InvestorQ : What are the advantages of the METLDEX index and what should be the next steps to focus on?
Anu Biswas made post

What are the advantages of the METLDEX index and what should be the next steps to focus on?

Ria Jain answered.
3 months ago

There are a number of distinct advantages in trading the Metldex index. Here are a few of them encapsulated.

· One application could be that traders with large long or short positions in the underlying base metals will be able hedge risk using the METLDEX futures.

· In addition, producers of these metals like mines and even the processors will be able to lock in selling price using futures.

· On the other hand, the bulk users like construction companies, auto companies, FMCG companies etc can hedge risks using the METLDEX as a potent risk management tool.

· Don’t forget that stocking agents hold on to huge inventories. of base metals and they can also use the METLDEX to hedge their price risk

· Alternatively, these stockists can even do an index arbitrage over time to lock in assured returns on their metal holdings. This is a low risk strategy.

· For stockists who are incurring a cost on inventory holding, this can be a good way of monetizing their idle metal inventories in a profitable way.

· Last, but not the least, traders can always use the index to take a punt on price direction and there are even intraday trading opportunities.

Having seen the advantages, it is time to look at the next level of growth in such indices. Today, SEBI has allowed institutions into commodities but response is quite tepid. One way to get institutions interested is to catalyze the launch of metal linked ETFs which are quite popular among institutional investors.

Such index based ETFs on metals are low risk investments which appeal to institutional investors. MCX has taken the initiative by launching two commodity indices. It is now time to leverage it by taking it to the next level.