Record Commodity Prices Fuel Broker Revenue Surge in Derivatives Segment
The October-December quarter of FY26 witnessed a remarkable surge in commodity investments, particularly in gold and silver, which soared to unprecedented price levels. This rally not only delivered robust returns for traders but also enabled brokerage firms to substantially increase their revenue share from the derivatives segment, marking a significant shift in their income composition.
Brokerage Firms Report Substantial Gains
Leading online investing platform Groww reported that income from commodity derivatives constituted 4% of its total income in Q3 FY26, a notable increase from a negligible contribution in the same quarter of the previous year, as detailed in its investor presentation.
Angel One experienced a similar uptick, with income from commodity derivatives rising to 7% of gross revenue in the third quarter, up from 4.5% a year earlier. The company highlighted this growth in its investor presentation, underscoring the segment's expanding importance.
Anand Rathi Share and Stock Brokers saw revenue from commodity derivatives jump to 6.9% of total broking revenue in Q3, compared to 2.9% a year ago, representing a staggering 129% growth. Meanwhile, Mirae Asset Sharekhan posted a 70% quarter-on-quarter increase in revenue from commodity derivatives, reflecting the broader industry trend.
Driving Factors Behind the Surge
This increased revenue share is primarily attributed to heightened trading activity in commodities, especially gold and silver, coupled with regulatory restrictions on equity options that prompted investors to explore alternative asset classes. Sunil Katke, head of the commodities retail business at Kotak Securities, explained that curbs on multiple weekly equity options have opened avenues for traders to diversify into commodities. With gold and silver rallying sharply amid muted equity returns, commodities emerged as the preferred choice, and brokers effectively capitalized on this opportunity.
MCX Trading Volumes Skyrocket
The Multi Commodity Exchange of India (MCX) reported a tripling of the average daily turnover for all commodity futures to ₹84,472 crore in Q3 compared to the previous year, according to its earnings presentation. Gold and silver alone accounted for 78% of the futures turnover on the MCX during the quarter. Additionally, the average daily premium turnover for all commodity options doubled to ₹7,104 crore in the same period, with MCX holding a dominant 99% share in bullion, base metals, and energy derivatives.
Muted Retail Participation Despite Volume Growth
However, Mehul Koradia, chief strategy officer at Mirae Asset Sharekhan, noted that while trading volumes for commodities have nearly doubled, retail participation has not grown proportionally. Unlike equities, where bull runs typically attract a surge in retail investors, this trend has been more subdued in commodities within the firm's client base. The total number of clients trading in commodity derivatives on the MCX in Q3 rose 40% year-on-year to 1.11 million, a slower pace than the volume increase.
Price Records and Margin Impacts
MCX gold futures reached a historic high of ₹193,096 per 10 grams on January 29, while MCX silver prices touched an all-time peak of ₹420,048 per kg. When prices began to decline on January 30, margin requirements increased sharply. Exchanges typically raise margins during periods of falling prices or high volatility to mitigate the risk of trader defaults. Margins for silver derivative contracts surged from around 17% to nearly 70%, and for gold derivatives, they rose from about 8% to almost 30% due to elevated market volatility.
Katke added that higher margins reduce participation from traders with smaller capital, making options contracts more attractive as buyers only pay premiums and not margins. He anticipates that participation will rebound once volatility subsides and margins normalize.
Future Outlook and Revenue Impact
Looking ahead, brokers expect income from commodity derivatives to stabilize at current levels. Nilesh Sharma, executive director and president of SAMCO Securities, noted that from a revenue perspective, the increase in commodity trading during the quarter has been incremental rather than transformative. It has not been sufficient to offset the broader slowdown in derivatives income. Sharma emphasized that commodity derivatives are likely to remain a supplementary part of the revenue mix rather than a core driver, indicating a cautious but steady role in the financial landscape.
