What is a commodity?

A commodity is a product that has commercial value, which can be produced, bought, sold, and consumed. Commodities are basically the products of the primary sector of an economy. The primary sector of an economy is concerned with agriculture and extraction of raw materials such as metals, energy (crude oil, natural gas), etc., which serve as basic inputs for the secondary sector of the economy.

What is a Commodity Exchange?

As in capital markets, a commodity exchange is an association or a company or any other body corporate that is organizing futures trading in commodities and is registered with FMC (Forward Market Commission). Two major national level commodities exchanges are Multi Commodities Exchange of India (MCX), National Commodities and Derivatives Exchange of India (NCDEX).

What are the costs involved in trading of commodities?

While trading in commodities, with any registered broker, client has to pay certain charges (apart from margin requirements for trading) which are as follows:

  1. Brokerage
  2. Service
  3. Education Cess
  4. Exchange Transaction Charges

What is Cash Settlement?

It is a process of settling a futures contract by payment of money difference rather than by delivering the physical commodity or instrument representing such physical commodity (like, warehouse receipt). In India, most of the future trades are cash settled.

Can I take delivery of the commodity? If yes, how can I do the same?

A settlement takes place either through squaring off your position or by cash settlement or physical delivery. Squaring off is taking a opposite position to the initial stance, which means in the case of an original buy contract an investor would have to take a sell contract.

An investor who intends to give or take delivery would have to inform his broker of the same prior to the start of delivery period. In case of delivery, a warehouse receipt is provided. Delivery is at the option of the seller; a buyer can take delivery only in case of a willing seller. All unmatched/rejected/excess positions are cash settled; all open positions for which no delivery information is submitted are also cash settled. Under cash settlement, the difference between the contract price and settlement price is to be paid or received.

In online commodity trading, client can not go for delivery & all positions are cash settled.


Warning: Unknown: open(/home/content/75/4140275/tmp/sess_qavf3atg0ef774hjcookv3nth5, O_RDWR) failed: No such file or directory (2) in Unknown on line 0

Warning: Unknown: Failed to write session data (files). Please verify that the current setting of session.save_path is correct () in Unknown on line 0