Skip to main content
Asked a question 2 years ago

How are commodities settled on the MCX?

Join FYERS Community to pick others' brains on Trading/Investing

Essentially, there are two ways in which commodities on the MCX are settled. One is cash settlement and the other is physical settlement.

Cash settlement is applicable in case of energy contracts (crude oil and natural gas) and the two indices (Bullion and base metal index), while the rest (precious metals, base metals, and agro) fall under physical settlement.

What is the difference between cash settlement and physical settlement?

In case of cash settlement, all open positions are settled in cash on the expiration day at the final settlement price of the respective commodity.

In case of physical settlement, the seller will have to give delivery of the commodity to the exchange, while the buyer will have to pay the total contract value. The seller will then receive the funds, while the buyer will be able to take delivery of the commodity from the exchange warehouse.

Remembered reading about this topic few weeks back from this section on the Fyers, school of stocks.

This module explains how the commodities derivative contracts are settled on the MCX, India.