How to use commodity derivatives as an asset class | Economic Times

Commodity derivatives are one more asset class that can be accessed by retail or institutional traders and investors on Indian stock exchanges, through registered intermediaries. ET provides a glimpse of this asset class and how investors can trade in itWHEN DID COMMODITY DERIVATIVES TRADING RE-COMMENCE IN INDIA? Futures trading in commodities re-commenced during the early 2000s. The government allowed establishment of national level online commodity exchanges that could offer trading in multiple commodity futures during 2002-03. WHO REGULATES THIS MARKET? The Securities and Exchange Board of India (SEBI) has regulated the commodity derivatives market in India since September 28, 2015. Prior to that, the market was regulated by the Forward Markets Commission (FMC), which was merged into SEBI.HOW DIFFERENT IS COMMODITY DERIVATIVES TRADING FROM , SAY, EQUITY DERIVATIVES TRADING? Commodity derivatives are contracts to buy/sell specific quantity of a specific commodity at a future or later date. They are similar to stock, currency and index derivatives, but the underlying happens to be commodities instead of stocks, currency and indices. Commodities, including precious metals (gold & silver), base metals, energy products (crude oil, natural gas) and agricultural commodities are traded on the Indian commodity derivatives market. The types of commodity derivative products traded on recognised stock exchanges includes futures, options (on futures), options (in goods) and commodity index futures. HOW DOES AN INVESTOR OR TRADER PARTICIPATE IN COMMODITY DERIVATIVES SEGMENT? IS A SEPARATE KYC AND ACCOUNT NEEDED? KYC is a one-time exercise while dealing in securities markets. Once KYC is done through a SEBI-registered intermediary (e.g. stock broker), you need not undergo the same process again when you approach another intermediary. Similar to equity F&O, market participants are required to pay margins to buy or sell a commodity derivatives contract. To trade in commodity derivatives, it is not necessary to possess the physical commodity. The delivery is only marked at the time of expiry of the contract if buy/sell positions of the market participant are kept open. Therefore, only a small fraction of trades result in actual delivery of any commodity.