s-faqs">Frequently asked questions (FAQs)

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1. What happens if I hold a gold futures contract until expiry?

If you carry a gold futures contract to expiry, you will be required to perform physical delivery or cash settlement as per the underlying rules of the contract. On the MCX, the standard 1 kg gold futures often involve physical delivery.

2. Can gold options be treated in India, and how is the premium treated?

Yes, you can trade gold options where you pay a premium for the right but not the obligation to buy or sell a futures contract. The premium is your maximum loss if the market does not move in your favour, unlike futures, where losses can be larger.

3. How much margin do I need to start trading gold futures?

The margin requirements are dependent upon lot size, volatility, and exchange rules. For instance, the margin for a 1 kg gold contract may have a higher margin compared to smaller "mini" or "petal" contracts.

4. What are the major price drivers I should watch when trading gold derivatives?

Major factors are global gold price, US dollar-rupee exchange rate, inflation-interest rate trends, demand for jewellery, both domestic and international, and geopolitical events. These influence gold's price moves, which derivatives reflect.

5. How does the tax treatment differ between derivatives such as gold futures versus holding physical gold or gold ETFs?

Profits from gold futures and options are considered business income and are taxed accordingly. Physical gold or gold ETFs are treated as capital assets with short-term or long-term capital gains according to the holding period.