What commodity trading means
Commodity trading in India mostly means buying and selling derivative contracts, mainly futures plus some options, whose prices track physical commodities. You are not buying a sack of jeera or a bar of gold when you trade. You are taking a position on its price, with margin, for a fixed period.
Two exchanges dominate:
- MCX: bullion (gold, silver), base metals (copper, zinc, aluminium, lead, nickel) and energy (crude oil, natural gas)
- NCDEX: agricultural commodities such as spices, guar and oilseed products
How it works in India
Each contract has a fixed lot size, tick size, expiry date and settlement method, all set out in the exchange's contract specification. You put up initial margin, gains and losses are settled daily, and if prices move against you, you must add margin or the position can be closed.
A few things set commodities apart from equity F&O:
| Feature | What to know |
|---|---|
| Trading hours | Non-agri contracts run into the late evening |
| Price drivers | International prices, the rupee, import duties, OPEC decisions, monsoon and crop data |
| Settlement | Some contracts are cash-settled, others need physical delivery |
| Transaction tax | CTT on non-agri contracts; agri contracts exempt |
| Availability | Some agri contracts have been suspended for long periods |
Because Indian prices follow global benchmarks converted at the day's exchange rate, a commodity position is often a currency position too.
Who should consider it
Commodity derivatives were built for hedgers: a jeweller worried about gold prices before the wedding season, a cable maker locking in copper costs, or a farmer producer organisation protecting the price of its harvest. For them, a hedge can fix a price, though it also gives up the gain if prices move in their favour.
For pure traders, commodities carry the same leverage risk as equity F&O, with the added complication of overnight moves in global markets. It suits only experienced traders using money they can afford to lose.
If your aim is simply to own gold for the long term, look at the holding-oriented options covered in our gold investing guide before considering futures.
Things to check before you start
- Lot size, margin, expiry and delivery terms for each contract you plan to use
- How your broker handles open positions as the delivery period approaches
- Total cost per trade, including CTT, exchange charges and GST
- For hedgers, how closely the exchange contract matches the grade, location and timing of your actual business exposure
Our team activates the segment, explains contract terms and supports you through expiry and delivery. We do not give trading calls.
