How to Start Trading in Commodities?

What Do I Need To Start Trading In Commodity Futures?

One bank account 

A separate commodity Demat account from the National Securities Depository Ltd to trade on the NCDEX just like in stocks.  

What are the other requirements at the broker level?

We need to enter into normal account agreements with the broker. 

This Comprises Of: 

The procedure of the Know Your Client format that exists in equity trading

The terms of conditions of the exchanges and broker

The details such as PAN no., bank account no, etc., need to be furnished. 

What Are The Brokerage And Transaction Charges?

The brokerage charges range from 0.10 to 0.25 per cent of the contract value.

Transaction charges range between Rs 260 and Rs 1 per Cr/per contract.

The brokerage charges will vary for different commodities.

It will also differ based on trading transactions and delivery transactions.

In the contract results in a delivery, the brokerage can be 0.25 - 1 per cent of the contract value.

The brokerage cannot exceed the maximum limit specified by the exchanges.

Where Do I Look For Information On Commodities?

Spot prices, relevant news, and articles on most commodities are flashed daily in financial newspapers. 

Magazines on agricultural commodities and metals are available. 

Research and analysis support is provided by Enrich Financial solution.   

Enrich websites offer a variety of information that is easily accessible.

Who Is The Regulator?

The Forward Markets Commission regulates the exchanges. 

Unlike equity markets, brokers don't need to register themselves with the regulator. 

The FMC deals with exchange administration and will inspect the books of brokers only if they suspect any malpractice or if the exchanges themselves fail to take action.

Do I Have To Pay Sales Tax On All Trades? Is Registration Mandatory?

No. If the trade is squared off, no sales tax is applicable. 

The sales tax is applicable only in case of trade resulting in delivery. 

Usually, it is the seller's responsibility to collect and pay sales tax.

The sales tax is applicable at the place of delivery. 

A sales tax registration number is required for those willing to opt for physical delivery. 

What Happens If There Is Any Default?

Both the exchanges, NCDEX and MCX, maintain settlement guarantee funds. 

The exchanges have a penalty clause in case of any default by any member. 

There is also a separate arbitration panel of exchanges.