Want to trade in gold?

Rajalakshmi Sivam | Updated on May 14, 2011 Published on May 14, 2011

Gold is catching eyeballs of traders in the market. That should not come as a surprise given the fact that gold is trading at Rs 2,195/gram currently after beginning the year much lower at Rs 2,057/gram. It touched Rs 2,248/gram early this month. You can also cash-in on this opportunity with the an outlay of just Rs 9,000; that is the margin required for trading in Gold Mini on MCX.

But, is the futures market the only option for traders eyeing gold? No. There are other options too. Small-time traders can look at Gold ETFs and e-gold as alternatives to speculate on gold price.


Gold is traded in the spot market in futures and also in stock exchanges as an exchange traded fund. You can follow the COMEX price of gold to know the trend in the market (there is no spot gold index in India).Though speculators generally take the futures route to play on the price swings in gold, increasingly many small-time traders are looking at other options for smaller lot sizes.

National Spot Exchange Ltd (NSEL) offers spot trading in gold. Named ‘e-gold', this product's can be purchased and sold on-line after opening a trading account. The commodity is held in demat form by NSDL or CDSL. The contract can be purchased in multiples of one gram and the settlement cycle is T+2.

Gold futures trading happens in the Multi Commodity Exchange (MCX) and also in the National Commodity & Derivatives Exchange (NCDEX). However, traders prefer MCX over NCDEX says Mr Dharmesh Bhatia, AVP-Research, Kotak Commodities and this follows the volumes and the liquidity the exchange offers. In MCX, there are five contracts in gold — Gold (1 kilogram), Gold Guinea (8 gram), Gold HNI (10 gram), Gold M (100 gram) and the recently introduced — Gold Petal (1 gram). The contract is settled on the expiry date before which the trader is required to either square his position by selling it or pay the full value to take delivery.

The third option for trading in gold is the ETF route. Gold-ETFs are units of a mutual fund that is backed by equivalent value of gold. They are listed on the stock exchange and can be purchased only at the traded price in the market.

All three options discussed above have brokerage charge; gold ETFs have fund management charges in addition.

How should you choose?

As Indian markets operate in a different time zone when compared to the US and have limited time overlap with European markets the commodity futures exchanges keep the market for gold futures open from 10.30 in the morning to 11.30 in the night. NSEL also keeps its market for e-gold open from 10 am to 11.30 pm. In gold ETFs, however, you have the option to trade only in the time the stock exchange is open — 9.15 am to 3.30 pm.

For a trader who plays on volumes, futures market is the best ground to play. He can trade on a 100 gram contract by paying only the margin on it. In a gold futures contract, the initial margin requirement is 4 per cent. This works to Rs 9 000 on a contract of 100 gram and around Rs 90 000 on a 1 kilogram contract. An additional margin according to the specifications of the exchange would be levied only in cases of high volatility in price. To trade on the same value of gold in the spot market or in an ETF, a trader would however be required to pay the full value of the contract.

E-gold and the gold ETF are fit for investors rather than traders. Mr Bhatia says, “House wives who are trading with their small savings and people who can't stomach the risk attached with volatility in market prices of gold may invest in smaller lots of one gram through either e-gold or Gold-ETF. As it in multiples of one gram only they can hold on if they do not get the price they are looking for…” Recently MCX launched a one gram contract in gold — Gold Petal. But volumes here haven't picked up and the liquidity is low adds, Mr Bhatia.

Are you looking for delivery?

Gold ETFs do not offer delivery options. In futures contracts and also in NSEL's e-gold there is an option to take delivery. In the futures market post settlement , the trader can continue to keep his gold in the exchange's vault by paying a minimal amount and take it whenever he needs it. With e-gold, the investor can let his holding be in the demat account for as long as he desires.

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Published on May 14, 2011
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