How to Invest In Commodity Trading

About Commodity Trading Investment

Initiation

The investment universe has, for long, consisted of stocks, bonds, fixed deposits, mutual funds, jewellery and real estate.

The lifting of the 30 year ban on commodity futures trading in India has opened yet another avenue
for investors.  Want to know how to go about trading in commodity futures but do not know whom to ask ? Red on…

Where can I trade on Commodity futures ?

Commodity futures are traded in commodity exchanges and popular online exchanges such as the Multi Commodity Exchange (MCX), the National Commodity and Derivatives Exchange (NCDEX), the National Multi-Commodity Exchange (NMCE) and the National Board of Trade (NBoT) in India.  These are platforms on which market participants come together to effect their trades.

The NCDEX and the MCX are located in Mumbai, the NMCE in Ahmedabad and the NBoT in Indore.  These exchanges are promoted by leading banks : The NCDEX is co-promoted by the NSE; the MCX by the SBI group; and the NMCE by the Central Warehousing Corporation.  Various stockbrokers, including Geojit, Motial Oswal and India Infoline, provide commodity trading services.

Most brokers take orders over the Phone.

How do I initiate a trade ?

Investors are required to open a trading account with a broker or sub-broker, documents establishing address and identify proof are required.  While brokers vary on the documents required for proof, most insist on a PAN card as proof of photo identify.  Bank account details are also asked for enabling remittance and payment.

In the case of a company, resolution of the board authorizing participation in derivatives trading would have to be produced; for firms, a copy of the partnership deed would also be required.  Those who want
to give or take physical delivery for a contract on the MCX and the NCDEX are additionally required to open a Demat account with NSDL or CDSL, apart from providing local sales tax registration details of the delivery Centre.

What Commodities Can I trade in ?

The FMC (Forward Markets Commission) approves commodities that can be traded.  Commodities available for trading include bullion – gold and silver, metals – steel, copper, aluminum, lead and nickel, crude; and several agri commodities. 
However, not all commodities are traded on all these exchanges; while crude; gold and silver are highly traded on the MCX agriculture commodities are traded more on the NMCE and the NCDEX.

1. What are the features of a Contract in Commodity futures ?


2. How to settle a transaction ?


3. How do they differ from equity futures ?


4. What margins are to be maintained ?


5. How to give delivery ?


6. How to take delivery ?


7. Who regulates the commodity futures market ?