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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














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