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COMMODITY Trading Icici

COMMODITY Trading Icici

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Published by: api-3833893 on Oct 18, 2008
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. What is Commodities Future Trading at ICICIDirect.com?

As a customer of ICICIdirect now, you can trade on commodity futures on
NCDEX. It comes with a comprehensive tracking cum risk management solution
to give you enhanced leveraging on your trading limits.

In futures trading, you take buy/sell positions in commodity contracts expiring in
different months. If, during the course of the contract life, the price moves in your
favor (rises in case you have a buy position or falls in case you have a sell
position), you make a profit. In case the price movement is adverse, you incur a

To take the buy/sell position on commodity futures, you have to place certain % of order value as margin. With futures trading, you can leverage on your trading limit by taking buy/sell positions much more than what you could have taken in the spot market. However, the risk profile of your transactions goes up.

. On which exchanges will I be able to buy and sell in futures market?
To begin with, ICICIdirect offers its customers execution capability on the
National Commodity and Derivatives Exchange of India Ltd. (NCDEX).
. How is the futures contract defined?

Gold Pure Mumbai 1-Kg future contract expiring on 20th Mar, 2006 is defined as "NCD-FUT-GLDPURMUMK-20-MAR-2006". Wherein "NCD" stands for NCDEX, "FUT" stands for Futures as derivatives product, "GLDPURMUMK" for underlying commodity and "20-MAR-2006" for expiry date.

. What is an "Underlying" and how is it different than "Contract"?

A commodity enabled for trading on futures is called an "Underlying" e.g. Pure
Gold, Rubber. There may be various tradable contracts for the same underlying
based on their different expiration period. For example NCD-FUT-RBRRS4KTM-
20-Jan-2006, NCD-FUT-RBRRS4KTM-20-Feb-2006 are "contracts" available for
trading in futures having Rubber as "underlying".

There can be more than one underlying for different grades and location (for
price basis) of the same commodity. For Eg. COTJ34BTD is Cotton J34 grade
Bhatinda location and COTLSCKDI is Long Staple Cotton grade Kadi location.
Similarly, COTS06KDI and COTS06SRN are two underlyings for the same grade
of cotton but have their prices quoted as per different locations.

. How do I place a futures buy/sell order?

In the "Place Order" page, you need to define the commodity code. On clicking
on "Select the contract", the whole list of contracts available in the given
underlying code expiring in different months would be displayed. Depending on

your interest, you can select one of the contracts by clicking on buy / sell link. It
will take you to the buy / sell page. Values like, your E-Invest account no.,
exchange, contract details would be auto-populated. You need to define the order
type i.e. market or limit, order validity period i.e. GTC / day of GTD, limit price,
disclosed quantity and stop loss trigger price if any.

. Can I short sell the shares in futures segment (i.e. sell commodity which I
do not hold in DP)?
Yes, you can short sell the shares in futures segment. There is no block on your
holdings in the demat account.
. How much Quantity of a contract can I buy or Sell?

Positions can be taken in the contracts in the multiples of Lot size as specified by
the exchange. For eg. The Trading lot of Gold is Grams(gms). Exchange has
specified a client wise position limit for each underlying as mentioned in its
contract specification.

. How is the value of the trade calculated?

It is not necessary that the unit of quantity and price is the same. For eg. Price for
Gold is expressed in Rs per 10 gms but the quantity is submitted in gms.
Therefore the quantity can not be multiplied directly. The value of an order/trade
can be computed by multiplying the quantity with the price and then the result by
the 'multiplier'. For eg. Multiplier incase of Gold is 10.

. How much margin would be blocked on placing the futures order?

Initially, margin is blocked at the applicable margin percentage of the order value.
For market orders, margin is blocked considering the order price as the last
traded price of the contract. On execution of the order, the same is suitably
adjusted as per the actual execution price of the market order. If order is placed
in the period after the delivery request window opens for the contract, the order
may also attract delivery margin (explained later).

. Is the margin % uniform for all stocks?

It may not be so. Margin percentage may differ from commodity to commodity
based on the risk involved in it, which depends upon its liquidity and volatility
besides the general market conditions. But all contracts within the same
underlying would attract same margin %.

. Can margin be changed during the life of contract?

Yes, margin % can be changed during the life of the contract depending on the
volatility in the market. It may so happen that you have taken your position and
25% margin is taken for the same. But later on due to the increased volatility in
the prices, the margin % is increased to 30%. In that scenario, you will have to
allocate additional funds to continue with open position. Otherwise it may come in
MTM loop and squared off because of insufficient margin. It is advisable to keep
higher allocation to safeguard the open position from such events.

. What is meant by 'squaring off ' a position? What is a cover order?

Squaring off a position means closing out a futures position. For example, if you
have futures buy position of 5Kg of NCD-FUT-GLDPURMUMK-20-MAR-2006,
squaring off this position would mean taking sell position of 5Kg of NCD-FUT-
GLDPURMUMK-20-MAR-2006 on or prior to 20th Mar 2006. The order placed
for squaring off an open position is called a cover order.

. Can an underlying be disabled from trading during the day?

Yes, In case the market wide open position for an underlying reaches a particular
percentage specified by NCDEX, the trading in that particular underlying is
disabled by NCDEX. Accordingly IBSL would also disable the trading in that
particular underlying during market hours.

. Can I square off the open positions in the disabled underlying?
Yes, you can square off the open positions in the disabled underlying through
square off link available on open position page.
. Is margin blocked on all future orders?

No. Margin is blocked only on future orders, which result into increased risk
exposure. For calculating the margin at order level, value of all buy orders and
sell orders (in the same underlying-group) is arrived at. Margin is levied on the
higher of two i.e. if buy orders value is higher than sell order value, only buy
orders will be margined and vice versa. In other words, margin is levied at the
maximum marginable order value in the same underlying. They are called
Marginable buy order or Marginable Sell order as the case may be. For example,
you have placed the following buy and sell orders.

Contract Details
Buy Orders
Sell Orders

Rate (Rs

Qty RateOrder




653100 20 6590 1318000


10 6850 685000
1300000 30

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