A new gold future contract may be the next big thing for derivatives traders who have been snubbed by regulatory curbs on equity futures and options.
Amid record-high prices, the Multicommodity Exchange of India said it would launch gold 10 gram future contracts from April 1. The minimum price movement will be of Rs 1, and the contracts will have monthly expiries.
Traders and industry experts believe this contract is likely to bring in small participants who have moved away from Nifty and Sensex’s index derivatives.
Anuj Gupta, head of commodity and currency at HDFC Securities, says that many retail participants have dropped out of the index derivatives trade since lot sizes were increased last year. “The new gold contract is probably a way to attract these traders. This will also be an easier hedge for retail traders since physical gold has the same contract in the market.”
Gupta was pointing to how jewellers, and most people buying and selling physical gold, do so with a base unit of 10 gm.
So, while MCX already has gold futures for the 1 gm, 8 gm, 100 gm and 1 kg categories, a 10 gm contract will make things easier for the lay trader, explained Ajay Kedia of Kedia Advisory. “If they see a quote of Rs 90,000/10 gm in the physical market, they can easily place their orders based on the same amount without having to recalculate the base value.”
Both Gupta and Kedia said that margins on existing gold contracts have been on the rise as the value of the underlying asset has been on a constant upward trajectory. This has led to a stagnation in participation and volumes, which might have prompted MCX to launch a contract with a lower margin requirement.