A primer on where to trade commodities for traders interested in branching out from equity to other asset classes:
1. How does one trade commodities like crude, gold, sugar and edible oils on exchanges?
By opening a trading or demat account (if you desire delivery) with any broker who offers such broking.
2. Are they the same brokers who offer broking on equity?
No, but many who offer broking in equities have set up subsidiaries to offer commodity F&O broking like Angel Commodities, Karvy Commodities, etc. This means you have to set up a separate demat/trading account from your equity account if you desire to trade on commodities.
3. Is delivery compulsory?
In most agriculture futures, like edible oils, spices, etc. delivery is compulsory, but you could square off your positions prior to deilivery. In non-agri, most commodities, save for gold and silver, are non-delivery based.
4. Is trading similar to that in equity F&O?
Yes. In that, mark-to-market is settled on a daily basis, but margins are not as high as on stocks which are more volatile than say gold or crude.
5. What are the margins to trade?
Typically 5-10 per cent, but in agri commodities, when volatility jumps, exchange impose additional, special margins on long or short-side, which can be as high as 30-50 per cent at times.
6. Who regulates commodity F&O market?
Sebi regulates exchanges like metals and energy bourse MCX and agri bourse NCDEX.
7. Is there sufficient liquidity and which commodity could an equity participant trade on?
Liquidity tends to be greater in non-agri counters like gold, silver, crude, copper, etc. though counters like soyabean, mustard, jeera, guarseed, etc. also attract sufficient participation. Most retailers punt on prices of metals and energy instead of taking or giving delivery.