What is Commodity Futures Contract | MCX Tips

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What is Commodity Futures Contract | MCX Tips

A commodity futures agreement or contract is a promise to make or believe delivery of a particular quantity & quality of a commodity during a definite month in the upcoming date at a rate agreed upon, when the promise is made. It is an contract to sell or buy a set amount of the commodity at a sure time in the upcoming at a certain price.

Commodity futures agreement is a standardized agreement set by a specified commodity futures exchange, that involves the size (5,000 ounces, 5,000 bushels, 1,000 barrels, etc), the situate where the delivery can be completed, the type & quality of commodity to be delivered, and the rate of the transaction.

Commodities bought & sold in the commodity trading exchanges are needed to be delivered at the contracted rate, ignoring every one the moves in the market rates. The commodity futures agreement is one of the streets for the retail investors and the traders to add.

The trading in commodity futures agreements can certainly be very risky for the inexperienced. It is usually believed that mainly investors lose money in the commodities’ futures. This happens only when the market clients do not trade with regulation and decrease victims to the greed & fear.

How it Works

When you acquire a futures, you don’t have to give the whole amount, just a fixed proportion of the cost. This is recognized as the margin.

For example: You bought a gold futures agreement at Rs. 72,000 per 100 gm.

The margin for the gold set by the MCX is 3.5 percent. So you finish up paying Rs. 2,520/- so called margin.

The short margin means that, you can purchase futures showing a big amount of the gold by paying simply a fraction of the rate.

The subsequently day, the rate of gold increased to Rs. 73,000/- per 100 gm.

Rs 1,000 (Rs 73,000/- - Rs 72,000/-) will be credited to your trading account.

The following day, the rate dips to Rs. 72,500/-.

Rs. 500/- will get debited from your trding account (Rs. 73,000/- – Rs. 72,500/-).

Choose a Broker:

To trade in the commodities, you require to choose a broker. Several, already established equity market brokers have sought relationship with NCDEX & MCX and are previously offering commodity futures trading services. Several of them also suggest trading through the Online Commodity Tips and Live Gold Rate just like the technique they proffer equities. You can also obtain a list of the more members from the particular exchanges and choose upon the broker you wish for to select from.

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