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Chapter 3

Understanding NCDEX and MCX Platforms and Products

Index of Contents:

Trading on commodity futures and commodity options was first started in India in 2003. Over the years, the NCDEX and the MCX have emerged as the two principal commodity futures exchanges. While the NCDEX has a specialization and a leadership position in agricultural commodities, it is the MCX which delivers much bigger volumes with leadership position in precious metals, energy products and industrial metals.


The NCDEX is a commodities exchange established in 2003 and dealing primarily in agricultural commodities in India. The NCDEX is second only to the MCX in terms of overall volumes on commodity products. NCDEX is run by an independent board of directors with no direct interest in agriculture.

NCDEX plays a critical role in the Indian agriculture sector. While agriculture may account for less than 15% of the total GDP, its contribution to rural and semi-urban employment is disproportionately high. Also, the agricultural sector in India faces challenges like weak price realization for farmers, poor transport facilities, poor storage facilities etc. Hence a robust futures market for agricultural products can be really meaningful. That is where NCDEX has a role to play. Over the years, NCDEX has helped increase the market transparency. This has resulted in farmers in India to conduct price discovery, helping them price their goods more accurately even if they are not active in the futures market. NCDEX has greatly improved the information symmetry. NCDEX has also played a key role in standardizing the quality specifications of various crops through contracts and has also raised quality awareness.


Multi Commodity Exchange (MCX) is the principal exchange for commodity futures trading in India in terms of volumes. The MCX specializes in contracts on futures of precious metals, energy and industrial metals, where it has a leadership position. While MCX also offers trading in an array of agricultural products, it is NCDEX that has a leadership position in agri products. Currently, the MCX commands over 80% of India’s futures market and has already emerged as the most active exchange in the world for silver futures and the second most active in the world for trading in gold futures. It also ranks second globally for copper and natural gas, third for aluminium, zinc and crude oil.

Commodity derivatives trading in MCX


In terms of commodity trading, there are two precious metals that are available trade viz. Gold and Silver. Of course, there are variants like Gold Mini, Silver Mini, Gold Guinea, Gold Petal etc. Gold is the most sought-after precious metal, is admired throughout the world for its beauty, liquidity, investment qualities, and industrial properties. As an investment vehicle, gold is typically viewed as a financial asset that maintains its value and purchasing power during inflationary periods. Global demand for gold is generated from 4 segments viz. jewellery demand, investment demand, central bank reserves, and technology. The price of gold is impacted by various factors like supply from central bank sales, hedging interest of producers and miners, geopolitical risk demand, interest rates, inflation and typical factors like marriage season demand and post harvest season demand.

Silver is a brilliant grey-white metal that is soft and malleable. The principal sources of silver are the ores of silver, silver-nickel, lead, and lead-zinc. Latin American nations like Peru, Mexico and Bolivia account for the largest chunk of silver production in the world. Silver has applications in art, science, industry and beyond. Nearly 95% of the demand for silver comes from 3 principal segments viz. silver in industry, investment, and silver jewellery and décor. The silver market is influenced by factors like industrial growth, global growth, geopolitical events involving governments, armed conflict etc. A major chunk of impact on silver price comes from specific events like construction of new production facilities, introduction of new processes, unexpected mine or plant closures, industry restructuring etc.


Base metal informally refers to a metal that oxidizes or corrodes relatively easily. It is a common and inexpensive metal, as opposed to precious metals like gold and silver. Chemical, physical and aesthetic properties of the metal make them the preferred ingredients in a wide range of domestic, industrial, and technological applications. The following are some of the price drivers of key base metals that are traded on MCX.

  • Aluminium prices on the MCX are largely driven by international prices on the LME. In addition, the exchange rate and the industrial growth in China is also a key factor.
  • Copper is the second most used base metal after steel and aluminium in terms of applications. Copper prices also reflect LME prices and the exchange rate moves.
  • Lead is protected from radiation and finds wide application in batteries. Lead is also a function of LME prices, exchange rates and the industrial demand from China.
  • Nickel is lustrous and nearly 65% of nickel in the world is used to manufacture stainless steel. Price of Nickel is largely dependent on demand for stainless steel.
  • Zinc is highly resistant to acidic corrosion and finds application in buildings, vehicles and ships. Apart from LME prices, zinc prices are a function of global economic growth.


Crude oil and natural gas are the two most popularly traded commodities, not only in India but across the world. Crude oil production is dominated by the US, Russia and Saudi Arabia which jointly account for 35% of the world oil production. Russia and Qatar are the largest producers of natural gas in the world. Relatively, natural gas is considered to be a much cleaner source of energy from an environmental perspective. OPEC accounts for 35% of the world output but controls nearly 75% of the potential reserves. The price of oil is dependent on a variety of dynamics which includes OPEC supply, US supply and inventory movements, global crude inventories, refining demand, gross refining margins, global demand, trade wars, geopolitical risk in the Middle East / West Asia, speculative buying by oil traders. Broadly, there are two benchmarks in terms of oil viz. Brent Crude and the West Texas Intermediate (WTI). Crude oil is measured in terms of Dollars per British Barrels ($/bbl).

Natural gas is not as big as crude in the energy mix but is likely to pick up considering its clean nature and limited carbon impact. Natural gas movement is largely dependent on an efficient pipeline network to transport the same. Natural gas prices on the MCX are also benchmarked to the global rates. The primary driving factors for gas prices include the global gas inventory, weather conditions, heating demand from the US and Europe, industrial demand etc.


Agri commodities are not just weather dependent in a country like India but many of them are also extremely politically sensitive. This adds a unique dimension to derivatives trading on agri products. Normally, agri products are a function of global demand and supply as well as the national policy with respect to free imports and exports of the product. Here is how the prices of some of the key agricultural commodities traded on the MCX are driven.

  • Indian pepper production is focused in Kerala and Karnataka. India essentially imports pepper from Vietnam, Sri Lanka, Indonesia and Brazil. Pepper prices are determined by global demand and supply, year-end stocks, stocks / consumption ratio, crop arrival, monsoons, weather conditions etc.
  • India is a major producer of castor seeds and accounts for 80% of world production. Castor seed oil is not edible but finds applications in cosmetics, toiletries, pharmaceuticals, lubrication etc. The prices are largely driven by supply from India, weather conditions and government policy on exports and imports.
  • Cotton, as is well known, is cultivated for its fibre which is a key input for textiles manufacturing. The price of cotton also depends on weather conditions, cropping patterns, pest attacks, global demand and festive demand.
  • Palm oil is predominantly produced in Malaysia and Indonesia and is considered to be healthier than the groundnut oil variety. There is a gradual shift in consumption patterns towards palm oil. The price triggers are largely dependent on the output from Malaysia and Indonesia and the government policies on exports. It also faces competition from Soy Oil in the last few years.
  • Mentha is predominantly produced and exported by India and finds application in food, pharma, perfumes and the flavouring industry. The price depends on import demand from the US, China and Singapore. It also predicates on the price of synthetic mentha that was recently introduced in the global markets.
  • RBD Palmolein is used to make edible and is considered to be low in cholesterol and saturated fats. Here again, Malaysia and Indonesia dominate the global production. India is one of the largest importers of RBD Palmolein and hence prices are subject to demand and the USD/INR rate. It also faces competition from other edible oils.
  • Rubber finds application in a wide array of sectors like tyres, automobiles, aeronautics, electrical and electronic applications. Thailand, Indonesia, China and India are among the major producers of rubber. The price of rubber is largely dependent on global supply and demand equations as well as prevalent weather conditions.

D. Commodity derivatives trading in NCDEX

While one can trade in commodities on both the NCDEX and the MCX, it is the NCDEX that has a leadership position in agri-commodities trading.

NCDEX has played a key role in improving Indian agricultural practices. By standardizing the quality specifications of various crops through contracts, the NCDEX has raised quality awareness. Farmers in India are increasingly focussed on testing requirements and enacting farming practices that result in consistent, high-quality yields. Here are the products traded on NCDEX:

  • Cereals and pulses: Barley, chana, maize kharif, maize rabi, wheat, moong, paddy (basmati)
  • Fibres: Kapas and 29 mm cotton
  • Guar complex: Guar seed and guar gum
  • Oil and oil seeds: castor seed, cotton seed oil cake, soy bean, refined soy oil, mustard seed and crude palm oil
  • Sugar
  • Spices: Pepper, turmeric, jeera and coriander
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