In a bid to formalise gold trade in the country, the government has launched gold options trading on MCX, India’s leading commodity bourse with a market share of over 90%. After unveiling the options trade on the auspicious day of Dhanteras just ahead of Diwali on Tuesday, Finance Minister Arun Jaitley said, “This marks a very important evolution in trading of yellow metal itself. It hedges all risks by giving them (traders) the option of futures.” Emphasising that the government is taking efforts to formalise gold trade, he said that he was sure “the more it formalises, the better it is for consumers, jewellers and those trading in this.” Jaitley also said that Indians are great buyers of gold and this new product will be extremely successful, according to a PTI report.
Here are six things to know about gold options trading and how will it help investors.
1. Gold is the first product for options trading that market regulator Sebi has allowed after 14 years of commencement of commodity exchanges in the country.
2. According to MCX, gold options contracts are available for trading from the Dhanteras day and investors can trade in one kg gold. The contracts will expire in November and January 2018.
3. Fundamentally, gold options trading is an extremely low-cost product. However, as an introductory measure, MCX will not charge any transaction fee on this product till December.
4. After the success of the gold options, MCX may approach Sebi, seeking permission for other commodities like cotton, crude palm oil, silver and copper. At present, MCX offers futures trade in gold and other commodities even as the industry has been demanding other products like options trade also for hedging. “As per the Sebi rule, options trade is allowed in a commodity which has certain volumes in futures trade. We have 7-8 commodities like cotton, CPO, crude, silver, zinc and copper which qualify,” MCX Managing Director and CEO Mrugank Paranjape said.
5. As per MCX, options would complement the existing array of commodity futures contracts and help in enriching the informational efficiency of the market’s price discovery process. It will give market participants great flexibility to manage risk and achieve their trading objectives.
6. According to MCX, there has been a very conscious effort by the government and Sebi to develop and integrate commodity markets in a phased manner. To further strengthen the market, a committee has been set up in NITI Aayog to integrate spot and derivative markets. Another committee set up by the Finance Ministry is looking at the way to transform India’s gold market.