A fixed percentage of the cost of the commodity known as initial margin can be paid to take a position or trade in the commodity futures market in stock futures.
Credit Risk: Credit risk on account of default by counter party – As the Exchange takes on the responsibility for the performance of contracts, the risk is very low or almost zero.
Market Risk: The adverse movement of price is the cause of this risk.
Liquidity Risk: If the market in liquid, the risk of unwinding of transactions may be difficult. Legal Risk: Regulatory framework might disallow some activities if legal objections are raised. Operational Risk: It becomes difficult to operate in the market with the risk arising out of some operational difficulties like failure of connectivity, electricity or banking problems etc. How risky are these markets compared to stock & bond markets? Its comparatively safer to trade in commodities as it is a statistically proven fact that the commodity prices are generally less volatile than the stocks. Continuous observance is kept by regulatory authorities to make sure that the commodity prices are market-driven and free from manipulations. Like any other financial instruments, there is risk involved while trading in commodity futures. We know that, all investments are subject to market risk and depend on the individual decision. The client should be mindful of the amount of risk one can consume as there are times when market becomes volatile or move in opposite the direction. Sop loss has to be used as a precautionary. What do I need to start trading in commodity futures?Open an account by filling up Know Your Customer (KYC) application with a broker. Margin is given to the broken to start the trading. For deliveries, a separate commodity demat account is necessary from the National Securities Depository Ltd (NSDL) or Central Depository Securities Ltd (CDSL). Details of PAN no, bank account no, cheque, address proof, etc is required to be produced. Commodity trading exchange - Example
MCX is independent and regulated by SEBI. It is one of the three commodity exchange based in Mumbai. It allows dealing in the MCX commodity market.
Trading can be done in this exchange through a broker.
Live updates of commodity prices can be obtained through live functionality of MCX and also through commodity broker.
