For many households in India, gold and silver have always been a part of their daily lives. Besides, there has been an increasing trend of trading these commodities via a commodity exchange. Traders need to know the different ways of trading in these precious metals in the form of contracts in the exchange market.
In the following article, we discuss the different types of precious metals trades in Multi Commodity Exchange (MCX), the similarities and differences between them, and finally, things to consider before placing a trade.
What are the different precious metals trades?
- Gold: This is the standard 1 kg contract, and it needs the largest margin by far. Really only suited to traders with deep pockets.
- Gold Mini: A 100-gram lot, a tenth the size of the main contract. This is the one most retail traders gravitate towards.
- Gold Ten – 10 grams per lot, sitting between Gold Mini and the smaller variants, aimed at retail investors who want gold-like flexibility.
- Gold Guinea – 8 grams per lot, a smaller regional variant that carries a much lower margin requirement.
- Gold Petal – 1 gram per lot, the smallest gold contract on the exchange, built for traders starting with limited capital.
Broadly, the margin for the standard Gold contract runs into lakhs of rupees, while Gold Petal can be entered for a few hundred rupees, with Gold Mini, Gold Guinea, and Gold Ten falling in between. These commodities have their own specifications, and depending on the amount of capital that you have at hand and how frequently you wish to trade, you would choose a particular trade.
How does a gold option contract work?
There are various gold option chains, which list all the available call and put contracts with the corresponding live prices, open interest, and implied volatility. The option chain will help you understand where the market expects the prices to be at any given time.
Options provide the buyer with the right, not the obligation, to buy or sell the underlying future at a fixed strike price. As opposed to futures, options provide traders with defined risk.
As far as MCX is concerned, options are traded the most for the two commodities, Gold and Gold Mini, due to higher liquidity. Among the entire commodity contracts in MCX, Gold is the second-most actively traded option contract.
What do you need to know about silver futures and options?
Like gold contracts, silver contracts, such as Silver, Silver Mini, and Silver Micro, exist for traders in MCX. These provide traders with similar flexibility as Gold in terms of lot size and capital outlay.
Unlike gold, silver prices are more volatile due to the fact that, besides acting as a store of value, silver is highly demanded by industry.
Traders who monitor both commodities together may use the gold-silver ratio to compare the values of the two metals and identify trading opportunities.
What factors move precious metals prices?
International prices and the rupee-dollar exchange rate determine the prices of gold and silver traded on MCX. A weaker rupee is capable of pushing domestic prices higher despite the unchanged international prices.
Apart from international prices, domestic prices of gold and silver depend on domestic demand and import duties or other policies. As it happens, during the wedding seasons and festivals, there is a higher jewellery demand that pushes up the price.
Among the international factors, central banks’ rate decisions, inflation, and geopolitical tension are among the leading ones. These factors move the international price of the metal, which in turn influences the prices of precious metals in MCX.
Conclusion
Precious metals on MCX offer traders the possibility of trading in futures and options contracts for both gold and silver. Depending on your capital size and trading style, you may choose any of these commodities.
While monitoring a gold option chain or silver contracts in MCX, you need to know about them and how they work in order to place orders efficiently. Pay attention to currencies, domestic demand, and international cues.