What is the Margin requirement in MCX/Commodity?

What is the Margin requirement in MCX/Commodity?

The margin requirement in MCX or commodity trading refers to the minimum amount of funds traders must maintain in their trading accounts to initiate and hold positions in commodity futures contracts. This margin serves as collateral to cover potential losses from trading activities. The margin requirement typically consists of two components: 

1. Initial Margin: This is the minimum amount of funds required to open a new position in a commodity futures contract. It is calculated based on the contract's value and the prevailing market conditions.

2. Maintenance Margin: This is the minimum amount of funds that traders must maintain in their accounts to keep their positions open. Suppose the account balance falls below the maintenance margin level due to losses incurred in trading. In that case, traders may need to deposit additional funds to meet the margin requirement and avoid liquidating their positions. 

The margin requirement ensures that traders have sufficient funds to cover potential losses and fulfill their obligations in the commodity market. It helps mitigate risks associated with price fluctuations and market volatility. The specific margin requirements may vary depending on factors such as the type of commodity, contract specifications, and regulatory guidelines. Traders must understand and adhere to the margin requirements set by the exchange and their brokers to manage their trading activities effectively. 

Check the below link – 

https://www.mcxindia.com/market-operations/clearing-settlement/daily-margin


 

 Margin Calculation:

For Silver:

- Price: Rs. 60,500 per unit

- Initial Margin: 20.25%

- ELM (Extreme Loss Margin): 1.25%

- Total Margin Requirement: 21.5%

Formula:

Total Margin Required = (Price * Lot Size) * Total Margin Percentage

Example Calculation:

Total Margin Required = (60,500 * 30) * (21.5/100) = Rs. 3,90,225 per lot of Silver in delivery.

Note:

- Due to the Devolvement Period, crude Oil Option positions will be squared off from RMS 3 days before Expiry.

- Example: For a Crude Oil contract expiring on 17th Sept 2020, RMS will square off positions on 14th Sept 2020.

- RMS will square off GOLD OPTIONS positions 3 days before expiration.

- Example: If a Gold contract expires on 23rd Sept 2020, RMS will square off positions on 18th Sept 2020.

Tender Period: During contracts can be tendered for physical delivery.



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