Commodity trading in india pdf

Over a period of time, items like clay tokens, seashells, and coins came into play as a medium of trade. Even today, farmers in villages exchange commodities among themselves. However, today commodity trading is much more organised and streamlined. The complete list of commodities traded on MCX can be found here. Whereas commodities represent goods that are used in our everyday life.

Both these asset classes come with profit-making potential. But, both of them trade at different marketplaces. Here is a quick reference table to major out the differences between the commodity market and the stock market. They facilitate trades on a spot and futures basis in agro, base and precious metals as well as fossil energy sources. Commodities trade on spot as well as in the futures markets. In the spot market, the demand and supply dynamics determine the prices of the commodities.

The trade is settled in cash against immediate delivery. It is more prevalent in the retail market. But with the introduction of the futures market, commodity trading is just like trading in equity futures.

With commodity futures, the transaction is completed at a future date. Here, the physical delivery is rarely taken. Hence speculators prefer these types of trades where they only have to participate in the profit or loss. The buyers and sellers trade a commodity based on a standardized contract considering the future price. The advantage of trading commodities in the futures market is that they are highly leveraged investments.

Thus, an investor can take big bets with a relatively small amount of money. The commodity futures market is also very liquid. This makes it easier for an investor to enter and exit the market. The disadvantages of trading in commodity futures is that the markets are volatile. This means the risk is higher. High leverage can also magnify the profits and losses. This means, you can win big or lose big.

You can also invest in stocks of companies that produce commodities. Or you could invest in exchange-traded funds ETFs or mutual funds that track these commodities.

Here are five basic ways to invest in commodities. Physical Commodity : Investors can buy actual physical commodities like gold and other precious metals and sell it at a profit in the future. But the biggest issue with physical commodity trading is the high logistics cost and expensive insurance which eats into the returns generated by the asset.

Commodity ETFs : Commodity exchange traded funds are passively managed and invest in physical commodity and futures contracts which are traded on the exchange on real-time basis.

They help investors benefit from price appreciation of the commodities without the hassle and liquidity issues of physical commodity trading. They offer the benefit of diversification and issues of liquidity in commodity ETFs are eliminated with commodity mutual funds. Since lakhs of investors invest collectively in commodity mutual funds, economies of scale are also achieved.

Commodity Options : Investors can also take exposure to commodities using commodity options contracts. In a commodity options contract, the buyer has the right but not the obligation to buy or sell the underlying commodity in the future at a particular strike price.

Commodity options are better than futures contract as the buyer has no obligation to compulsorily buy or sell the underlying asset. Commodity Futures : This is a contract between two parties to buy and sell the underlying commodity at a fixed price and date in the future. Gold futures price and contracts traded Contracts in Lots Price 0 0 It is evident from the above chart that the price for the gold has not been very sensitive to the total volume being traded on the exchange.

If you could see, in March when total contracts traded increased, the price for the gold futures also increased but very little as against July sharp fall in the number of contracts traded from April , the price just remained flat and did not fall along with the contracts traded. Though there have been some spikes in the price of gold futures, whenever there has been rise in the contracts traded like in November and in April People consider gold as a safe metal to hedge against the rising inflation.

It only picked up when inflation started to increase. This suggests that people buy gold when inflation is rising, hence the price rises. But over the past year, a curious and sometimes dominating new gold driver has emerged. US Stock Markets Historically, secular gold bulls happened during secular stock bears.

Over these long time frames 17 years or so , persistent stock-market weakness gradually ramped up gold investment demand.

Rather than moving in opposition to the stock markets strategically, gold has often moved with them tactically. On a day-to-day basis, there has actually been a high positive correlation between the stock markets and gold! This peculiar tendency was driven by the sheer craziness of the stock panic. And even though it is gradually abating today, gold traders can only ignore it at their own peril. The primary way they drove gold into an odd positive correlation with stocks was through their impact on the US dollar.

Thankfully this link will continue to fade as the post-panic normalization continues. US Dollar currency As the fear surrounded with the stock market, investors fled with their money from stocks to the US dollar which lead to sudden plunge in the stock market and the gold prices.

This event signifies the quest of investors for safe heaven which they consider US dollar and treasuries fulfill their needs. Investment Demand Gold as such is not a great investment asset. If you look at the historical performance, Gold has never outperformed equities in long run. The only reason people like to invest in gold is that they consider it as a good hedging asset against inflation. People consider it as a safe asset to invest in times of panic.

Hence this particular psyche of people influences the demand and price of gold. Conclusion The bottom line is the US stock markets have become a major driver of gold over the past year.

And this is not the traditional inverse secular relationship, but a positively-correlated tactical one. Intense fear in stocks led to flight capital flooding into the US dollar. The resulting sharp dollar rally hammered gold, causing it to plunge with stocks.

And as recovering stocks led to dollar selling, gold rallied with the SPX. As it is very unlikely for US dollar to appreciate any further, this leaves a good scope for Gold investment in coming future. One way is to play the long side, which is where you are speculating that prices will rise in the future. Another way is to play the short side, which is when you are speculating that prices will fall in the future. When you are going to be trading any of the different commodities it is important to pay attention to the tick that is taking place.

This is where as futures contract is being purchased or shorted it is reflected by a positive up tick or a negative down tick. What you want to do is enter a position on a negative down tick if you are planning on going long or a positive up tick on the short side, helping you to enter the futures contract at the right time. A common strategy used to trade gold is the straddle, which is where you are going long and short at the same time.

The idea is to purchase both contracts at the same price and time frame so that you can take advantage of the volatility to make money. Let us now look at different scenarios and how will doing trade in Gold would make you fetch money or at least minimize your losses. From the above chat we can see that on 12th may the gold traded between the range of and In such a scenario, what should be your strategy?

You should short or sell the gold futures of gms at the opening price of and close your short position before the close of the trading session or whenever the price start moving upwards.

This way you could have made Rs price quoted is for 10 gms and your contract is for gms, hence you make 75 per 10 gms per contract. Like in the case of above chart, it is gold futures expiring on 5th aug As a trader, it becomes really difficult to make money in such a market condition.

Then what can be done in such a scenario? You should use a strategy called straddle. It means you should buy and sell the futures contract at the same price having a stop loss on both the contracts. It is always advisable to wait and observe for any patterns or direction if you are able to spot in the price movement.

You use the strangle strategy where you bought and sold gold futures at the same price of Rs keeping a stop loss of Rs on long contract basically assuming that the price have bottomed out and there is not much room for price to fall further and Rs Now using this strategy will hedge your position and minimize your losses. When the price moves up, you will make money on the long the one that you bought futures contract and at the same time you will lose the same amount on the short futures contract.

Hence your position is hedged. At 12 noon, when the price is at Rs, you made Rs 5 on the long contract and lost Rs 5 on the short contract. Both the contracts are still valid as none of them have actually triggered their respective stop losses. Now at , the gold is trading at Rs Now here your short futures contract got executed at the stop loss price of Rs which means you made a loss of Rs 15 on the short contract. On the other hand you have a profit of Rs 23 on the long contract.

Hence you made a net profit of Rs 8. In this case it requires you revise your stop loss slightly on the upside from Rs to Rs as the price has move up in the direction. If you observe, the price again came down and reached Rs levels at about And then it shoot up Rs about 1 pm.

Hence by exceeding at Rs you have made a net profit of Rs 35 The key to make money in this strategy is the stop loss. You have to be really smart at calculating the appropriate stop loss for your contracts and revising the stop losses according to changing conditions. Risk in this strategy — The only risk the trader faces in this kind of strategy is that he will make loss if one of the contracts gets executed due to triggering of stop loss and the other one obviously is till on.

In such case you could either hang on to the other contract for few more price fluctuations and then exit out of it or if you are a risk taker, then you can either continue holding your active contract like In the case above or can even enter into another contract go short if you are long on the other contract at the current price. Or at the end of day if none of your contracts trigger their respective stop loss limit, you will end up making no money as your position will be perfectly covered and hence no profit no loss for you.

Throughout history, silver coins were, and still are in many places, essential for internal and international trade. Silver has been a great store of value since since it has been actually increasing in value at a much faster rate than the stock market or bonds. There is now a small, but rapidly growing demand for silver as a store of value.

In , it was about 20 to 60 million ounces, depending on if you trust the statistics of the Silver Institute, or the CPM groups, respectively. Mint, and respective shortages of that silver product and others such as scarce oz bars. More than is produced each year. That does not leave much room for investment, or monetary demand, which is termed a "surplus" by the groups who publish statistics on silver.

Silver is produced throughout the world but an interesting fact remains that the primary source of silver is not the silver mines but the other sources of silver. The total production of silver in the world figures to be around million ounces and Mexico is the leading silver producing country. Now let us look at each of these segments and their potential demand for the Silver Industry: Silver has numerous uses and applications in various industries, especially in the electrical appliances segment.

Ordinary household switches, which normally carry high electric current for electrical appliances from irons to refrigerators, use silver. Silver is the metal of choice for switch contacts because it does not corrode, which would result in overheating, posting a fire hazard.

Industrial demand has grown with the increasing use of electronics and electrical uses. From mirrors to paints, and dental alloys to coins, silver is used in numerous areas. Healthcare: Silver contains anti-bacterial properties and researchers have found that silver can be used as a biocide. Burn units in hospitals use bandages that release silver ions that help with healing and reduce the need for frequent dressing changes Research shows that silver promotes the production of new cells, increasing the rate of healing in wounds and bone.

The regeneration of whole areas of lost skin is being accomplished by the use of silver treatment. Research indicates that silver-based purification systems are effective in disinfecting water. Jewelry and Photography: million troy ounces of silver were used worldwide in for photography. Although a wide variety of technology is available, silver-based photography is expected to dominate the market for the foreseeable future due to its superior definition and low cost.

Over 1. India is the biggest and still an emerging market for silver jewelry market in the world. Worldwide use of silver for jewelry markets amounts to over million troy ounces in The array of large silver pendants and other jewelry available in the market today is quite mind boggling! Silver pendants come in a wide range of styles. The most common style incorporates one or more gemstones. The pendant can have a single large gemstone that forms the focus of the pendant and the sterling silver setting can be simple and elegant or intricate and ornate.

The present day standard for jewelry is Sterling silver. Sterling silver is an alloy of silver and copper, with the silver content being at least New Uses of Silver creating new demand: Research on silver use in fuel cells and catalysts is well underway by the auto industry.

Silver has a significant cost advantage when compared to platinum. The electronic industry is continuing to reduce the amount of gold used in bonding wires and plating. The industry is replacing it with silver, a cheaper and equally durable substitute. Silver coins that are investment grade Silver's role in photography, numerous industrial applications, silverware and jewelry, and medicine, is expected to rise as the global economy continues to rebound.

There are many potential new uses of silver, which would lead to increased silver offtake in future years. Fuel cells, silver-based wood preservatives, and superconductivity, are some of the innovative potential new uses for silver. For the average investor, silver can be an effective means of diversifying investment assets and preserving wealth against the ravages of inflation.

Let us first understand the basic factors i. Demand and Supply and price of Silver: As the basic micro economics states, when demand is more than the supply of any commodity, the price of that commodity should be high or should be rising and vice versa. But it seems the story is completely different in case of the Silver. Well as could see fro the chart, that the demand has been consistently falling short of total available supply of silver since But still there has been consistent rise in the price of silver since Well there has to be some reason why would price rise despite fall in demand against the supply.

Well there could possibly be only two reasons, both of them not available in the above chart. First, being there has been growing demand for silver from the unconventional uses like industries, photography, etc. Or secondly, there are other factors that are affecting the price of the silver to behave in this manner. Let us try to analyze if there are any other areas or segments from where there is a rising demand for silver. It has been the investment demand for silver that has single handedly pushed the price up, since The major buyers of the silver for investment purpose are the hedge funds and investors investing in the silver ETFs.

Foreign exchange movement: Since Silver is a globally traded commodity and is mined and consumed by different countries in the world, it is priced and traded in the US dollar on various exchanges of the world. Hence the foreign currency movement of US dollar against your domestic currency naturally affects the price of the silver in your country, just like any other metal commodity.

But the only valuable insight you as an investor should be looking to get out of such analysis is to find out two things about foreign exchange movement and silver price, First the relative strength in their relationship that makes silver price to react to the change in currency fluctuation and second is the time lag, if any for silver price to react to the change in the foreign currency market.

Let us look at historical data to answer our questions. They both share a strong negative relationship with a correlation of And the negative sign indicates that they have an inverse relationship, meaning that whenever the Indian rupee depreciated, the price for silver has increased and vice versa.

Crude oil prices to Silver: Like in case of most of the commodities, Silver also shares a strong relationship with the crude oil price movements. Hence it becomes important factor influencing the consumption of other commodities like silver and thus the price. Looking at the chart, it is little difficult to conclude that which direction does the silver price move on the change in the price of oil.

Then from Sept onward they showed a strong positive relationship and silver price movement replicated the move of oil prices. Overall they have a strong positive correlation of 0. Industrial Production in India: Since silver is used for industrial production in various sectors and for various products, it is evidently dependent on the industrial performance and demand outlook.

The performance of industries output is measured using index of industrial production IIP number which is published on monthly basis. From the above chart, it appears that the silver price shares a strong relationship with the IIP. They have a strong correlation in the movement of price and the index number of 0. If you take a closer look at the chart above, you will be able to find an important trend in the movement of price of silver with the IIP.

The price of silver reacts to the change in IIP in the time lag of 1 month. Hence there is a 1 month lag in the change in price of silver to the change in IIP output.

You as an investor can surely make use of this relationship in taking your trading positions. Gold demand and prices: As you all know, investors never appreciated Silver as a metal for investment. It was and is still considered as a secondary investment commodity over gold.

Like crude oil, Gold also influences the price of the silver and even the investment demand for silver. But silver appears relatively volatile. The correlation between gold price and silver is a whooping 0. It means you can safely bet on silver based on the price movements of gold. In fact the volatility of silver can be of great trading opportunity for taking short-term positions by looking at the gold prices.

There are no other derivative instruments available in the Indian commodities market. There can be numerous trading strategies one can think of. Let us try to look at different scenarios and understand what trading style or strategy one should adopt to gain in each of those situations.

In such a case you should enter into a long futures contract of silver i. The minimum lot size of the silver contract is 30 kgs. You have to keep aside a minimum margin in your trading account with the broker. It means you will have to keep aside Rs X30X0.

Let us now see how your long futures position look on different days and at different price. Similarly, on 5th june , you incurred a loss of Rs as the futures price felt below Rs i. As the contract expired on 20th june , you made a total profit of Rs on your initial price of Rs Hence your net return on investment ROI came to This feature of leverage actually helped you to earn 10 times more return than you would have earned had you actually purchased 30 kgs of silver.

Because you would have invested Rs and still would have earned same profit of Rs In such a case you should enter into a short futures contract of silver i. Before adopting any trading position, you should look at various indicators covered in the previous chapter to determine the price movement in silver. We even saw the kind of relationship each of those factors share with silver. Let us now formulate a strategy using couple of those indicators.

As we have seen that silver and foreign exchange rate share a negative correlation and silver and IIP output numbers share positive correlation.

Moreover, silver moves in a one month lag to IIP numbers. Using these factors you can take a month long futures position in silver. Conditions for our strategy: You see rupee has been depreciating in past 2 to 3 months and there are news that it rupee will be weak against dollar for coming few months. It is safe to take a long position in silver futures. Industrial production has been posting a strong performance for past 3 months.

It indicates that silver price will also go up for next month, due to one month lag to the change in IIP numbers. Hence even this indicator is favorable in taking a long position in futures. Thus by considering both the indicators in totality, we reach to a decision that silver price is set to increase over a period of 1 month and thus probable trading strategy would be to go long on futures. Copper is an excellent conductor of electricity and is very resistant to corrosion.

Copper is often considered an accurate indicator of economic growth. An economic expansion is usually present or beginning if demand for copper is increasing. In the US, Arizona is responsible for about 65 percent of production.

The US, Russia, and Japan are the three largest consumers of copper Copper and copper alloys meet the challenges of modern life in many ways. Often seen in plumbing systems and good quality roofing and cladding, they are also frequently unseen providing essential services inside equipment in houses, offices, commercial and industrial buildings. They are amongst the most necessary materials needed to provide the means to keep home, commerce and industry running. Copper has the highest electrical conductivity of any metal, apart from silver, leading to applications in: Power generation and transmission - generators, transformers, motors, and cables provide and deliver electricity safely and efficiently to homes and businesses.

Electrical equipment - providing circuitry, wiring and contacts for PCs, TVs and mobile phones. Copper has a key role to play in energy efficiency - the judicious use of 1 tonne of copper in the energy sector makes it possible to reduce CO2 emissions by tonnes per year on average.

The top two market segments, power utilities and telecommunications, account for almost two-thirds of the copper it consumed by this market. A key driver for power utilities is electrical distribution and control, which includes transformers, switchgear and industrial circuit breakers, and industrial controls.

Copper provides light, durable maintenance-free structures that are naturally good looking, long lasting and fully recyclable. Copper's naturally antimicrobial properties can be exploited in hygienic surfaces for hospitals and healthcare facilities. Copper is also used on a lager scale for residential as well as non-residential construction purposes.

As the real estate market is on the growth track, more and more demand for copper could be expected fro this sector.

The high purity copper wire harness system carries the current from the battery throughout the vehicle to equipment such as lights, central locking, on-board computers and satellite navigation systems. Electric super trams in cities such as Manchester, Sheffield and Croydon, provide clean, efficient transport powered by electric motors. The overhead contact wires are either copper-silver or copper-cadmium alloys.

The world supply of and demand for copper Most copper ore is mined or extracted as copper sulfides from large open pit mines in copper porphyry deposits that contain 0. Over 40 per cent of world copper supply comes from North and South America; 31 per cent from Asia and 21 per cent from Europe.

Copper — an example of derived demand Because copper is malleable and ductile, there is a huge industrial demand for copper. Like most metals the demand for it is derived in part from the final demand for products that use copper as an important component or raw material.

Nearly 50 per cent of the demand for copper comes from the construction industry, and 17 per cent is from the electrical sector. Copper is also used extensively in heavy and light engineering and in transport industries.

From copper wire to copper plumbing, from the use of copper in integrated circuits to its value as a corrosive resistant material in shipbuilding and as a component of coins, cutlery and to colour glass, copper has a huge array of possible industrial uses.

The volatility of commodity prices As we have seen, price volatility stems from a lack of responsiveness of both demand and supply in the short term, i. The low price elasticity of demand for copper usually stems from a lack of close substitutes in the market.

For some products and processes, aluminum or plastic may act as a substitute to copper for some uses, but there are costs and delays involved in switching between them.

The elasticity of supply is also low. Supply is usually unresponsive to price movements in the short term because of the high fixed costs of developing new extraction plants which also involve lengthy lead- times. If existing copper mining businesses are working close to their current capacity then a rise in world demand will simple lead to a reduction in available stocks.

And as stocks fall, so buyers in the market will bid up the price either to finance immediate delivery the spot price or to guarantee delivery of copper in the future reflected in the futures price. It can take huge price swings in the market for supply and demand to respond sufficient to bring the market back to some sort of equilibrium.

The demand for copper will continue to remain strong provided that the global industrial sectors continue to expand production. But if price remain high then we can expect to see some shifts occurring. For a start, copper can be recycled although the costs of doing so are often high and there are fears concerning the negative externalities arising from the pollution created by trying to recycle used copper.

These external costs include atmospheric emissions from recycling plants and waste products dumped into rivers. Nonetheless price theory would predict an increase in demand for scrapped copper and perhaps a substitution effect away from copper towards aluminium.

Plastics provide lower material and installation costs for businesses. And the take off in wireless technology and fibre optics will also have an impact. And higher prices might also be the stimulus required for an expansion of copper ore production as supply responds to the incentives of increased potential revenues and profits. In recent years, copper mining production has fallen short of expectations Growth in Emerging economies The major driver for the demand for copper in past decade has been the emerging economies like China, India, Brazil and so on.

This growth will need lot of infrastructure development like constructions, real estate and other industrial development to sustain this growth rate. Due to which there will be high demand for copper as it is one of the basic components used in these sectors. Over half of the global GDP contribution comes from emerging economies. The continued growth of the world economy will fuel the growth in the demand for copper. As you can see from the above chart, emerging economies have always outperformed the world economy in the past decade and are likely to continue to outperform for next decade or so.

Global Demand and Supply of copper The supply of copper has always been more than the total demand till This is largely due to slowdown in the global economic activity, which dragged the total demand for copper. Hence more or less the demand supply condition has remained unchanged to that of pre-recession period.

Although the emerging economies like China and India are expected to recover faster from the slowdown and regain the long term growth track. Hence the demand for copper is expected to rise faster than the supply side improvements in near term by What is driving the demand specifically?

We know that urbanization of China is the leading contributor to this demand but the unknown factor really is just how big the infrastructural requirement will need to be to equip this new economy. The middle class is growing at the rate of approximately 20M people per year. Chinese consumption of refined copper and, further downstream, of copper and copper alloy semi manufactures are both growing rapidly. There were few hiccups in the world production during to , but the Chinese consumption kept steadily rising over the period.

And it is expected that the Chinese consumption is going to rise to 15 million tones by , which matches the current world production. And the world production for copper is expected to be at about 18 million tones by , which will fall short of the total world consumption.

LME Warehouse Stockpiles Copper, and the rest of the major base metals, are unique among commodities in that fundamental data is available daily. The London Metal Exchange coordinates a global network of warehouses that act as a buffer between copper consumers and copper miners, like an emergency supply.

In a nutshell, most copper mined is sold directly to factories manufacturing copper products for consumption. It does not pass through LME warehouses. But if a producer temporarily mines more copper than it is under contract to provide, it can ship its excess to an LME warehouse.

And if a consumer temporarily needs more copper than it is receiving, it can buy directly from an LME warehouse. Thus the LME warehouse stockpiles, while existing at the margins, offer an excellent window into global copper supply-and-demand trends.

And every speculator ought to consider trading copper stocks, as they tend to mirror and nicely amplify moves in the broader stock markets. In order to understand why copper stocks are so compelling for all traders, what makes people trade in copper. Real demand, not just speculation, was driving it. If a price level can be sustained for years, there is real demand underlying it. Artificially high prices driven purely by speculation are built on a foundation of sand and seldom last longer than weeks or months on the outside.

Global copper demand was simply growing faster than the global mined supply. Commodity trading allows you to profit from the price movements in energy products like — Crude Oil, Natural Gas and Brent crude oil that is otherwise impossible to buy. You can not take possession of these commodities but can trade on the commodity exchanges in an electronic form.

Commodities are rarely traded in physical form on the commodity exchanges in India. This is because of the need to maintain commodity quality, logistic problems and warehousing difficulties. Instead the commodities are standardized into specific futures and options contracts which denotes the ownership of the underlying commodity.

In sense, you get to trade on commodity derivatives rather than the physical commodity itself. But if you wish to have underlying physical commodities, then you can opt for the delivery mode to settle the contract.

Commodity trading can happen in the commodity futures or an option contract. A commodity futures contract is a right and an obligation to buy or sell the underlying commodity at a predetermined contract price. On the other hand, commodity options are the rights without an obligation to buy or sell.

The put option is the right to sell and call options give you the right to buy. You would like to read — How to do option trading in India. The commodity exchanges introduce various commodity contracts in which you can trade. There are at least 4 to 6 contracts available for different commodities. These are near month, next month and far month contracts. The one month contract that expires in the given month is the near month contract.

For example, if today is 1st Jan , then all the commodity contracts expiring on the last Thursday of Jan is the near month contract. The next month contracts have a life period of 2 months expiring on the last Thursday of Feb and likewise, the far month contracts have a life period of 3 months. Apart from that commodity exchanges also introduce 6 months and 12 months futures contracts but those are rare and depend on the underlying commodity supply and demand.

The clearing members are closely associated with the commodity stock exchanges and help in settlement of all the trades happening on the exchange. They take care of the risk management and the pay-in and pay-out of funds and securities.

You will require DP services if you are doing delivery trades where you need to hold your securities till you sell them or till the last day of expiry when the security gets settled in cash or by physical delivery.

Brokerage houses are your normal stockbrokers who also provide trading in commodities. You can trade in commodities when you open a commodity trading account with a stockbroker. For example, Zerodha , Upstox , 5paisa and other stockbrokers who provide online trading platforms for trading in commodities. The prices of global commodities like crude oil and natural gas also impact the respective prices of commodities trading in Indian commodities exchange.

The bullion, metals and energy products are traded till pm between every November and March. Presently, you can trade and invest in the commodity market in India on the following commodity exchanges. NCDEX is a dedicated commodity exchange for trading specifically in agricultural commodities.

ICEX specializes in commodity trading of diamonds and steel. The Agri commodities include trading in Turmeric, Guar seeds, and Cotton. A legally binding agreement to buy or sell the underlying commodity at a later future date. The futures contracts are standardized having specified quality, quantity, delivery time and location for each commodity.

The price for the futures contract is only the variable on which trading happens. Options contracts are also standardized specified quality, quantity, delivery time and location for each commodity. Market orders are the current trading price of a commodity.

If you want to sell Crude Oil then the market order best available price will be Rs. You can buy a lot of Crude Oil futures immediately at Rs. The date on which a future or options contract automatically expires; the last Thursday in India the day on which an option may be exercised. Lot size is the number of units of underlying in a contract. For example, 1 lot of Gold futures contracts consist of grams unit of gold.

Margins help you trade larger volumes by keeping a small amount of money in your trading account. For example, If you want to buy 1 lot of gold futures intraday with an order worth of Rs.

But if your stockbroker is ready to provide 10X margins, then you can place 4. Limit order helps you buy or sell commodities at a specific price that you are willing to trade. The trading platform will send your limit order to the commodity exchange marking your specified price. For example, the current market price of Natural gas is Rs. But you want to buy Natural gas futures at Rs. Stop-loss order protects you from the risk of continuing a loss trade.

Let us understand from the example below. Suppose, you have bought Gold futures at Rs. Naturally, you will want to sell them higher, let say at Rs. But due to adverse market movements, the share price starts to decline and is trading at Rs.

Which means, at the moment you have an unrealized loss of Rs.