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FAQs on Commodities

    IndianMoney.com Research Team | Saturday, April 18,2009, 06:24 PM
 

FAQs on Commodities

1. What is the difference between equity futures and commodity futures?


In equity futures the underlying asset is the equity share of any company whereas in commodity futures the underlying asset is the commodity itself.

2. What are the benefits of trading in commodity futures?


Futures trading in commodities results in transparent and fair price discovery on account of large scale participation and reflects views and expectations of wider section of people related to that commodities. Producers, traders and processors, exporters/importers get an online platform through MCX for price risk management. It provides a platform for producers to hedge their positions according to their view of the prices.

3. Which is the regulatory body for commodities trading?


The Forward Markets Commission (FMC) is the regulatory body for commodity futures/forward trade in India. The commission was set up under the Forward Contracts (Regulation) Act of 1952. It is responsible for regulating and promoting futures/forward trade in commodities. The FMC is headquartered in Mumbai while its regional office is located in Kolkata.

4. What are the trading hours?


Normal trading hours of MCX are from 10.00 hrs to 17.00 hrs. But since price movements of some commodities are in accordance with the international prices, there is an evening session, which coincides with the working time of international commodity exchanges. The evening session is from 18.10 hrs to 23.00 hrs. The commodities traded in the evening session are :
  • Gold
  • Silver
  • Refined Soy Oil
  • Soy Seed

5. Which are the commodities currently been traded on the exchange?


MCX, which is an NMCE established under the order of FMC, can trade in any commodity and commodity futures subject to the approval of FMC. Therefore, all potential commodities in which futures market are permitted and would be required will be traded on MCX. However, the implementation would be done in phases for gradual acceptance by the intermediaries and users so that the contracts can generate strong trading interest and have sufficient liquidity.

In the initial phase, MCX has provided a platform for futures trading in the following commodities :
  • Bullion – Gold, Silver
  • Oil and Oil Seeds – Castor, Soya, Crude Palm Oil, Ground Nut Oil
  • Soft Commodities – Cotton
  • Spices and Plantation – Pepper and Rubber
  • Base Metals – Steel

MCX will start trading in most commodities in due course of time.

6. What is the date of expiry?


Each Futures Contract shall expire on the close of trading on 15th or if 15th happens to be a holiday on the immediate previous working day of the Delivery Month prescribed for the contract provided that if the preceding day is suddenly declared as holiday, then the contract shall expire on the succeeding working day. Provided that the above expiry day shall apply in all such cases where the contract specification of a commodity specified by the Exchange does not lay down any other expiry day, as in such cases the expiry day of all contracts in that commodity will be the date as specified in that contract.

7. What are the lot sizes?


These are the lot sizes for the currently traded commodities

Commodity

Lot Size.

Gold

1 Kg

Gold Mini

100 gms.

Silver

30 Kg

Silver Mini

5 Kg

Steel Long

25 Mt

Steel Flat

25 Mt

Crude Palm oil

1 Mt

Ground nut oil

1 Mt

RBD Palmolein

1 Mt

Refined Soy Oil

1 Mt

Rubber

1 Mt

Soy Seed

1 Mt

Black Pepper

1 Mt

Kapas

4 Mt

Castor oil

1 Mt

Castor Seed

1 Mt

8. What is the margin payable on each commodity?


The margins payable on each commodity at present are as follows :

Commodity

Initial margin

Gold

5%

Gold Mini

5%

Silver

5%

Silver Mini

5%

Steel Long

5%

Steel Flat

5%

Crude Palm oil

4%

Ground nut oil

4%

RBD Palmolein

4%

Refined Soy Oil

4%

Rubber

5%

Soy Seed

4%

Black Pepper

8%

Kapas

5%

Castor oil

4%

Castor Seed

4%

The margins payable may change if revised by MCX.

9. What would be the quality of the commodities traded on MCX?


The specification of each commodity will be given and mentioned in the contract. Each participant will be trading in that particular quality only.

10. What is the stamp duty levied on commodity contracts?


In case of stamp duty will be applicable according to the prescribed laws of the state the clients trade in. The indicative stamp duties for Maharashtra State are as under :

Sr. No.

Commodity

Stamp Duty Rate

1

Bullion

Re1 for every unit of 1kg of gold or part thereof
Re1 for every unit of 50kg of silver or part thereof

2

Oil Seeds

Re1 for every 10,000kg (100 quintal or 10MT) of oilseed or part thereof

3

Yarn/Non-Mineral Oils/Spices of any kind

Re1 for every 10,000kg or part of thereof the value

4

Cotton

Re1 for every unit of transaction of 4,500kg or part thereof

5

All other Commodities

Rs20 per contract {Article 5 (4) of the Bombay Stamp Act.}

These are subject to changes if revised by the concerned authority.

IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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