What is MCX?: For doing the trading in the commodity market there is different exchange available for the commodity market. From them, one of this is Multi Commodity Exchange (MCX) and in this article, we will see the detail explanation of the MCX market and what does one need to do the trading in this market. Commodity trading is mainly done as part of the diversification of the portfolio. Let start with the definition of the MCX market.
What is MCX?
The full form of MCX is Multi Commodity Exchange. This is an online platform where the commodities are traded like gold, silver, lead, copper, zinc, crude oil etc. MCX has its headquarters in Mumbai and it started to function in the year 2003. This is term as the largest commodity futures exchange in India. The regulator for MCX was Forward Markets Commission (FMC) after which the FMC was merged with the SEBI.
Major Commodity Exchanges in India
- MCX (Multi Commodity Exchange)
- NCDEX (National Commodity and Derivatives Exchange of India)
- NMCE (National Multi Commodity Exchange)
- ICE (Indian Commodity Exchange)
Advantages of Multi Commodity Exchange
1. Benefit for diversification
Commodities are often a potent tool for diversifying your portfolio. Commodities usually have a low or negative correlation to different other asset classes categories like equities and bonds. The provision of a large sort of choices to help in achieving diversification. Commodities include everything from sugar, soybean plant and corn to gold, silver and steel.
2. Gives Protection from Inflation
In the country where there is high inflation, the commodities will help the individual to get the protection from inflation. Inflation leads to destruction in the value of the currency and therefore it affects the value of the equity and the bond holdings. But the value for the commodities like the gold and silver remains sticky as they have high intrinsic value.
3. In Hedging
A large range of investors uses commodities for hedging. Commodities like sugar, iron, maize or copper are a significant input material for an outsized range of industries. Investors take an opposing position within the commodities futures exchange to shield against worth fluctuations. You’ll additionally hedge against sure events through commodities. An oil shock could also be negative for the equity markets however can cause a surge in costs of oil.
4. Provide Liquidity
Many people equate trade with commodity with the particular movement of an oversized amount of commodities that can be tough to sell if needed. However, mercantilism through trade goods exchanges is totally different. Whereas one will take physical delivery additionally, investors typically exchange trade goods derivatives. Derivatives will simply be liquidated a bit like alternative money assets like equity and bonds.
What is MCX Trading?
Buying and selling of the commodities happen in the Multi Commodity Exchange. They are physically settled or they are cash-settled. SEBI is the regulator of the MCX market that has been made the physical settlement of the stock derivatives that is mandatory currently.
Margins in Commodity Trading:
1. Initial Margin
Initial Margin is the minimum amount you have to pay while entering into the futures market.
2. M2M Margin
Profit or loss is adjusted on a day to day basis which means mark to the market margin. If you start to earn the profit in a single day, the money is transferred from the clearinghouse and if you lose in that day the money from your account will be transferred to the clearinghouse by the broker.
3. Special Margin
Special Margin is collected to control the volatility and the excessive speculation in the trading or investing.
Factors that affect the Commodity Market:
- Geopolitical tensions
- Weather Conditions
- Government policies
- Economic and Political Conditions
Trading in the commodities can be rewarding if it is done with the correct strategy and through the different exchange of the commodities from which one is MCX. Commodity exchanges help in standardization and help the investors to get better knowledge about the transaction.
This blog is on “What is Multi Commodity Exchange (MCX) India?” and from this, we had written the detailed content on this and also about the different exchanges presented in the commodity market. This blog contains the minute details of the MCX trading and the advantages and the factors of the MCX trading. Trading Fuel is the leading blog site presenting the blogs on the financial topic as there are many keen beginners of the stock market. We are helping many of the learners of the stock market and to provide them with the blogs for free of cost. Read and stay updated with us.