Skip to main content

SILVER part 1














SILVER


Orientation

As you know, there are two commodity exchanges in India – Multi Commodity Exchange (MCX) and National Commodity and Derivative Exchange (NCDEX). MCX is particularly popular for the Metals and Energy commodities while NCDEX for all the agri commodities. However, there is a lot of activity picking up on MCX for agri commodities as well. My job over the next few chapters is to discuss these commodities which are traded on the exchanges, and get you familiar with the commodity contracts.
We will look into each and every commodity that is actively traded on the commodity exchanges. The idea is to know how the commodity contract works (contract specification), figure out which contract to trade, and identify the factor which influences the commodity. I will skip the usual background to commodities market part, the one which talks about the history, forwards markets, the farmers in US, the Chicago Mercantile Exchange etc. You will find this in almost any material on Commodity market. I would like get straight to the heart of the topic by slicing and dicing the contract specifications of commodities and other details around them.
Here is the list of commodities available on MCX to trade; of course I got this list from the MCX website –



The idea is to cover all the major commodities that one can trade. Needless to say, one has to know how ‘Derivative Futures’ function before attempting to understand Commodities. So if you are not familiar with Futures, I’d encourage you to read the module on futures trading.
Anyway, assuming you are familiar with Futures, we will now start with Gold.


The Gold Contract

Gold is a very actively traded contract in MCX. It has ample liquidity, with daily trades of roughly 15,000 contracts translating to a Rupee value of over 4500 Crore. Note, these numbers belong to just one type of Gold contract, often nicknamed “Big Gold”.
Gold comes in quite a few variants that one can choose to trade in. Newbie and sometimes even the experienced commodity traders often get confused with these contracts, not knowing which one to trade and the difference between them. To begin with, let me list down all the different types of Gold contracts –
  1. Gold (The Big Gold)
  2. Gold Mini
  3. Gold Guinea
  4. Gold Petal
All these variants belong to the same underlying i.e Gold. I guess the best way to understand the difference is by understanding the contract specification of each of these variants. We will start with the big boy first, i.e ‘The Gold’.
Here is the contract specification as per MCX, let me list the important things first and then we will understand them one by one –
ParticularValue
Price QuotationRupee per 10 grams inclusive of all taxes and levies relating to import duty
Lot Size1 kilogram
Tick Size1 rupee
P&L per tickRs. 100
Expiry Date5th day of contract month
Delivery LogicCompulsory
Delivery Unit1 kilogram














Comments

Post a Comment

Popular posts from this blog

The Chart Types we need a charting technique that displays this information in the most comprehensible way. If not for a good charting technique, charts can get quite complex. Each trading day has four data points’ i.e the OHLC. If we are looking at a 10 day chart, we need to visualize 40 data points (1 day x 4 data points per day). So you can imagine how complex it would be to visualize 6 months or a year’s data. As you may have guessed, the regular charts that we are generally used to – like the column chart, pie chart, area chart etc does not work for technical analysis. The only exception to this is the line chart. The regular charts don’t work mainly because they display one data point at a given point in time. However Technical Analysis requires four data points to be displayed at the same time. Below are some of the chart types: 1. Line chart 2. Bar Chart 3. Japanese Candlestick The focus of this module will be on the Japanese Candlesticks however before we get...
Post a Comment
Read more
The Beginner’s Guide to Technical Analysis Combining Fundamental and Technical Analysis On the left: 4H chart of EUR/USD with various technical methods applied (source: Twitter) On the right: Kandinsky horizontale (Source: Google Images) Up to this point, we’ve explored Support & Resistance, Candle Patterns, Moving Averages, Fibonacci Retracements, Oscillators, Bands, Channels and Envelopes. However, it would be too simplistic to reduce successful speculation to mere technicals. Sure, technical analysis is an easy empirical method, which is actually very useful for: Measuring market sentiment on a given asset  Timing potential entries and exits  Managing risk. However, it is rare to find a successful FX speculator that relies on technicals alone. In reality, behind successful FX speculation lies a decision making process that most likely blends technical analysis and fundamental analysis. Picture this: you are a trader for a hedge fund, ...
Post a Comment
Read more

The Call Option

 The Call Option Let us now attempt to extrapolate the same example in the stock market context with an intention to understand the ‘Call Option’. Do note, I will deliberately skip the nitty-gritty of an option trade at this stage. The idea is to understand the bare bone structure of the call option contract. Assume a stock is trading at Rs.67/- today. You are given a right today to buy the same one month later, at say Rs. 75/-, but only if the share price on that day is more than Rs. 75, would you buy it?. Obviously you would, as this means to say that after 1 month even if the share is trading at 85, you can still get to buy it at Rs.75! In order to get this right you are required to pay a small amount today, say Rs.5.0/-. If the share price moves above Rs. 75, you can exercise your right and buy the shares at Rs. 75/-. If the share price stays at or below Rs. 75/- you do not exercise your right and you do not need to buy the shares. All you lose is Rs. 5/- in this case....
Post a Comment
Read more