| Question 1: | What is a commodity futures?
Futures market in commodity is a continuous auction market where buyers and sellers meet to trade on futures contract of specific underlying commodity. |
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| Question 2: | What is futures contract in commodity?
Futures contract is legally obligatory. Delivery period, quantity and quality of a contract are standard. Buyers and sellers negotiate through an exchange to set a price. |
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| Question 3: | How does futures trading work?
A future trading is trading of futures contract. The buyer of futures contract has a right to purchase the commodity of same quality, quantity in specified time from the seller of the contract. |
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| Question 4: | What is the difference between spot and futures trading?
Say a jeweler requires 100 gms of gold 3 months from now. He goes to gold smith and buys and takes delivery of the consignment (gold) at the quoted price. This is spot transaction. If the same jeweler opts for a 3-month exchange traded future contract, he buys a future contract in gold at a price decided today but agrees to take delivery at a future date. This is called a futures transaction. |
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| Question 5: | Who trades commodity futures?
Producers, processors, traders, stockists, hedgers, arbitrageurs, speculators are the people who trade in commodities. |
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| Question 6: | What is hedging?
A hedge is just a way of insuring an investment against risk. Hedger eliminates the price risk of physical material he owns by taking an offsetting position in futures market.
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| Question 7: | What is arbitrage?
A trading strategy that looks to take advantage of price differences of the same commodity, trading on different exchanges. Arbitrage trading may also refer to trading on price differences between physical commodity and the commodity futures. |
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| Question 8: | What is speculating?
Speculating is taking a position based on expectations about whether prices will rise or fall in the future hoping to profit from the price change. |
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| Question 9: | Are commodity markets regulated?
Yes, Indian commodity markets are regulated by Forward Market Commission (FMC). |
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| Question 10: | Prerequisites of trading
Resident Indian
PAN
Associated Bank savings Account / Reliance Mutual Fund (Liquid Scheme) & Reliance trading Account
Demat a/c is not mandatory for trading purposes
• Mandatory for delivery based positions
• Commodity demat a/c is separate from equity demat a/c
Sales Tax no. is not mandatory for trading
• Mandatory for delivery based positions
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| Question 11: | Can a NRI trade in commodities in India?
No, NRIs are not allowed to trade as of now. |
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| Question 12: | Who cannot trade in commodities futures at present?
Banks, Mutual funds, FIIs, and NRIs are not allowed to trade. |
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| Question 13: | Which Commodities i can trade In?
The following commodities are actively traded in these two Exchanges:- MCX
• Bullion: Gold and Silver
• Metals: Aluminum, Copper, Zinc etc.
• Oil and Oil Seed: Refined Soy Oil, Soy Bean etc.
• Energy: Brent crude oil, Crude oil, etc
• Other commodities: Urad, Chana, Wheat, Guar Seed, Sugar, Potato etc.
NCDEX
• Bullion: Gold and Silver
• Metals: Aluminum, Copper, Nickel, Sponge iron and Zinc.
• Oil and Oil Seed: Castor oil, Crude Palm oil, Soy Oil, Soy Bean etc.
• Energy: Brent crude oil, and Furnace oil.
• Agro Commodities: Cotton, Chana, Masur, Tur, Urad, Basmati rice, Wheat, Maize, Cashew Kernel, Guar seed, Sugar, Rubber, etc.
For newly listed commodities please visit home page of exchange websites www.mcxindia.com and www.ncdex.com
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| Question 14: | What are the exchange timings?
Both MCX and NCDEX provide trading facility from Monday to Saturday.
• Monday to Friday 10 am – 5 pm for agro-based commodities
• Monday to Friday 10 am – 11.30 pm for precious / base metals and energy
• Saturdays 10 am – 2 pm all commodities |
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| Question 15: | Which exchange should I select for trading?
Both the commodity exchanges have done exceedingly well over the years, in terms of risk management, volumes or launching new & better commodity products.
Before choosing an exchange you need to check the following:
• The commodity you wish to trade is listed on that exchange
• Check the contract specifications of that commodity to ensure it suits you best
• There is enough liquidity i.e. price difference between the best buyer (bid) and best seller (offer) should be minimal in the given commodity (i.e daily volumes are high & you will be able to liquidate your position at will)
• Commodity price should be in sync with the physical market prices or its respective benchmark prices
• The exchange that matches the above mentioned characteristics can be your choice. |
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| Question 16: | Where will I find detailed contract specifications?
You can find detailed contract specifications on the websites of the exchanges. You can log on to www.ncdex.com and check the product section or homepage of Multi Commodity Exchange at www.mcxindia.com |
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| Question 17: | What is margin?
Margin is deposit money which is required in advance to execute trades on the exchanges.
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| Question 18: | What is initial margin?
Initial Margin is the amount of money deposited by both buyers and sellers of futures contract to ensure the performance of trades executed. |
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| Question 19: | What is maintenance margin?
Maintenance margin is an amount over and above the initial margin to ensure that the balance in the margin account never becomes negative. |
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| Question 20: | What is additional margin?
Additional margin is an amount imposed to remove unexpected volatility from the market. |
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| Question 21: | 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. |
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| Question 22: | What is ‘Go Long’?
It means buying a commodity in anticipation that the price will go up. |
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| Question 23: | What is ‘Go Short’?
It means selling a commodity in anticipation that the prices will come down.
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| Question 24: | 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.
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| Question 25: | Is there any limit to which, price of a commodity can rise or fall in a day?
Yes, there are circuit limits or daily price range (DPR) to safeguard the interests of general investors from the extreme volatilities in markets for preventing any unexpected fall or rise beyond a limit. When the circuit limit is hit, there is a cooling period of fifteen minutes after which the trading will begin again with fresh circuit limits.
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| Question 26: | Is there any limit to the quantity I can trade/hold in any given commodity at any point of time trading limit at client / member level
Yes, there is a maximum permissible limit on holding a particular commodity for client as well as member. It varies from commodity to commodity and exchange to exchange. Please see contract specification on exchange website for position limit at client and member level at www.ncdex.com and www.mcxindia.com. |
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| Question 27: | Will I receive trade confirmation?
Yes. As soon as the order is executed your trade book will also be updated simultaneously. In future we would work towards providing other mediums of alert such as SMS service.
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