‘Understand commodity market and become risk managers’

Coimbatore | Updated on December 04, 2019

Koundinya of MCX explains how contracts are traded on the exchange

“You may not have realised, but are you aware that you are connected with commodities in your daily life? You can’t run away,” said Shrikant Koundinya, Head (Education and Training), Multi Commodity Exchange, addressing students at the workshops organised by BusinessLine in association with MCX.

To enable students understand the market better, he picked four commodities — gold (under precious metals), crude oil (energy segment), zinc (in base metal category) and a few such as cotton, oil seeds and spices in the agriculture space — and explained how trade takes place on the platform. He added that there were35 different commodities traded on the platform compared to the 300+ traded worldwide.

That said, Koundinya clarified that it was not the commodity, but “commodity contracts” that were traded on the platform. “People buy cotton contract, not cotton (commodity),” he said.

Asset classes inter-linked

He further explained how the asset classes — be it capital market, debt market, forex market, commodity and money market — are inter-linked and should not be viewed in isolation. “A change in one of the markets is immediately reflected in every other market. If there is a change in the interest rate in the US, it will have an impact on the rupee-dollar rate,” he said, adding that 85 per cent of the commodities were priced in dollars.

“Demand and supply could play a major role, but yet another factor is interest rate change. And only standardised commodity can be traded,” he added. Koundinya highlighted that there could be the “risk of non-delivery of a specified grade, transportation, weather, geo-political and credit risk.”

Per day deliverable volume is around ₹25000 crore, he said, before urging students to explore job opportunities.

On a parting note, the MCX trainer said, “you can be a mickey-mouse to trade, but you need to understand the markets well to become a risk manager.”

Published on December 04, 2019

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