Key principles on which MCX and NCDEX operate
Like any organized exchange traded futures market, the NCDEX and the MCX have the following features:
- Both the NCDEX and the MCX are permitted to deal in specified commodities like agri commodities, industrial metals, precious metals and oil & gas. While the NCDEX has a clear leadership in the agri trading segment, it is MCX that dominates industrial metals, precious metals and oil futures. In terms of structure, the MCX and the NCDEX are similar to globally reputed exchanges like the COMEX and the LME.
- Like in any futures exchange, both the MCX and the NCDEX trade in standardized contracts. Here lot sizes are standardized, the quality of the commodity for delivery is clearly specified and the contract expiry dates are also standardized.
- Like in the case of the NSE and BSE, both the principal commodity exchanges get all transactions and trades counter-guaranteed by the clearing corporation. This eliminates counterparty risk and traders can trade commodities without worrying about default by another party.
- Like any futures market, the MCX and the NCDEX also permit trading on margins. That means one can take a much larger position on their capital by putting just a margin. The leverage is much higher in commodities than in equities as commodity prices are less volatile compared to equities.
MCX and NCDEX differ on actively traded commodities
The area where the MCX and NCDEX actually differ is in the area of most actively traded commodities. NCDEX is predominantly an exchange with leadership in the agri commodity segments, while MCX has leadership in the area of gold, metals and oil. MCX has a market share of more than 80% of the overall commodity markets in terms of sheer volumes. Let us look at the unique features of their top traded counters.
How do the top five most active contracts on the NCDEX stack up?
As can be seen from the above chart, these are live volumes but give an idea of how agri commodities continue to dominate the NCDEX trading. Of course, one needs to remember a key risk here. Most of the spot agri commodities are regulated by the respective state governments and they tend to be politically very sensitive. Such commodities are not only subject to the vagaries of nature but also are extremely vulnerable to changes in government policy with respect to trading permissions, leverage permitted, ban on speculative positions, etc. Let us now turn to how this commodity mix looks on the MCX.