is a futures contract in commodity market?

Futures Contract is a type of forward contract. Futures are exchange traded contracts to sell or buy standardized financial instruments or physical commodities for delivery on a specified future date at an agreed price.

What are the charges in Commodity Trading?
  • Brokerage
  • Service Tax as per the rates applicable
  • Exchange Transaction Charges
  • Stamp Duty: As per State Law
What is initial margin?

It is the minimum percentage of the contract value required to be deposited by the members/clients to the exchange before initiating any new buy or sell position. This must be maintained throughout the time their position is open and is returnable at delivery, exercise, expiry or closing out.

Can I take delivery of the commodity?

A settlement takes place either through squaring off your position or by cash settlement or physical delivery. Squaring off is taking a opposite position to the initial stance, which means in the case of an original buy contract an investor would have to take a sell contract.

An investor who intends to give or take delivery would have to inform his broker of the same prior to the start of delivery period. In case of delivery, a warehouse receipt is provided. Delivery is at the option of the seller; a buyer can take delivery only in case of a willing seller. All unmatched/rejected/excess positions are cash settled; all open positions for which no delivery information is submitted are also cash settled. Under cash settlement, the difference between the contract price and settlement price is to be paid or received.

In online commodity trading, client cannot go for delivery & all positions are cash settled.

What is Stop Loss (SL)?

Stop loss is an order to limit an investor's loss on the position he holds. By placing a Stop Order, Investor actually set a loss level which investor is willing to undertake.

What is Marked to Market (MTM)?

On the day of entering into the contract, it is the difference of the entry value and closing price for that day. In case of carry forward position, MTM is the difference of the market price less yesterday’s closing price.

What are the Prerequisites of trading?

Resident Indian
PAN
Associated Bank savings Account
Capital Focus Trading Account (Demat Account not required)