The full form of MCX is Multi Commodity Exchange of India Limited. MCX is India’s first commodity derivatives exchange facilitating online trading of commodity derivatives transactions. Commencing operations in 2003, MCX operates under the purview of the Securities and Exchange Board of India (SEBI).
MCX operates in the same manner as the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), offering commodity derivative contracts across segments including agriculture commodities, metals and energy among others.
Factors Affecting Commodity Prices
- Demand and Supply
It’s one of the fundamental factors affecting commodity prices. Note that while the law of demand and supply is applicable for the commodity market as well, it varies across diverse time periods, depending on season, domestic and global conditions.
- Geopolitical Concerns
Geopolitical factors have a direct as well an indirect effect on commodity product trading prices. Having said that, there are occasions when they positively influence commodity prices.
- Cost and Technology
This is another factor that influences commodity prices. Costs include that of raw materials, R&D, wages, licensing and taxes, among others. Also, in the long-term technological developments may result in greater yields that bring down the marginal cost of production.
Advantages of MCX
- Transparency
Trading volumes, their prices and changes are totally transparent on MCX and are in an organised structure. These help in making an informed choice.
- Range of Opportunities
MCX offers a range of opportunities in the form of several month contracts of derivatives & options that provide the much-needed diversification and liquidity.
MCX Demat Account
An MCX Demat account is a type of account that helps you invest in different commodities in the stock market. Till 2015, MCX Demat Account was regulated by the Forward Market Commission that later merged with SEBI.
What is MCX Trading Account?
An MCX trading account is the account through which you can trade in a wide range of commodities on the MCX.
Note that, if you are looking to open an MCX trading account, you need to keep some margin money in your account. This margin money is a type of security for the broker to compensate for huge losses suffered, if any.
The types of margin include:
- Initial Margin
Initial margin refers to the minimum margin money that you need to deposit in your MCX trading account to start trading.
- M2M Margin
Profit or loss in a trading day is adjusted each day by mark-to-market (M2M) margin. If there’s a profit, the money is transferred to your MCX trading account by the clearing house. On the other hand, if make losses, the money is transferred from the MCX account into the account of the clearing house by the broker.
- Special Margin
Traders collect special margin to control volatility and set off excessive speculation. Note that the margin amount is anywhere between 5-10% of the contract value of the commodity.
Importance of MCX Account
An MCX trading account allows you to:
- Invest in different commodities
- Ensure seamless transaction
- Get access to detailed reports, essential for due diligence
How to Open MCX Account?
For MCX account opening:
- Choose a Stockbroker
Choose a suitable stockbroker registered with MCX. There are many such stockbrokers in the market, each having their own strengths. The choice is important as the broker holds your account and executes trade on your behalf. Choose a well-informed and customer-savvy broker.
- Fill up the Application Form
This is the next step in MCX account opening. Fill up the application form with the relevant details and submit the KYC documents related to your identity, address and income, among others.
- In-person Verification
A mandatory exercise, in-person verification establishes your documents’ authenticity. Thanks to digitalisation, most broking firms offer this service online.
Once the verification is complete and the account is opened, you need to deposit an initial margin money. You can open an MCX online account or visit the branch of the broking house for so.
Advantages of MCX Account
- Ensures Diversification
With an MCX trading account, you can invest in different commodities and this gives better diversification to your investment portfolio.
- Hedging Mechanism to Minimise Losses
Through MCX account, importers and exporters can minimise losses due to fluctuation in the commodity market. By taking an opposing stand in commodity futures market, one can shield exposure to physical market.
- Fixing Price of Product
This is another significant benefit of MCX trading account. If you are a producer of any product and want to fix the price of any commodity, then you can participate in commodity trading and fix its price.