Commodity prices are generally less volatile than the stocks and this has been statistically proven. Therefore it's relatively safer to trade in commodities.

Also the regulatory authorities ensure through continuous vigil that the commodity prices are market-driven and free from manipulations.

However, all investments are subject to market risk and depends on the individual decision. There is risk of loss while trading in commodity futures like any other financial instruments.

29. Are trades/ settlements guaranteed by the exchanges?

Yes, the commodity exchanges have got some of the most high profile corporate as their promoters. Multi Commodity Exchange of India, promoted by Financial Technologies Ltd has got on board institutions such as SBI, HDFC Bank, Canara Bank, Corporation Bank, Bank of India, Union Bank of India, Bank of Baroda. The National Commodity and Derivatives Exchange (NCDEX) has got NSE, ICICI, NABARD, CRISIL, LIC, PNB, Canara Bank as the major share-holders. Such a high profile share-holding provides these exchanges valuable experience, knowledge and also high standards of operations, Also the exchange guarantees the settlement of trades and so eliminates the counter- party risk in the transactions. The exchange for this purpose maintains a Settlement Guarantee fund akin to the stock exchanges.

30. Are there physical deliveries in commodity futures exchanges?

Yes, the exchanges, in order to maintain the futures prices in line with the spot market, have made available provisions of settlement of contracts by physical delivery. They also make sure that the price of futures and spot prices coincide during the settlement so that the arbitrage opportunities do not exist.

31. How are the deliveries made possible?

The exchange has enlisted certain cities for specific commodities as the delivery centres. The seller of commodity futures, upon expiry of the contract may choose to deliver physical stock instead of settling the positions by cash, in which case he would be required to deliver the stocks to the specified warehouses. The buyer of the commodity futures, if he is interested in physical delivery would be matched with a seller and would be required to take delivery of the specified quantity of stock from the designated warehouse. World-wide commodity futures are generally used for hedging and speculation and hence physical deliveries are negligible. However, the possibility of physical delivery has made these markets more attractive in India. Both NCDEX and MCX have successfully completed physical delivery in bullions and various agro-commodities.

In case of NCDEX it is mandatory to open a Demat account with an approved DP by the buyer and seller if they wish to take /give delivery of goods, MCX has also come out with Electronic Delivery.

Please note the delivery and settlement procedure differs for each exchange and commodity. Read the delivery/settlement procedure carefully before deciding to give/take physical delivery.

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