Forward trading is set to debut in commodities on national commodity exchanges with leading agri centric exchange National Commodity and Derivatives Exchange (NCDEX) getting approval for launching forward trading in maize and sugar. On nationwide commodity futures exchanges such forward trades will be traded on a separate segment along with futures the way cash and derivative transactions are happening on stock exchanges.
Forward contracts are otherwise traded in physical or spot commodity markets or mandis in which deal is done at a specific date with predetermined date for delivery and trade is settled between two parties. Forward Markets Commission which will regulate forward trades as well has approved two types of contracts Non-transferable Specific Delivery (NTSD) and Transferable Specific Delivery (TSD) in Sugar and Maize.
The benefit for participants to trade in forward contracts on the exchange is that exchange will stood as counter party guarantor for payment and delivery specified quality goods.
In contract will have some fixed criteria and rest of the terms will be what have been mutually agreed between two parties and will be reported on the exchange. Exchange will levy margins which will be for Reference Price Contracts 5 % and for fixed Price Contracts it will be 7.5 % for contract duration upto 30 days and 10 % for duration beyond 30 days and upto 60 days. Exchange may also have incremental margins. The duration for the contracts will be Maximum 180 working days for Reference price contract and for fixed price contract Maximum of 60 working days.
