Commodity Trading
Commodity Trading
This domain tests how orders are placed and executed, how positions are limited and monitored, and what trading costs apply. Questions often require you to distinguish order types and to calculate margin, position limits or net profit.
Order handling
Common order types are limit, market, stop-loss and immediate-or-cancel (IOC). A limit order executes only at the stated price or better; a market order prioritises speed but not price. Exchanges publish price bands. Many non-agricultural contracts use 4%, 6% and 9% daily limits with cooling-off periods; agricultural contracts may have flexible limits. A price band is not a guarantee that trading stops permanently.
Positions and costs
Position limits apply at client, member and exchange levels, and often separately for near-month and far-month contracts. Hedgers may receive exemptions. Costs include brokerage, exchange transaction charges, GST, stamp duty and, on non-agricultural commodity futures, Commodity Transaction Tax (CTT) at 0.01% on the sell side. Agricultural futures are CTT-exempt. Securities Transaction Tax does not apply.
Worked example
A trader buys 2 crude oil lots at ₹6,000 per barrel; each lot is 100 barrels. Contract value = 2 × 100 × ₹6,000 = ₹12,00,000. At 10% margin, funds blocked are ₹1,20,000. The trader sells at ₹6,150. Gross profit = 200 × ₹150 = ₹30,000. Brokerage of ₹200 round-trip and CTT of 0.01% on the sell value (₹12,30,000 × 0.01% = ₹123) leave roughly ₹29,677 before other charges.
Traps
Do not apply CTT to the buy side or to agricultural contracts. A stop-loss order does not guarantee the stop price in a gap. Do not compute position limits on gross positions if the rule uses net positions. Do not assume a limit order fills just because the market touches the price.