Commodity Futures Trading India, Commodity Futures & Options
Commodity futures trading India has emerged as a distinct trading class in the last
14 years since the MCX first started trading in commodity futures. Over the last
few years, NCDEX has built an expertise in agricultural commodities while the MCX
has built expertise and volumes in the non-agri segment. Commodity futures trading
is slightly different compared to the traditional equity F&O. While all equity transactions
are necessarily settled only in cash, commodity futures can be settled either in
cash or through delivery of the specific commodity. Also, the margins on commodity
futures are lower than the margins on stock and index futures considering that the
scope for extreme price volatility is lower in case of commodities.
Commodity futures trading in India…
For a long time the commodity exchanges were only permitted to offer trading in
commodity futures. It is only recently that SEBI has permitted options trading on
commodities too. Options on commodities are slightly different than equity options.
While equity options are an option on the underlying asset, the commodity option
will be an option on the underlying commodity futures. That makes it slightly more
complicated. There is a reason for this dichotomy. In case of the equity markets,
SEBI regulates the spot and the futures market. But, in case of commodities, SEBI
only regulates the futures and options market while the spot markets are regulated
by the respective states. That is why this commodity / future relationship is less
seamless compared to equities.
Commodity futures trading can be used to take a directional view on commodity prices
or even as a hedge against future prove movement. An individual trader who expects
gold prices to go up can buy gold futures in the commodity exchange and reverse
the transaction when the price moves up. The same can be done on the short side
also. On the other hand, if an oil refiner wants to hedge against the rising crude
oil prices, then that is also possible through crude oil futures. Of course, the
hedger can decide whether they want to trade the movement or take actual delivery
of crude oil on the settlement date.
Get Quotes on Commodities at LKP Securities…
An easy way to drill down into details of commodity futures and options is to use
the LKP “Get Quotes” page. Here one can select the commodity by the specific exchange
(MCX or NCDEX) and further drill down to the specific monthly contract. The page
provides a quick screener with all relevant details about the particular commodity
contract. These include the last traded price, the price change, the shift in open
interest, the overall volumes on a particular day and the high/low to give you an
idea of the range risk in the commodity. The page also captures a graphical price
chart of the specific contract over the last 1 month to help you decipher the short
term trading trend of the commodity. In a nutshell, a wealth of information considering
that it is juxtaposed with a host of very specific analytics pertaining to the commodity.