InvestorQ : I have bought commodity futures. Now do I need to close out this position compulsorily or can I take delivery of commodities?
Arti Chavan made post

I have bought commodity futures. Now do I need to close out this position compulsorily or can I take delivery of commodities?

Answer
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Aashna Tripathi answered.
2 years ago


In the equity derivatives market, all transactions are necessarily settled only in cash. There is nothing like delivery of shares against the futures. So if you are holding futures of Tata Steel, you can go to the exchange on the expiry date and ask for the delivery of shares of Tata Steel equivalent to the futures. That facility is not available in stock futures. They have to be necessarily settled only in cash with the profits being credited and losses being debited to the account of the traders. It is here that commodity futures are slightly different. In the commodity markets, you can actually demand delivery of physical commodities against your long futures positions. Similarly, a trader holding short futures position can actually deliver equivalent quantity of the commodity. Of course, the member is required to provide all prior delivery intimation to the exchange and also affirm to the exchange that all the requisite delivery formalities have been complied with. This makes the commodity futures more of a genuine hedging market. Companies and traders with long/short exposure to respective commodities can actually hedge their risk through the commodity markets.


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Aashna Tripathi answered.
2 years ago


A robust market is not just judged by the availability of trading products and a regulatory mechanism but also by the quality of participants in the market. The same is the case with commodity futures market too. While there are thousands of traders who are trading in and out of various precious metals, industrial metals and agricultural commodities, these traders and participants can be broadly classified into four broad categories. This classification is very important as each of these categories of participants has a unique imprint on the market and contributes to the robustness of the market in their own way.