Futures Trade

Safeguards Against Speculation

The FMC has introduced the following safeguard and regulatory measures against uncontrolled speculation.

1. Limit on open position of an individual operator to prevent over trading;
2. Limit on price fluctuation (daily/weekly) to prevent abrupt upswing or downswing in prices;
3. Special margin deposits to be collected on outstanding purchases or sales to curb excessive speculative activity through financial restraints;
4. Minimum/maximum prices to be prescribed to prevent future prices from falling below the levels that are unremunerative and from rising above the levels not warranted by genuine supply and demand factors.

Margin Money

“Margin money” is a tool employed by the Foreward Markets Commission (FMC) for discouraging and controlling speculation in commodity trade.  Margin money is the advance deposit to be remitted by each person who intends to trade in a commodity exchange at the rate of 6-10% of the value of his expected trade.  The “margin money” has to be deposited with the concerned exchange through the commodity broking firms.

If a person intends to buy or sell rubber through a service provider/broking firm like Geojith securities, JRG Wealth Management Services or Peninsular Commodities, he has to remit in his account with the broking firm 6 to 10% of the value of his trade.  For example, if one tonne (1000 kg) of rubber is bought or sold through Geojit/Peninsular Commodities at a cost of Rs 90 per kg, the person has to deposit 10% of the value of trade (Rs 9000) at the commodity exchange, through the trading firm. This margin money limits the volume of trade that can be contracted by a person.  By raising the margin money requirements at times of rapid rise or fall in prices, speculation can be minimised and more stability in the market can be established.

Last Updated : 04-01-2008