Home/Article/MCX Unveiled: Understanding Its Meaning, Advantages, and More

MCX Unveiled: Understanding Its Meaning, Advantages, and More

18 Oct 2023

A lot of us do online trading in the secondary markets where we buy and sell stocks, bonds, and other financial securities. However, only a few of us trade in commodities. Commodity trading is investing in gold, rubber, spices, oilseeds, metals, and other raw materials. Most retain traders go for commodity trading to diversify their portfolio. Depending on the commodity, your investments could reduce the overall risk to your portfolio.

- What is MCX?

The full-form of MCX is Multi Commodity Exchange of India Ltd. It is an exchange for commodity trading owned by the government of India. The MCX is based in Mumbai and has been operational since 2003. The MCX is the largest commodity derivatives exchange in India. MCX is an online platform where commodities are traded among buyers and sellers. These may include hard commodities which are usually mined goods and soft commodities such as agricultural products.

- What is MCX Trading?

Trading over MCX provides a platform for buyers and sellers to enter into various kinds of spot, future, and options contracts among other things. The future market helps in predicting future prices of various goods. The MCX also helps in a cash settlement or physical settlement of contracts, i.e., delivery of goods.

- How to trade on MCX?

Trading on MCX can be done via your regular online Demat account. The Securities and Exchange Board of India did not allow direct trading for retail investors before 2017. However, since then all broking houses are allowed to offer direct trading over MCX and other commodity markets via regular accounts. To trade on MCX you need to have a good understanding of margins.

Terms like initial margin, market-to-market margin, and special margin are often used in commodity trading. Many brokers offer considerably high leverage to traders on commodity trading accounts. Thus, it might be tempting for some investors to indulge in excessive risk-taking. Before jumping into MCX or other commodity exchanges, you should learn the basic terms, and understand the kind of contracts you can enter into. With good knowledge of available instruments, you would be able to hedge your risks while trading on MCX.

- Conclusion

While commodity markets are not everyone’s cup of tea. They could be great for your portfolio. One major benefit of trading in commodities is that you buy a physical good, it is not just paper money or an intangible product like intellectual property. Only a few risks can destroy physical goods, such as war or weather. These risks could be mitigated by identifying patterns and having a keen eye on current affairs. With the liberalization of commodity trading, it is much easier for retail investors to open a commodity trading account. If you want to diversify your holdings, you should look into investing in commodities on MCX and other commodity exchanges.


Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account 


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