What is MCX Trading? How it Works and Why to Trade on MCX

The listed stocks traded in India on equity stock exchanges like NSE and BSE. These stocks are specialised in providing a trading platform for equities or stocks with various market segments like cash, futures, and options. Similarly, for commodity trading, dedicated stock exchanges are designated in India.

MCX is one of them, let’s find out how it works, what commodities are traded here, and how to trade or why you should trade in commodities through MCX in India.

What is MCX or Multi-Commodity Exchange?

MCX full form, Multi-Commodity Exchange of India Limited, is a leading commodity derivatives trading exchange in India. Regulated by SEBI, it is offering a robust trading platform to trade or invest in a diverse range of commodities, including base metals, bullion, energy and agricultural commodities.

Established in 2003, MCX provides trading in commodity derivatives to trade into futures and options contracts. It is providing a highly secure commodity trading platform to hedge against price risks and facilitate a well-organized price discovery in the commodity market.

How Does MCX Work?

MCX is an advanced trading platform that runs electronically, providing the facility to buy and sell commodity derivative contracts (F&O) on a real-time basis. It works in a fully regulated environment to ensure any illegal price speculation, facilitating price discovery as per the global and local supply-demand, mainly through the cash-settled and margin-based contracts.

However, the settlement process includes cash or physical delivery based on the position square-off settlement as per the derivative contract. Trading with MCX, you need to maintain the margins day-by-day, mark-to-market, to ensure the minimum funds in your trading account as per the market value. It provides trading in both categories of the derivatives contract, commodity futures and options.

Commodity Futures: Entering into commodity futures contracts gives an obligation to buy or sell the underlying commodity on a future date at a predetermined price established today. Buying or selling commodity futures can safeguard against the uncertainties of market price fluctuations.

Commodity Options: The commodity options at MCX offers a right but not the obligation to buy or sell a commodity at a predetermined price on or before a specific date. You can choose from Call or Put options with an option chain with contracts of various months’ expiration dates.

>> Also Read: What is Futures and Options

What are the Commodities Traded in MCX?

Currently, MCX is providing derivatives trading in commodities from various segments like bullion, base metals, the energy sector and agricultural products. Further, you can find various commodities in these segments with the option to choose from a wide range of commodity products.

Bullion: Under this segment, you can trade in Gold and Silver with multiple options like Gold Mini, Gold Guinea, Gold Petal, Silver Mini and Silver Micro.

Base Metals: Here you can find the metals like Aluminium, Copper, Lead, Zinc, Nickel and Steel Rebar to trade in the normal and Mini segment.

Energy: In this segment, you can find commodities like Crude Oil and Natural Gas to trade.

Agro Commodities: This segment offers a wide range of agricultural commodities like Mentha Oil, Cotton, Crude Palm Oil, Cardamom and Castor Seed, etc.

What are the Trading Hours of MCX Exchange?

The trading hours at MCX are generally 9:00 AM to 11:30 PM/11:55 PM (Monday-Friday) for non-agricultural commodities like metals and energy. For agricultural commodities, the trading hours are between 5:00 PM and 9:00 PM on weekdays. On Saturdays and Sundays, MCX remains closed.

The evening session trading time (11:30 PM or 11:55 PM) is changed during US Daylight Saving Time (DST). The DST is the practice of adjusting the clock one hour during spring and autumn to extend daylight. And this practice is followed in the US/Europe to save energy and use natural lighting.

However, India doesn’t follow such DST practice, but MCX need to follow this schedule as most of the commodities, including Gold and Crude oil, are interrelated with the international prices.

How to Trade in MCX?

To start trading on MCX, you need to become a trading member of this commodity exchange. And it would be possible through a broker registered with the MCX. You just need to open an account with the MCX by submitting the required documents and follow the process listed below.

Choose Broker: To start trading in the MCX, you need to open a trading account with a registered broker.

Brokerage & Fees: Before you apply to open your account, check and compare the brokerage fees and other charges by various brokers, so that you can decide the right one.

KYC Verification: Once you have opened your account and completed the KYC verification process, you can use this account to trade in commodities.

Fund Transfer: You just need to transfer the funds and choose the commodity from the segment active for the trading you are looking to trade.

Order Management: Now place the order for the selected commodity, and you need to keep an eye on your trade to book profits or exit before the expiration of the contract.

Settlement Cycle: Currently, the settlement cycle at MCX is T+1 settlement (trade day + 1 day).

Maintain Margins: And while trading in the commodity derivatives contract, always maintain the margins to avoid penalties or position square off by your broker.

Why Trade in Commodities Through MCX?

One of the biggest reasons to choose the MCX for commodity trading is a one of the largest commodity derivatives exchanges and holds a top global position in commodity options volume. It is regulated by the SEBI and provides a wide range of commodities to trade in various sectors like energy, metals and agriculture.

Features & Benefits of Commodity Trading on MCX

MCX is not only featured with one of the most advanced trading mechanisms, providing a highly secure trading platform, but also offers a wide range of commodity products. Trading with MCX, you will enjoy various advantages, making your commodity trading experience more interesting. Let’s find out the key features that make it one of the most preferred commodity exchanges among traders.

Diversified Commodities: At MCX, you can choose to trade from a wide range of commodity derivatives from various sectors like bullion, base metals, energy and agriculture. Apart from Gold, Silver, Crude Oil, Natural Gas, at MCX you can also trade in cotton, menthe oil, crude palm oil and cardamom, etc.

High Liquidity: It is one of the largest commodity derivatives exchanges with a high volume of trades taking place every day. And dealing with the actual movement of a large quantity of commodities is difficult for the people. But at the MCX commodity exchange, you can trade in derivatives and also take physical delivery.

Regulations: The Indian Government regulatory body SEBI, providing a completely legal and authenticated trading platform for the users and regulates the MCX.

Transparency: MCX follow all the regulatory norms and operates in a transparent environment to ensure the safety and security of transactions, providing a completely supervised trading platform in India.

Leveraging: MCX is providing the trading facility with high margins to trade in large volumes with small initial margins, allowing them to enjoy the potential of high profit by leveraging their investment.

Hedging: Trading in commodities at MCX gives an opportunity to related business owners to hedge their position in commodities against the price fluctuations to minimise their losses.

Speculative Opportunities: Trading at this exchange, you have the opportunity to take advantage of price speculation in various commodities. You can procure the commodity contract and sell it at a higher price to earn the unexpected profits through speculation in the commodity prices.

Conclusion

MCX is one of the largest exchanges for trading commodity derivatives, with significant volume and liquidity in trading. It is registered with SEBI and regulated in accordance with all the regulatory norms and best practices in commodity trading. To trade with MCX, you need a trading account with a broker and need to follow all the rules and discipline, like trading during trading hours, maintaining the margins, etc.

Trading at MCX not only helps in the efficient price discovery of various commodities as per the changing demand and supply in the national and international markets, but also provides the right platform to hedge their positions in such commodities. Here you can start trading in Gold, Silver, Crude Oil and Natural Gas, etc., with the opportunity to take advantage of price speculation in the market.