You can have an amount as low as Rs 5,000. All you need is money for margins
payable upfront to exchanges through brokers. The margins range from 5-10 per
cent of the value of the commodity contract. While you can start off trading at
Rs 5,000 with ISJ Commtrade other brokers have different packages for clients.
For trading in MCX, that is, gold and silver, the minimum amount required is
Rs 650 and Rs 950 for on the current price of approximately Rs 65, 00 for gold
for one trading unit (10 gm) and about Rs 9,500 for silver (one kg).
The prices and trading lots in agricultural commodities vary from exchange
to exchange (in kg, quintals or tonnes), but again the minimum fund6s required
to begin will be approximately Rs 5,000.
Do I have to give delivery or settle in cash and stock future?
You can do both. All the exchanges have both systems - cash and delivery
mechanisms. The choice is yours. If you want your contract to be cash settled
and stock future, you have to indicate at the time of placing the order that
you don't intend to deliver the item.
If you plan to take or make delivery, you need to have the required
warehouse receipts. The option to settle in cash or through delivery can be
changed as many times as one wants till the last day of the expiry of the
contract.
What do I need to start trading in MCX & futures?
As of now you will need only one bank account. You will need a separate MCX
& future demats account from the National Securities Depository Ltd to
trade on the NCDEX just like in stocks.
What are the other requirements at broker level?
You will have to enter into a normal account agreements with the broker.
These include the procedure of the Know Your Client format that exist in equity
trading and terms of conditions of the exchanges and broker. Besides you will
need to give you details such as PAN no., bank account no, etc.
What are the brokerage and transaction charges?
The brokerage charges range from 0.10-0.25 per cent of the contract value.
Transaction charges range between Rs 6 and Rs 10 per lakh/per contract. The
brokerage will be different for different commodities. It will also differ
based on trading transactions and delivery transactions. In case of a contract
resulting in delivery, the brokerage can be 0.25 - 1 per cent of the contract
value. The brokerage cannot exceed the maximum limit specified by the
exchanges.
Where do I look for information on commodities?
Daily financial newspapers carry spot prices and relevant news and articles
on most commodities. Besides, there are specialised magazines on agricultural
commodities and metals available for subscription. Brokers also provide
research and analysis support.
But the information easiest to access is from websites. Though many websites
are subscription-based, a few also offer information for free. You can surf the
web and narrow down you search.
Who is the regulator?
The exchanges are regulated by the Forward Markets Commission. Unlike the
equity markets, brokers don't need to register themselves with the regulator.
The FMC deals with exchange administration and will seek to inspect the
books of brokers only if foul practices are suspected or if the exchanges
themselves fail to take action. In a sense, therefore, the commodity exchanges
are more self-regulating than stock exchanges. But this could change if retail
participation in commodities grows substantially.
Who are the players in commodity future?
The commodities market will have three broad categories of market
participants apart from brokers and the exchange administration - hedgers,
speculators and arbitrageurs. Brokers will intermediate, facilitating hedgers
and speculators.
Hedgers are essentially players with an underlying risk in a commodity -
they may be either producers or consumers who want to transfer the price-risk
onto the market.
Producer-hedgers are those who want to mitigate the risk of prices declining
by the time they actually produce their commodity for sale in the market;
consumer hedgers would want to do the opposite.
For example, if you are a jewellery company with export orders at fixed
prices, you might want to buy gold futures to lock into current prices.
Investors and traders wanting to benefit or profit from price variations are
essentially speculators. They serve as counterparties to hedgers and accept the
risk offered by the hedgers in a bid to gain from favourable price changes.
In which MCX can I trade?
Though the government has essentially made almost all commodities eligible
for futures trading, the nationwide exchanges have earmarked only a select few
for starters. While the NMCE has most major agricultural commodities and metals
under its fold, the NCDEX, has a large number of agriculture, metal and energy
commodities. MCX also offers many commodities for futures trading.
Do I have to pay sales tax on all trades? Is registration mandatory?
No. If the trade is squared off no sales tax is applicable. The sales tax is
applicable only in case of trade resulting into delivery. Normally it is the
seller's responsibility to collect and pay sales tax.
The sales tax is applicable at the place of delivery. Those who are willing
to opt for physical delivery need to have sales tax registration number.
What happens if there is any default?
Both the exchanges, NCDEX and MCX, maintain settlement guarantee funds. The
exchanges have a penalty clause in case of any default by any member. There is
also a separate arbitration panel of exchanges.
Are any additional margin/brokerage/charges imposed in case I want to
take delivery of goods?
Yes. In case of delivery, the margin during the delivery period increases to
20-25 per cent of the contract value. The member/ broker will levy extra
charges in case of trades resulting in delivery.
Is stamp duty levied in commodity contracts? What are the stamp duty
rates?
As of now, there is no stamp duty applicable for commodity futures that have
contract notes generated in electronic form. However, in case of delivery, the
stamp duty will be applicable according to the prescribed laws of the state the
investor trades in. This is applicable in similar fashion as in stock market.
How much margin is applicable in the commodities market?
As in stocks, in commodities also the margin is calculated by (value at
risk) VaR system. Normally it is between 5 per cent and 10 per cent of the
contract value.
The margin is different for each commodity. Just like in equities, in
commodities also there is a system of initial margin and mark-to-market margin.
The margin keeps changing depending on the change in price and volatility.
Are there circuit filters?
Yes the exchanges have circuit filters in place. The filters vary from
commodity to commodity but the maximum individual commodity circuit filter is 6
per cent. The price of any commodity that fluctuates either way beyond its
limit will immediately call for circuit breaker.
Interested
in commodities futures trading, stock future tips? Call @09707221221, 7440440222 or Visit @ http://www.tradebizzindia.com/.
