The commodity markets have changed a lot from the shabby, little hole-in-the-wall trading offices in narrow streets next to crowded markets where traditional dhoti-clad merchants used to trade.
The NCDEX and MCX are Brand new commodities exchanges that have been set up and these are fully computerised.
The stock brokers are setting up commodity brokerages as well, and trading volumes in commodity futures is widely predicted to rival the volume of derivative transactions (futures and options) on the stock exchanges. What’s more, you can also trade online.
When you buy a Futures, you have to pay just a percentage of the cost instead of the entire amount. Generally in share market terms it is called as the margin.
Let’s say you are buying a Gold Futures contract. The minimum amount of a gold future is 100 gms which is also called as “contract size”. 100 gms of gold will be priced at Rs 72,000.
The margin for gold set by MCX is 3.5%. So you have to pay only Rs 2,520. The low margin means that by paying only a fraction of the price you are buying futures representing a large amount of gold . In this way you bought the Gold Futures contract when it was Rs 72,000 per 100 gms.
Suppose,the very next day, the price of gold rose to Rs 73,000 per 100 gms. Rs 1,000 (Rs 73,000 ? Rs 72,000) will be credited to your account. The next day, the price decreases to Rs 72,500. A deduction of Rs 500 will take place in your account.
But, it is suggested to avoid commodity trading if you are a amateur. A better move would be to initially trade in stock futures and after that going for commodity futures.
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