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Initial steps to trade in Commodity Futures
Commodity Exchanges: If you want to trade in commodity futures, you can go through any of the three exchanges - NCDEX, MCX and NYME. All three exchanges provide electronic trading and settlement facility.
Choosing a Broker: Next step is to choose a broker. There are many brokers who are registered with the above mentioned exchanges. Brokers like SSKI (subsidiary of Sharekhan), ISJ Comdesk (subsidiary of ISJ Securities) offer commodity futures services. Some of them also provide online trading facility.
Registration formalities: You will have to open a separate 'commodity demat account' with the National Securities Depository Ltd (NSDL) to trade on NCDEX. You will also have to furnish other basic formalities like KYC compliance, PAN details, bank account details, etc.
Minimum Investment: You need to deposit a certain percentage of the total contract value with the exchange through a broker as a security deposit. This sum is known as 'margin'. The margin can depend on the value of the commodity contract and they range from 5-10 per cent of the value. Minimum investment can be as low as Rs 5,000.
Brokerage and Transaction charges: The brokerage depend on trading volumes and can range from 0.10-0.25 per cent of contract value. The brokerage may differ for different commodities, it will also vary from ICICIcommtrade to ISJ Comdex. Transaction charges range between Rs 4 to Rs 10 per lakh for each contract.
Settlement: You can opt for both the facilities - delivery and cash. If you want your contract to be settled in cash, you have to indicate at the time of placing the order. And, if you want to take the delivery, you need to have the required warehouse receipts. You can change the option of cash or delivery as many times you want till the contract expires.
You can now start investing. Start with a single commodity like Gold or Silver and then move on towards other as understanding of the market develops.
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