Commodity Analysis

Commodity Query

Gurumurthy K | Updated on January 13, 2018 Published on March 05, 2017


What is the minimum amount required to trade in commodities?

AnmolThe minimum amount required will depend on which commodity segment you are going to trade. That is, whether it is bullion (gold, silver), metals (aluminium, copper, zinc, etc) or energy (crude oil, natural gas). It will also depend on whether you are going to trade aggressively by holding many positions at any given point in time or make just one or two trades at a time.

Trading in commodities may need relatively larger capital compared to other assets. This is because of the bigger contract sizes. For instance, the lot size of crude oil is 100 barrels and the price quoted is for one barrel. Similarly, the lot size of silver and gold are 30 kg and 1 kg, respectively. In case of metals, five tonnes is the lot size for aluminium, zinc and lead and for zinc it is 250 kg. The capital requirement will also wary depending or whether you plan to do delivery-based trades or trade intraday or do a mix of both.

Say, if you are trading in gold, you will need ₹1.5 lakh as margin amount to trade just one lot. Similarly, silver and base metals, such as aluminium, lead and zinc, will require between ₹40,000 and ₹1 lakh as margin to trade one lot. These margin requirements are for delivery-based trades. For intra-day trading, the margin requirement will be half the above-mentioned amounts. That is, for gold it will be around ₹74,000. So, considering the risk-reward ratio, margin calls and other factors you may need between ₹3 lakh and ₹5 lakh to trade comfortably. In case you want to be aggressive, then you may need more capital.

If you are unable to cough up the amounts mentioned above, you need not worry. There are mini contracts available with smaller lot sizes. For instance, gold is available in 100 gm, 8 gm and 1 gm lot sizes. Similarly, the crude oil mini contract can be traded for 10 barrels. So, for trading in mini contracts of gold, lead and zinc, ₹20,000 is sufficient to take a position in one lot. In case of other metals like aluminium, copper, etc, and silver mini contracts, ₹10,000 is enough to trade in one lot. So, capital of ₹50,000-1 lakh should be comfortable for trading in mini contracts.

Please note that the above mentioned minimum capital requirement is suggested assuming that you might be a position trader not willing to take on too many trades at any given point in time unlike aggressive traders.

Published on March 05, 2017
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