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Do's & Don'ts for dealing in a commodity market

rohit natani 
on 15 September 2014

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DO’S AND DON’TS FOR DEALING IN COMMODITY FUTURES

Do`s

Don`ts

1. Read the FMC/ Exchange guidelines and circulars available on the websites of the Exchanges

 1. Do not fall prey to market rumors and tips

 2. Refer to Forward Contracts (Regulation) Act {FC(R)A}, 1952 before dealing in futures trading in commodities

 2. Do not act based on bull/bear run of market sentiment in the market.

3. Go through all rules, regulations, bye-laws and circulars issued by the Exchange available on the websites of the respective exchange

3. Do not go by any explicit/ implicit promise made by analysts/ advisors/ experts/ market intermediary until convinced.

4. Read commodity contract specifications and the concerned circulars carefully including recent modifications, if any.

4. Do not go by the reports/ predictions made in various print and electronic media without verification.

5. Understand the commodity and price impacting parameters before participating in commodity futures

5. Do not trade in any commodity without knowing the risk and rewards associated with it.

6. Study historical and seasonal price movement and keep the track of Government Policy announcements.

6. Do not trade based on long-term price prospects of the commodity without understanding your short-term risk bearing capacity

7. Be aware of the risks associated with your positions in the market and your ability to respond to margin calls on them as un favorable price movements result into higher margin requirement.

7. Do not let risks against your positions accumulate in the market beyond your capacity to bear them.

8. Collect/pay mark-to- market margins on your futures position on a daily basis from/to your Trading Member as per the Exchange rules and regulations

8. Do not miss on keeping track of your financial and contractual obligations against your positions

9. Trade only through Exchange Registered Member and always insist on contract note against a confirmed trade.

9. Do not undertake off-market transactions in commodities. It is both risky and illegal

10.Insist on reading and signing a ‘Risk Disclosure Agreement’.

10. Do not start trading before reading and understanding the Risk Disclosure Agreement.

11. Pay required margin in time and understand the consequences of non payment.

11. Do not delay payment/ deliveries of commodities to Member. 

12. State clearly to the Member who will be placing orders on your behalf

12. Do not give authority to the Member of the Exchange to make ‘sale’ and ‘purchase’ decisions on your behalf and also do not surrender the right of receiving contract notes on a daily basis. Portfolio Management Schemes (PMS) are not allowed in commodity market.

13. Ensure that the Contract Note contains all the relevant information, such as Member Registration Number, Order No., Order Date, Order time, Trade No., Trade Rate, Quantity, and Arbitration Clause.

13. Do not accept unsigned/ duplicate contract note/ confirmation memo. Do not accept contract note/ confirmation memo signed by any unauthorized person.


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