ALUMINIUM

Lot size: One standard contract represents 5 metric tonnes (5,000 kg). The ALUMINIUM Mini contract is 1 MT

Tick size: Minimum price changes in increments of ₹0.05 per kg or ₹250 per tick for a standard lot.

Expiry: Contracts expire on the last day of the contract month.

Open Interest (OI): Total outstanding contracts across all participants. An increase in OI with an increase in prices would indicate fresh long positions being built, rather than short covering.

Margin: Collateral needed to maintain a futures position. MCX changes margin during periods of high volatility which can change position sizing.

Daily Price Limit (DPL): MCX applies a circuit breaker at 4%. If this is breached, it widens to 6% without a break. If this is also breached, there is a 15-minute break before expanding to 9%.

Basis: The difference between the MCX futures price and the LME-equivalent price (adjusted for currency). Price variations in basis reflect domestic supply-demand factors independent of global price direction.

Macro participation without physical exposure: Macro drivers such as energy policy, Chinese industrial growth, currency movements and global trade policy all impact ALUMINIUM prices. Futures provide the possibility of direct participation in these price effects without having to source, store or handle physical material.

Leverage through margin: Futures only require a margin payment. So it means a lower amount of money can be committed to the market. This also means there is the potential for losses greater than the margin if the positions are not managed appropriately something to be fully aware of before entering any position.

Hedging utility for commercial participants: Companies that have ALUMINIUM price risk exposure such as packaging manufacturers, cables, and automobile component manufacturers can use MCX futures to manage their ALUMINIUM price risk. The design of the contract facilitates this operational hedging.

Transparent, regulated infrastructure: MCX is a SEBI-regulated exchange. Prices are publicly visible. Settlement is done according to the rules. The rules minimise counterparty risks and provide execution standards.

Outright directional trade: Long (buy) or short (sell) the futures in anticipation of a price increase or a price fall, respectively. The simplest approach and the one most retail participants begin with. Risk management in terms of position size relative to margin is critical.

Calendar spread: Buying one expiry month while simultaneously selling another. The profit or loss is based on the movement of the difference between the two months, rather than the absolute movement. Spreads generally require lower margin and carry lower volatility than outright positions.

Hedging: A company buying physical ALUMINIUM can sell the same amount in futures to secure the price. If prices increase, the futures profit offsets the cost increase. If prices decline, the hedge reduces the gain but the aim is not maximising profits.

Basis trade: Speculate on the difference between MCX and LME (after adjusting for the currency). When the basis is significantly out of historical bounds, it could offer a reversion trade but this requires an understanding of both markets and the effects of local and global factors that cause divergence.

Track LME alongside MCX: Domestic ALUMINIUM prices do not move independently. LME direction sets the broad tone. Variations between MCX and LME (adjusted for currency) are typically short-lived and to be watched.

Factor in USD/INR: A depreciation of the rupee can push up MCX prices in rupee terms even if LME doesn't move. A stronger rupee may limit MCX gains when LME rallies. These are both aspects of position management.

Watch inventory data: LME warehouse stock reports are published regularly. Sustained drawdowns tend to underpin prices. A rapid inventory build is worth noting before adding to long positions.

Respect the margin cycle: MCX mark-to-market happens daily. A position that gaps against you may result in a margin call prior to the next trading day. Position sizing that accounts for adverse moves (not just average daily range) is more robust than margin minimum-based sizing.

Consider the Mini contract: For anyone learning to trade ALUMINIUM futures, the 1 MT Mini contract is just as good as the standard contract in terms of market access and price information, but with lower margin requirements.