COTTON

Lot size: One contract represents 25 bales. Each bale is 170 kilograms.

Tick size: Minimum price movement is ₹10 per bale. Each tick equals ₹250 per lot.

Expiry: Contracts expire on the last calendar day of the month. If that day is a holiday or Saturday, the preceding working day becomes the last trading day. New contracts are launched on the first working day of the launch month, as per the MCX calendar.

Daily Price Limit (DPL): The initial slab is 4%. After a 15-minute pause, the limit expands by 2% to a total of 6% for the rest of the session.

Initial margin: Minimum 8% or SPAN-based, whichever is higher. Extreme loss margin is 1%.

Open Interest (OI): Total outstanding contracts. Rising OI with rising price indicates fresh longs. Rising OI with falling price indicates fresh shorts.

Position limits: Individual clients can hold up to 300,000 bales. Members can hold 3,000,000 bales or 15% of market-wide OI, whichever is higher. Near-month limits are 75,000 bales for individual clients.

Delivery: Compulsory delivery at expiry. The basic delivery centre is Rajkot, Gujarat (within a 100 km radius). Additional centres include Kadi, Mundra, Jalgaon, Jalna, Nanded, and Yavatmal. There is no location discount on any additional delivery centre. Quality standards specify staple length, micronaire, and trash limits.

Price risk management for the value chain: COTTON is subject to fluctuating prices for farmers, ginners, traders, and mills. They can either lock in lint prices ahead of harvest or purchase futures to lock in cotton prices. This lowers the income risk for farmers and input cost risk for consumers.

Transparent price discovery: The MCX website combines the goods and services bids and offers from all over India. The combination of the polled spot price and the futures price provides a clear reference for actual purchase and sales in the physical market in Gujarat and Maharashtra.

Access by non-physical means: Retail traders can trade cotton without buying, storing, and grading cotton bales. Most positions are closed before the end of the contract, which is cash settled at delivery.

Regulated infrastructure: MCX is a SEBI-regulated exchange. There are rules for settlement. The clearing corporation helps to reduce counterparty risk.

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

Month-to-month 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. Spreads generally require a lower margin and carry lower volatility than outright positions.

Producer or consumer hedge: A farmer or ginner holding physical cotton can sell futures to secure a price. If spot prices rise, the physical gain offsets the futures loss. If they fall, the futures profit offsets the physical loss. A mill buying lint can hedge purchase costs by buying futures.

MCX-ICE basis play: Speculate on the convergence between domestic and global prices. When the basis is unusually wide or narrow, a reversion trade may be possible. This requires an understanding of both markets and export parity calculations.

Watch the monsoon in Gujarat and Maharashtra: Rainfall in the key cotton belt drives acreage and yield. Track IMD forecasts and actual precipitation during the sowing window.

Monitor arrival pace and quality: New crop arrivals between October and January pressure prices. The pace of arrivals and the share of higher-grade lint shape the price trajectory.

Track textile export orders: Yarn and fabric export demand from China, Bangladesh, and Vietnam determines mill offtake. Weak export orders reduce lint consumption and weigh on prices.

Factor in MSP announcements: The government declares MSP before the sowing season. This sets a floor for seed cotton and influences farmers' selling behaviour.

Account for daily MTM and margin calls: MCX settles profits and losses every evening. Cotton prices can gap overnight on weather reports, pest alerts, or export duty changes. If the market opens against your position, you face a margin call before you can react. Keep extra funds in your account above the minimum margin. Size your position so that a single adverse gap does not wipe out your buffer or force an early exit. Do not calculate position size using only the minimum margin required by the exchange.

Check multiple chart timeframes: A trend on the daily COTTON futures chart may look different on the hourly view. Dhan's Custom Timeframes let you set exact intervals beyond standard presets. India Timeframes align chart data with Indian market session hours. Align both before entering a position.

Close before the delivery date: Most retail traders do not intend to take or give physical delivery. Exiting well before the last trading day avoids unnecessary complications.

Size positions within capital limits: Small margin requirements tempt large positions. That is not a reason to trade big. Keep single-trade risk within a fixed percentage of your capital. Dhan Trade Plan does the math: enter your capital allocation, risk, and reward percentages. It outputs the exact quantity, stop-loss, and target. Rely on this before committing capital.