Energy Commodities Outshine Bullion for Retail Traders on MCX Amid Rising Volatility
In a significant shift in trading patterns, retail clients on India's Multi Commodity Exchange (MCX) are increasingly turning their attention to energy options, particularly crude oil and natural gas, while reducing their exposure to precious metals like gold and silver. This trend emerges against a backdrop of escalating geopolitical tensions and heightened market volatility, reshaping the landscape of commodity derivatives trading in the country.
Geopolitical Tensions and Winter Demand Fuel Energy Interest
According to recent data from MCX, India's largest commodity derivatives bourse, the share of natural gas and crude oil in the total options premium turnover has shown a notable increase over the past three months. This surge is primarily attributed to growing concerns over conflicts between the US and Iran, coupled with an extreme winter in the western hemisphere that has spiked heating demand. Amit Chandra, vice president of research at HDFC Securities Ltd., highlighted that these geopolitical tensions have amplified volatility in the energy sector, attracting traders back to products like natural gas and crude oil, even as bullion retains some appeal.
While actual users and domestic investors actively participate in both energy and bullion options, it is important to note that foreign investors are restricted to cash-settled contracts such as those for energy, and cannot engage in delivery-based contracts like bullion. Market analysts emphasize that a substantial portion of the trading volume in these categories is driven by retail traders, who are increasingly accessing commodity markets through platforms like Groww, which expanded its services to include derivatives last year.
Premium Turnover Dynamics: Energy vs. Bullion
The contribution of energy to overall premium turnover has historically dominated that of gold and silver, ranging between 70% and 86% in the first half of the current fiscal year (April-September). However, this share dipped to 56% in October as bullion's contribution surged to 44%, up from a range of 14% to 30% in the preceding months. Recent trends indicate a reversal, with energy's share rebounding to 62% in November and 65% as of 23 January, despite a temporary decline to 55% in December. In contrast, bullion's contribution has followed an opposite path, falling to 38% in November and 34% in January, after peaking at 44% in December.
Volatility metrics underscore this shift. Over the past three months, natural gas volatility, measured as a percentage deviation from the mean, skyrocketed from 18.4% in November to 132% by 23 January, based on Bloomberg data. Comparatively, silver volatility increased from 19.5% to 64%, gold from 7.4% to 20.3%, and crude oil from 7% to 15%. These figures highlight the heightened risk and opportunity that energy commodities currently present to traders.
Price Movements and Market Performance
Specific price changes further illustrate the market dynamics. The silver generic contract price leaped from ₹1.45 lakh per kilogram on 4 November to ₹3.35 lakh on 23 January, while gold rose from ₹1.19 lakh to ₹1.56 lakh per 10 grams over a similar period. On the energy front, generic crude oil increased from ₹5,041 on 7 January to ₹5,630 per barrel by 23 January, whereas natural gas experienced a decline, dropping from a high of ₹488 per million British thermal units on 5 November to a low of ₹280 on 16 January.
In terms of financial impact, energy premium turnover on MCX aggregated to ₹2.89 trillion from 1 November to 23 January, compared to bullion's ₹1.84 trillion. Together, these commodities accounted for ₹4.76 trillion in premium turnover during this period. Options trading is particularly lucrative for MCX, as it contributes more significantly to the exchange's revenue due to lower transaction taxes compared to futures, which are taxed on notional values. In the September quarter of FY26, options generated ₹380 crore in transaction fees, while futures accounted for ₹227 crore, out of a total of ₹607 crore.
Broader Market Implications and Future Outlook
This shift has propelled MCX's financial performance, with consolidated revenue more than doubling to ₹697 crore year-over-year. The exchange's stock price has surged 135% over the past year, reaching ₹2,593 as of Wednesday, driven by the bullion rally in the latter half of the year and recent energy volatility. In comparison, the Nifty 500 index rose only 10.3% to 23,082.10 during the same period.
Rajesh Palviya, head of technical and derivatives research at Axis Securities Ltd., anticipates that the trend favoring energy over bullion will persist, fueled by ongoing geopolitical uncertainties and price increases in non-precious commodities. The number of clients trading options on MCX has grown substantially, from 550,000 a year ago to 890,000 in the September quarter, with futures traders also increasing from 240,000 to 400,000. This growth is bolstered by factors such as rising volatility and the onboarding of new investors through platforms like Groww, which began offering commodity derivatives in October last year.
As retail traders continue to navigate a volatile market, the preference for energy options on MCX underscores a broader shift in investment strategies, highlighting the critical role of geopolitical events and seasonal demand in shaping commodity trading trends in India.
