MCX vs NCDEX: What's the Difference?

What Is MCX?

The Multi Commodity Exchange of India (MCX) is an electronic exchange specialising in commodity derivatives. It started trading in November 2003 and is regulated by SEBI.

MCX is of course most famous for its bullion, industrial metals and energy contracts. The commodities that come to mind are gold, silver, copper, crude oil and natural gas.

These are contracts which attract all sorts of participants. A trader may be in a position purely on the basis of expectation as to what the price of gold will be, whereas a business which is exposed to the cost of metals or energy may be using derivatives as a way of managing its price risk.

A jeweller for instance who is going to be buying gold in the months ahead could find themselves in a position where the price of gold has gone up by the time they get round to making the purchase. Their exposure and the terms of the contract will determine how much of that price risk they can hedge. A futures position could be used to offset some of that risk.

For individual traders MCX provides access to commodity contracts via eligible brokers. Trading in futures and options involves leverage and can result in significant losses. It is absolutely vital that you understand the contract specifications and the margin requirements prior to placing an order.

What Is NCDEX?

The National Commodity & Derivatives Exchange, or NCDEX, is another Indian commodity derivatives exchange. Its traditional strength lies in agricultural commodities and products connected to the agricultural supply chain.

Their listed products have included guar seed, jeera, turmeric, coriander, castor seed and a range of agricultural products. The range of contracts available is subject to change so traders should always check the exchange's current product list.

Agricultural prices are influenced by a very different set of factors to those that affect bullion and energy markets. Rainfall, crop output, sowing and harvesting patterns, storage, export policy and seasonal demand are all factors which can have an impact on prices.

For instance an unforeseen disruption to crop production could have an impact on the expected supply of an agricultural commodity. A participant exposed to the price of that commodity could use an appropriate derivative to hedge some of the uncertainty.

NCDEX also has participants across the agricultural ecosystem (traders and marketing organisations etc). It's not just a platform for short term speculation as such, commodity derivatives can be used by market participants to hedge price exposure.

MCX vs NCDEX: The Key Differences

The key difference is the type of commodity market that each exchange is most closely associated with.

Feature	MCX	NCDEX
Primary focus	Bullion, metals and energy	Agricultural commodities
Examples of products	Gold, silver, copper, crude oil and natural gas	Jeera, guar seed, turmeric and coriander
Factors influencing prices	Global markets, currency movements, industrial demand and geopolitical developments	Weather, crop output, seasonal demand and agricultural policies
Typical participants	Traders, bullion businesses and industrial commodity users	Agricultural traders, processors and other supply-chain participants
Common use of derivatives	Trading price movements and managing exposure to metals or energy	Trading agricultural price movements and managing agricultural commodity exposure

These are broad distinctions rather than hard and fast rules. MCX also has a range of agricultural commodity derivatives and of course the range of products available on either exchange can change over time. The current contract list is the best reference point if you're trying to establish whether a particular commodity is available.

How Does Trading Work on Both Exchanges?

Although the commodities are different the basic process of trading exchange listed derivatives is quite similar.

Firstly the trader will need an account with a broker who is authorised to give access to the relevant exchange and segment. Once the account opening requirements have been satisfied the trader can then go on to look at the various contracts that are available and their associated specifications.

Before you place an order you need to be aware of the contract size, the price quote, the expiry date, the minimum price movement and the margin. All of these things will determine how a change in the quoted price will impact the value of your position.

Suppose the trader believes the price of the underlying commodity will go up and so buys a futures contract. If the price does go up the position can be a profit, if the price goes down the position can be a loss. The other way around for a short position (subject to the rules of the contract and costs).

The margin put down is not the maximum possible loss. If the market moves you may be required to put up additional margin and the broker will take action if the margin required is not available.

Trading hours, the settlement arrangements and the delivery obligations will of course vary according to the exchange and the particular contract. Traders should check these details rather than assume that all commodities operate on the same basis.

Which Exchange Should You Choose?

There is no universal answer. It depends on the commodity you want to trade and why you are entering the market.

If you're looking at gold, silver, industrial metals or energy products then MCX is the place to start your research. If you're after agricultural products such as jeera or guar seed then you may want to look at the contracts available on NCDEX.

The next stage is to look beyond the exchange name. You need to compare contract liquidity, bid ask spreads, margin requirements, brokerage charges and expiry rules. A contract that may seem like it's the one for you could still be unsuitable if you don't understand the risks involved or if you can't afford the capital required.

Platforms such as Ashika's Dhanush 2.0 offer access to market information and digital trading tools. Always check the platform's current offerings and commodity products before using it for a particular exchange or contract.

Final Thoughts

MCX and NCDEX both provide the infrastructure for India's commodity derivatives market but are generally associated with different groups of commodities. MCX is the market of choice for bullion, metals and energy whereas NCDEX has traditionally been the home of the agricultural commodities.

Understanding that distinction will help focus your research, but picking an exchange is only the first step. The contract specifications, the market conditions, the trading costs and the risk management requirements are all equally important.