NCDEX Re-launches Trading in GUAREX Futures

NCDEX will be re-launching trading in GUAREX futures from January 17, 2022 onwards. GUAREX is a price based sectoral index that tracks the movement in the futures contracts of guar gum refined splits and guar seed on a real-time basis.

This index product is expected to offer a lot of opportunities to value chain participants in terms of risk management as well as various trading strategies. India’s first sectoral index in the Agri commodities basket i.e. GUAREX was launched for the first time in August 2021 by the National Commodity and Derivatives Exchange Limited (NCDEX). But due to liquidity related issues trade participants failed to pick up. The NCDEX officials are now optimistic of improving in the volumes, as the relaunch is being done after incorporating the necessary changes with respect to the liquidity enhancement.

GUAREX is expected to offer a lot of opportunities to value chain participants regarding risk management and trading strategies. These indices can be considered as compatible products for hedgers who are often willing to trade in low-cost products. This is because this index has a cash settlement, unlike the Guar seed or guar gum futures where settlement results in actual deliveries. SEBI's cross margin benefit will further offer a significant reduction in transactions when using GUAREX futures.

Additionally, the portfolio managers and professional traders will be able to tap excellent pair trade opportunities in the spreads as well as arbitrages. Another potential advantage will be that the traders and investors can continue holding the futures till expiry, without the risk of receiving deliveries. As the contracts will be cash settled, there would not be involvement of additional margins during the tender period of commodity futures i.e. usually between the 11th and 15th of every month.

These index futures will be able to enhance the market segment since it will be beneficial for equity clientele as well, who can gain in exposure to the commodities market of Guar seed and guar gum, without tracking the respective fundamentals. In a way it will be a diversification of their equity portfolio, thereby lowering their price risk.

Important Facts to Remember on GUAREX

• Based on underlying Guarseed and Guargum

• Cash Settled - no delivery

• 10% Initial Margin*

• 1 lot* GUAREX has 7 MT* of Guarseed and 3MT of Guargum

• For complete hedging - buy or sell 5 lots of GUAREX against 7 lot of Guarseed buy/sell and 3 Lot of Guargum buy/sell (i.e. a 5:7:3 combination ratio)

• Expiry on *Last Trading day* of the month