What Is The Multi Commodity Exchange (MCX) Of India? – A Trader’s Guide

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The Mumbai-based Multi Commodity Exchange (MCX) is India’s largest derivatives exchange. In this guide, you’ll learn what products are traded on the MCX, how it’s regulated, and what membership types are available.

What Is the Multi Commodity Exchange?

The Multi Commodity Exchange, widely known as MCX, was founded in 2003 as India’s first listed exchange.

Set up to harness the country’s rapidly growing economic power, MCX has established itself as one of the world’s busiest commodity exchanges in a short period of time.

What Can You Trade on the MCX?

Though primarily concentrating on metal commodities and energy commodities, the Multi Commodity Exchange hosts trading in a wide range of products, many of them newer commodities reflective of India’s growing economic power.

Commodity trading in India is helping to power the transformation of the country into a multi-faceted modern economy, and the list of products traded at MCX reflects this.

Here are the most traded products on the Multi Commodity Exchange:

CategoryProduct
AgriculturalBlack pepper, cardamom, castor seed, cotton, crude palm oil, kapas, mentha oil
EnergyCrude oil, natural gas
Base MetalsAluminum, copper, lead, nickel, zinc
BullionGold, silver
IndicesMCX BULLDEX, MCX METLDEX

How Is MCX Regulated?

MCX operates under the regulatory framework of the Securities and Exchange Board of India (SEBI).

The basic functions of the SEBI are to “protect the interests of investors in securities and to promote the development of, and to regulate the securities market” in India.

Furthermore, MCX has pledged to enforce a zero-tolerance policy toward unethical trade practices. It strives to provide a commodity ecosystem with “neutral, secure, and transparent trade mechanisms” by formulating quality parameters and trade regulations in conjunction with the SEBI.

History of the Multi Commodity Exchange

The Multi Commodity Exchange was founded in 2003 by Financial Technologies (India) Ltd., with the aim of becoming India’s primary commodity exchange.

Not only has it succeeded in this aim – at recent estimates commanding 80% of India’s futures market – but it has also become one of the world’s most successful exchanges.

Recent figures show that it is challenging for the position of the world’s primary precious metals exchange, being #1 in the world for silver, and #2 for gold.

It is also highly rated for industrial metal commodities and energy commodities, being #2 in the world for copper and natural gas, and #3 for aluminum, zinc, and crude oil.

Multi Commodity Exchange Membership Types

There are four types of membership of the Multi Commodity Exchange, each having their own specific rights and responsibilities.

Trading Member

Trading members (TM) of MCX may trade on behalf of themselves and clients. However, they may not clear such trades – this has to be done by members with clearing privileges.

Individuals, partnerships, trading organizations, and Hindu Undivided Families (HUFs) are eligible for this grade of membership. Applicants must also have a minimum net worth – Rs.10 Lakh in the case of private individuals or RS.25 Lakh in the case of organizations.

Professional Clearing Member

Professional clearing members (PCM) have the right to trade, and to clear their trades and those of clients through MCX’s clearing house.

Any company or similar organization is eligible for PCM membership, though financial institutions and banks are most common. The minimum net worth requirement is RS.500 Lakh.

Trading-cum-Clearing Member (TCM)

These members have the right to trade on the exchange and to clear those trades, but cannot clear the trades of others.

TCM membership is available to individuals, partnerships, associations, co-operatives, companies, banks, financial institutions and Hindu United Families (HUFs). The minimum net worth requirement for applicants is Rs.75 Lakh.

Institutional Trading-cum-Clearing Member (ITCM)

Institutional trading-cum-clearing members (ITCM) have the same rights as standard TCMs, with the additional ability to be able to appoint subsidiary organizations and individuals as traders (though the ITCM will have to clear these trades).

Membership of this type is generally only available to larger organizations and institutions such as commodity brokers, commodity exchanges, stock exchanges, co-operatives, and the like.

How to Start Trading Commodities

Alternatively, traders in can open an account at one of these regulated brokerage firms to trade derivatives like CFDs and options based on commodities.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. <b>Between 71.00%-89.00% of retail investor accounts lose money when trading CFDs.</b> You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Further Reading

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