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A hedge is an investment that mitigates the risk of adverse price movements of an asset. The prices of commodities keep fluctuating. To hedge against such price risks, players buy or sell positions in the commodity futures markets. It is mainly the producers/sellers of commodities (e.g., farmers producing wheat) and the consumers/buyers of commodities (e.g., bread manufacturers who use wheat as raw material) who undertake commodity hedging.

Warehouse receipts are title documents issued by warehouses to depositors against the deposited commodities. These documents are transferred by endorsement and delivery. Only the holder of these receipts can claim the commodities from the warehouse.

When you trade in the Commodity Futures market, you have a standardized contract. Meaning, every trade has some common traits. The Lot size refers to this common quantity prescribed. You can only trade in multiples of this quantity or lot. However, the quantity for delivery may differ from the minimum lot size. This is called Delivery size.

Just before the contract is due for expiry, you have to make up your mind regarding the settlement and delivery of the commodity. This is called Tender period.

This is when you practically try to push your delivery. You do so by closing your current Contract and entering a similar contract due for another month.

To get out of a contract, you need not take the delivery of the commodity. You can simply pay the difference between the Buy and Sell contracts in cash. This is called Cash settlement.

Yes, there are circuit limits (upper and lower) or daily price ranges (DPR) to protect investors from extreme price movements. When a circuit limit is hit, trading is stopped for fifteen minutes. After this trading begins with fresh circuit limits. For updated commodity specific circuit limits, please visit www.ncdex.com and www.mcxindia.com.

Yes, there are circuit limits (upper and lower) or daily price ranges (DPR) to protect investors from extreme price movements. When a circuit limit is hit, trading is stopped for fifteen minutes. After this trading begins with fresh circuit limits. For updated commodity specific circuit limits, please visit www.ncdex.com and www.mcxindia.com.

It can so happen that momentarily, the commodity may be trading at different prices on the spot and futures markets. In this case, you can purchase at a lower price in one market and sell it at a higher price in the other market. This is called Arbitrage—taking advantage of the difference in prices in two different markets. This is why arbitrage transactions are usually risk-free. Arbitrage helps ensure prices do not vary from each other in two markets. The higher price keeps falling while the lower price rises over time. Eventually, when prices become similar in both markets, arbitrage stops.

Every stock has a unique number or code by which the system identifies it. It is called ISIN. Similarly, commodities too have a unique identification number. This is called ICIN number. Every commodity has a different ICIN at different exchanges.

It costs money to hold commodity products. This is called Cost of Carry. It includes expenditures like storage costs, insurance, interest payments, etc. This is usually taken into account in the commodity futures price like this: Commodity Futures price = Future Spot price + Cost of Carry.

This is the difference between the Futures prices of a particular commodity over different tenures. For example, the Futures price of a commodity may be Rs.100 for the 1-month contract and Rs.110 for the 2-month contract. This difference is called the Spread.

This is when enter into two contracts: One to buy a certain commodity over one expiry period; the second to sell the same commodity over another period.

You have to pay the following charges:

Yes, there are maximum permissible holding limits for clients and members. These limits vary by commodity and exchange. Please see contract specifications on www.ncdex.com and www.mcxindia.com for position limits at client and member level.