What is the settlement process for MCX contracts?
In this article, we will provide a detailed explanation of the settlement process for MCX contracts. We will cover the daily settlement process, final settlement process, and the benefits of MCX contract settlement. Let’s dive in!
Introduction to the MCX contract
The Multi Commodity Exchange (MCX) is the leading commodity exchange in India. It trades in over 50 commodity futures contracts, providing a platform for buyers and sellers to trade commodities at a future date at a predetermined price.
The settlement process for MCX contracts
The settlement process for MCX contracts involves a series of stages, including daily settlement and final settlement processes.
Daily Settlement Process
The daily settlement process aims to settle the profits and losses accrued during a trading day. It occurs at the end of each trading day and follows these steps:
- The final settlement price for each contract is determined based on the weighted average price of trades executed during the last 30 minutes of trading.
- The final settlement price is compared to the daily mark-to-market price, which is the average closing price of the contract during the last one hour of trading.
- Any difference between the final settlement price and the daily mark-to-market price is cash settled.
- The cash settlement amount is credited or debited to the respective clearing member’s account.
Final Settlement Process
The final settlement process occurs on the expiry day of the contract. It includes the following steps:
- The final settlement price is determined based on the average spot price of the underlying commodity over the last five trading days of the contract.
- For physically settled contracts, the seller must deliver the underlying commodity, and the buyer pays the final settlement price in cash.
- For cash-settled contracts, the final settlement amount is credited or debited to the respective clearing member’s account.
Benefits of MCX contract settlement process
The settlement process for MCX contracts ensures efficient and transparent trade execution. It provides security, accountability, and a level playing field for all traders. Moreover, the standardized contracts and settlement process contribute to the liquidity of the commodities market, facilitating its efficient functioning.
By Astrobulls research pvt ltd