JOIN USFinance Minister Arun Jaitley on Tuesday launched gold options trading on Multi-Commodity Exchange of India (MCX). The instrument allows small gold businesses to hedge their risk without worrying about the daily volatility.
Launching on the auspicious day of Dhanteras, Jaitley said that this is one of the steps towards formalising trade in the yellow metal.
Option refers to buying or selling gold at a future date at a set price. The delivery date, quantity and price are all predetermined. Option, however, is not an obligation on the part of the investor to either buy or sell the gold. The main difference between option and future is that a futures contract is an obligation or a promise made by the investor to uphold the contract.
“This marks a very important evolution in trading of yellow metal itself. It hedges all risks by giving them (traders) the option of futures,” Jaitley said, hoping that the new product will be extremely successful as Indians invest a great deal in gold.
India is the second largest gold consuming market in the world behind Germany. “I am sure more it formalises, better it is for consumers, jewellers and those trading in this.
This is the first product for options trading that the regulator Sebi has allowed after 14 years of commencement of commodity exchanges in the country,” Jaitley said.
One can start options contract with a kilo of gold. “The launch denotes one of the most significant reform measures since modern commodity derivatives trading started 14 years ago. There has been a very conscious effort by the government and Sebi to develop and integrate commodity markets in a phased manner. We are encouraged by the support and the approach, marked with a great degree of pragmatism. The introduction of options gives a strong impetus towards systematic development and transformation of commodity,” MCX Chairman Saurabh Chandra said at the launch.