MCX, one of many largest commodities exchanges within the nation, launched an industry-first metallic index futures contract — MCX Metldex — on October 19. The contract goals to encourage retail investor participation in commodities buying and selling and facilitate portfolio diversification for them. MCX had launched the MCX bullion index futures contract (Bulldex) in August 2020.
Since then, the contract has clocked a mean every day turnover of round ₹200 crore.
Just like the bullion index contract, MCX base metallic index futures contracts are cash-settled. You, as an investor or dealer, don’t have to fret about the necessity to take bodily supply of the products.
This was one of many points which have saved retail participation at bay within the commodities market. Mutual fund homes may construct new merchandise for his or her buyers by means of index futures contracts as they’re cash-settled. Have in mind although that like every other commodities contracts, index futures contracts, too, contain excessive dangers and are topic to volatility.
Here’s what you need to know concerning the metallic index futures.
Because it’s launch on October 19, Meltdex has gained by about three per cent. The underlying index for Meltdex is the MCX iCOMDEX Base Steel Index, which constitutes completely different metallic contracts with various weightage — zinc (33.06 per cent weight), copper (29.81), nickel (14.77), lead (12.88) and aluminium (9.48). The weights of the underlying are revised yearly.
The worth of the index fluctuates based mostly on these underlying commodities’ worth actions.
Sriram Iyer, Senior Analysis Analyst, Reliance Securities, says: “The value motion of the underlying base metallic index will depend on the worth of every base metallic futures contract. So, for example, for each 10 paise motion of zinc, the index motion might be near 2.48 factors. And, for each 10 paise motion of lead, the index motion might be round zero.67 factors. The general motion within the index might be roughly round four.50 factors if all metals transfer 10 paise.”
Presently, MCX Meltdex has three contracts accessible for buying and selling, expiring in November and December this 12 months, and January 2021. These contracts can be found for buying and selling from Monday to Friday between 9 am and 11:30/11:55 pm based mostly on the US daylight financial savings time interval.
A lot of the contract options are much like that of bullion index futures contracts. The minimal worth motion (tick dimension) is ₹1 and the minimal buying and selling unit is one lot, which is 50 multiplied by the MCX iCOMDEX Base Steel Index worth. The utmost order dimension is 80 tons. Traders who wish to commerce on Meltdex futures must pay an preliminary margin of 5 per cent or based mostly on the worth in danger over a three-day horizon, whichever is larger.
You may additionally need to pay an excessive loss margin of 1 per cent in case of upper volatility in costs.
Professionals and cons
One of many important advantages of Meltdex futures contracts is that they’re cash-settled. This gives a much-needed aid for merchants/buyers who have to take bodily supply as base metallic contracts are typically of huge portions. As an illustration, zinc contracts contain a minimal supply of 5 tonnes.
One other necessary profit is on the margin entrance. When you, as an investor/dealer, need to hedge within the commodities market, you’ll have to pay preliminary margin, excessive loss margin and extra margin, that are typically excessive.
As an illustration, the margin necessities (on a mean) of a futures contract of a base metallic is round 10 per cent.
However for a base metallic index futures contract, the margin necessities work out to be round 7 per cent.
That’s, if you wish to commerce in a single lot of base metallic index futures, the margin quantity will work out to roughly ₹42,200. However for a zinc futures contract, the margin quantity may fit out to be over ₹1 lakh.
On the draw back, futures contracts are typically difficult to know. So, in case you are planning to diversify into commodities, it is very important have information not solely on the workings of commodities derivatives but additionally on the metals and the elements that affect metallic costs, to keep away from losses.