Commodities

Peak margin effect: Costly futures turning Comex traders to options

Suresh P Iyengar Mumbai | Updated on September 15, 2021

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Average daily turnover in options trading in MCX has almost tripled to ₹5,502 crore in this quarter

Investors are fast shifting from commodity futures to options with trading in the former becoming a costly affair after levy of upfront peak margin of 100 per cent for their trades.

The average daily turnover in options trading on MCX has almost tripled to ₹5,502 crore in this quarter as on September 14 against ₹1,900 crore logged in the June quarter.

On the other hand, futures volumes have fallen eight per cent to ₹28,021 crore from ₹30,517 crore registered in the same period due to the high cost of trading.

Ajay Kumar, Director, Kedia Commodity, said the peak margin on options is much lower as it is calculated only on the premium while in futures it is levied on the value of the commodity.

Moreover, the trading cost and the commodity transaction tax on options are much less compared to futures, he added.

On NCDEX, too, the average daily turnover in option more than tripled to ₹1.06 crore from ₹32 lakh recorded in June quarter while futures volumes were down five per cent to ₹2,054 crore from ₹2,167 crore. NCDEX has options trading in five agriculture commodities.

PS Reddy, Managing Director, MCX, said the commodity options are fast gaining ground with the exchange recording the highest turnover of ₹12,509 crore on September 9.

The recently-launched Silver Mini (5 KG) contract also received good support from the market without any liquidity enhancement scheme, he said.

More options on metals, energy and agricultural commodities will be launched soon, after receiving SEBI approval, he added. “We have also represented to SEBI to notify the necessary regulatory framework for commodity index options,” said Reddy.

Options trading

The options contract, which is an effective risk management tool, acts as a cost-effective means of price insurance for hedgers. MCX has options trading in Gold KG, Gold Mini, Silver, Silver Mini (5 KG), Crude Oil, Copper and Zinc.

Crude oil options registered the highest ever turnover of ₹11,445 crore while the same on futures contract was ₹4,823 crore on September 9. Following the good traction in crude contract trading, MCX plans to launch futures on iCOMDEX Energy Index on October 7.

Peak margin

Derivatives are complex and generally considered riskier for retail investors as trading here is done by anticipating the price of the security. Since anticipating the price is difficult, the risk involved is higher.

Also, generally much of the derivative trading is done using leverage that adds further risk. SEBI recently clipped leverage in the cash market by levying peak margin.

 

Published on September 15, 2021

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