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Expiry Settlement process (square off) in Commodity market

Settlement-process

Expiry Settlement process (square off) of positions may be a notable highlight of the derivatives products where the purchase and seller positions are exchanged with an inverse exchange i.e., offer and buy positions separately. In any case, this feature could be a small diverse within the Commodities segment from the stock market. There are three distinctive sorts of market participants namely traders, hedgers, and arbitrageurs. Subsequently, for dealers and arbitrageurs, taking or giving delivery of product upon expiry isn’t required. Hence, these sorts of market members ought to square off their positions well in development.

 

Understanding Expiry Settlement process within the commodity market

First of all we should understand delivery process within the commodity derivatives market. There are three sorts of delivery mechanism specifically obligatory delievery, dealer/seller choice, and deliberate coordinating. Separated from deliverable contracts, few commodities to be specific i.e.crude oil, natural gas and lists are cash-settled contracts. Not at all like stock futures and options, which are having a settled day of expiry, the commodities are having diverse expiry dates for distinctive basic. Subsequently, it is exceptionally vital to know in progress approximately the expiry and squaring-off method.  Since most of the contracts are deliverable contracts, the delivery prepare begins five days earlier to the expiry of the contract, which is called as tender-delivery period. Consequently, this is often a sign for those investors/traders to exit from their positions in case they are not interested to require or grant delivery of their possessions. Currently the cash-settled contracts within the product subordinates are crude oil, natural gas, and three files specifically the bullion file (BULLDEX), metal file (METLDEX), and energy list (ENRGDEX). For energy products—crude oil and natural gas—which are cash-settled contracts, the traders or dealers can hold their positions till the final miniature of trading where all the un-squared off positions will be settled in cash. In any case, the pre-expiry edge ( margin) of 5% each day applies 5 days earlier to the expiry of these contracts.   In non  cash settled contracts , the square-off prepare begins five days earlier to the expiry of the contract. For case, on the off chance that the contract is lapsing on Friday, the tender-delivery period begins from Monday of that week. This implies, traders/investors are required to square off their positions on Friday of the going before week.

 

Expiry Settlement process (square off) in Commodity Options

Since commodity futures are deliverable contracts, options contracts lapse into futures contracts on the off chance that they are not squared off some time before commencement of tender delivery period. Open positions in Option contracts can be squared off any day till depending on the margins they are based off.  Will all the option contracts lapse into futures contracts? answer is No. As it were Within the Money (ITM) and At The money (ATM), contracts decline into futures contracts. In the event that you hold an open ITM options position, you must note the taking after focuses related to the margin :

  1. 2 days earlier to the expiry date, the trade will charge an extra margin on options contracts to go ahead with the process.
  2. You have got to preserve this margin by T+1 day (T day is  the day on which the margin is charged).

Since commodities are deliverable contracts, it is highly advisable  to close the positions some time recently graduation of tender delivery period.  Moreover  for deliverable contract cut off time for square off is 4.30 PM on the trading day .

 

How to open Commodity account with Moneysukh

As a result of merger between Forward market Commision  ( Fmc) with SEBI, any user can utilize the same account for trading in all resource classes i.e. stocks, commodities and currencies. So, to start trading in Commodities, one can enable commodity section within the existing account opening procedure or a separate new account can be made with enrolled exchanging part or broker.

 

Steps to open an account with Moneysukh

  1. Click on the commodity segment and agreed to the terms and conditions.
  2. Undertake the mandatory declaration
  3. Await approval for atleast 2 days.

Documents required for commodity account

  1. ID Proof
  2. Address Proof
  3. 6 month Bank Statement
  4. Cancelled cheque

Who are eligible?

All resident Indians, corporates, Mutual Funds, PMS, AIF, FPI, etc., can trade in Commodity Derivatives.  NRIs are not permitted to trade in commodity futures and options.

Charges for account opening

There’s no charge required to enact or open a commodity account at Moneysukh

Brokerage schedule

We are charging only Rs 10/order . for more details please visit https://www.moneysukh.com/Pricing










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