Policy change for trading in cash-settled commodities

April 24, 2020

We had recently written this post explaining the Crude Oil fiasco and the risks that commodity brokerage firms in India are exposed to. In a situation like that on April 20, 2020, where the crude oil settlement price was negative on NYMEX and hence also on MCX, the liability on brokerage firms is unlimited. Due to this incident, Indian brokerage firms are staring at a client default of over Rs 300 crores (Rs 10 crores at Zerodha). Internationally, this is in the hundreds of millions of dollars. No amount of margin collected from the customer can cover this risk. We have to now assume that the price of any cash-settled commodity on MCX could potentially turn negative. So we are making the following changes in our Risk Management policy for all cash-settled commodities namely — Crude Oil, Natural Gas, and Crude Palm Oil (CPO).

Higher margins before the expiry

Check out this interview with the CEO of the CME group. Out of the 154,000 Crude contracts expiring April 20 that got traded on that day (when crude traded negative), only 80 contracts traded below $0 and that too in the last few hours left to expiry. So these below $0 trades were on very thin volumes and more due to a technical issue around taking delivery of the contract that was expiring. The next month’s contracts remained positive.

So the hypothesis is that if any of these contracts were to turn negative again, it most likely will be very close to the expiry day when the actual physical delivery is due, and there are issues around taking delivery, transportation, and storage.

On MCX all contracts with physical delivery are mandatorily closed out 5 days before expiry and only those who are willing to take or give delivery can continue to hold the contract. Hence the risk of contracts turning negative around the time they expire due to issues around taking or giving physical delivery doesn’t impact us. Starting today, we will follow a similar policy for even the cash-settled contracts — Crude Oil, Natural Gas, and Crude Palm Oil (CPO).

What changes for you

  1. An additional margin equal to 2x of the SPAN + Exposure margin will be required one day prior to expiry day on all open cash-settled commodity contracts expiring the next day. If a sufficient margin is not available, the positions will be squared off by our Risk management team.
  2. No MIS or CO product types will be allowed the last two days of any expiry for cash-settled commodity contracts.
Team Zerodha

India's largest retail brokerage


  1. Dhruv says:

    What about intraday trades? Will they be allowed the rest of the times?

  2. Santhosh says:

    When will mis and co open for cruse oil

  3. Komal bhat says:

    Zinc mini, lead mini ,and Lead mini are not available for trade why?

  4. Bharat Varu says:

    Good idea
    Risk management team
    Better then customers satisfaction

  5. Saurabh Sachdeva says:

    In commodities, stock options/ derivatives are not covered? Right??? It might be a stupid question but please still clarify

  6. AJIT KUMAR ROY says:

    Any change in cash settlement in equity?

  7. Anand Thakkar says:

    1. Margin requirement depends on short or long? or both
    2. If judgement of highcourt to revert -2883 to Rs.1 for April expiry then will trader qulify for refund?

  8. DK says:

    How about Gold?
    Is it not cash settled?

  9. Ashish Dhyani says:

    Can’t it be squared off automatically if the prices reach Rs 0 from the broker’s side and policy change made accordingly.

  10. Madhav Nadella says:

    Kindly advise what is your brokerage charges for one trade ?

  11. Sandip Bharatsing Thakur says:

    Please Confirm No Changes in Equity Market Treading

  12. Jaadu says:

    This will go into arbitration with the brokers winning.

    Cash settlement can not have negative values.

    MCX is at fault since they did not lay down all risk parameters correctly. This is going to be an easy win for the brokers.

    • Chiru says:

      It won’t be easy as no body can interfere with contract such as crude oil future contract.
      More over MCX has laid down benchmark clearly that final value squared off in accordance with Newyork MCX.
      So only hope is restrictions of timings which was 5pm instead of 11:30pm otherwise many would have squared off their position if usual time kept till 11:30pm instead of 5pm

      • ashvin says:

        1. Primary reasoning is as per bye laws 2.3.65 page 12 mcx has to settle in cash , and cash settlement cannot be negative.

        2. MCX own inbuilt system does not allow for negative pricing, so if system does not allow then how did they square off positions, mcx has done it just ad hoc without any proper systems, transparency and trackability.

        4. After MCX realised their systems limitations, they have taken a knee jerk decision to now start trading hours till 11.30 and also they would modify the system to accept negative prices. Which clearly suggests they realised their mistakes and are trying to fix them now.

        5. NYMEX whose reference MCX gives, had informed clients on 15 April 2020 regarding possibility of negative pricing, MCX never informed brokers or clients in India about the same,

        “IF MCX” is taking NYMEX references they should have been aware of this and would have taken necessary steps to make investors aware but they did not, why didnt they changed the systems to accept negative prices?. Basically they themselves didnt know what to do, so like the typical indian mentality they are putting blame on some one else and who better than the normal retail customers who they know will not be able to fight them , and they can constantly give the same ghisa pita tape recorded ans “we took nymex rate , we took nymex rate”, They just dont have any answers to the above questions so the only thing they kept repeating nymex nymex nymex

        • BSS Reddy says:

          Respected sir, I am fully satisfied your opinion, why there are tell to NYMEX rate, one month contracts start any implentation on trade timing any how given one month before, now MCX interested his own decisions, and not majority brocker exchange whoes are live MCX, MCX take one side decision, they dont hear any person decision, evenwkrld lost they say NYMEX

  13. Surendra s wagle says:

    M.y AC no AE6882
    What is commission for optional calls per (single) lot

  14. Husain Kapasi says:

    Im sorry its going over my head, So for a layman who is just started investing, what does this mean?

    • Matti says:

      If you are trading Crude Oil, Natural Gas, or Crude Palm Oil (CPO), you will need additional margin (300% of contract value) on the last two days of expiry, and MIS and CO will not be allowed on these days.

      • Chandra Shekar says:

        What happens if crude suddenly moves $-100 as it happened for Apr settlement. MCX has 3% circuit limit. It takes fullday to reacy there? How will you settle funds in this case? How margin system works? is 300% sufficient? You may need %1000 margin? Why are you allowing clients to trade on faulty MCX/broker system? Who will pay for losses

  15. Roshan says:

    If some shorted it and the price went negative. Will he be in loss ?? What if of someone shorted @ 0, loss or profit ??

  16. Mani Bhushan says:

    If price will go negative three day or five day or sevn day before expiry, then what will happen.

    • Matti says:

      The risk management system will try to square-off the position well before that happens.

      • Chandra Shekar says:

        Does your risk management works for negative trading? it doesn’t. What happens if crude goes negative -$100 overnight or due to glitch that happened for Apr contract? why are you fooling clients saying risk management works? Have tried entering negative price in your system?
        My humble request to all. Please don’t trade Crude for now

        • Sivaramireddy says:

          Yes you are correct Sekhar not to trade for some period in energy commodities.They depend upon storing points/warehouse .How one can take deliver without storing space! If no buyers are available at any time,this type of situation arises in energy commodities only.

  17. Prem Nahar says:

    I am not clear with the policy and what happens to my open sithuation..atleast give us a day to understand the same.
    Please call as we have trusted you as our broker and money is on stake.

  18. Kuyya says:

    Hope Zerodha you are ok. All these days I was of opinion only traders are exposed to risk. Today understood brokerage firms are also at risk.
    Hope your 10 crore will be saved as few firms have challenged this in court of law.

  19. Prem says:

    @Team Zerodha, a few suggestions for ease of the clients… You may look at providing a gentle reminder to the clients just before the said trade is executed. In addition, maybe a separate color code for those commodities may be given, so the client is aware of the expiry date…

  20. Srivani says:

    I am not able to do commodity trading. Kindly enable it.

  21. sri says:

    a friend of mine.. dont have have any job right now.. wants to invest in commodities now.. is it possible for him to open a account. (she has bank account, pan card) no salary statement

  22. P.Sivarami reddy says:

    This paradox is happened because all the storage points of crude are completely filled.Cash settled traders should think about storage facilities.

  23. MuthuVenkatachalam says:

    This is a good and most urgently required reform. Thanks for the changes.

  24. Ramesh says:

    Good initiative sir. Both broker and client will be safe.

  25. Riken Agarwal says:

    Dear Team Zerodha

    Is it not funny that we do not follow the concept in entirety. In the USA the prices went negative because long position holders did not want physical delivery. In our case since we do not have that option of taking physical delivery and compulsorily have to cash settle, the idea of negative pricing is absurd. Brent pricing can never go negative for the very same reason, that they are compulsorily cash settled. I hope that sense will prevail with the authorities and the correct mechanisms are put in place and followed. Blindly copying systems

    • Matti says:

      The underlying for the crude contracts on MCX is the NYMEX crude, so the MCX price matching the NYMEX price is right.

      • Chandra Shekar says:

        As mentioned in article, 80 trades happened below 0. What happens if crude settles at -$370 instead of -$37? Can you answer this? This happens zerodha bankrupt? Can you prove if I am wrong. Please dont make conclusions it is right.

  26. Isaac kraho says:

    Thank God I don’t trade commodity.

  27. Dilip raj says:

    When all the contracts with physical delivery are mandatorily squared off by zerodha, what is the need of asking margin on the day before expiry, if anyone still wants to hold the position till last day, better to ask them to maintain 300% margin 5 days prior?

  28. Riken Agarwal says:

    Blindly copying systems in incorrect manner leads to such awkward situations.

  29. Macky says:

    Dear Sir,

    Is there any Risk of Capital of the Clients who are trading in Equities only? I have an Trading acct with Zerodha and now afraid that due to this unpredicted loss of clients, innocent clients like me, can wipe out entire money in acct, if Zerodha got Uncontrolable losses due to this situation.
    Pls clarify that is there any Risk involve now or our capital is 100% safe with Zerodha?

  30. Rajnish Bharti says:

    I am trying to write call options but your system is not letting me do it saying its banned. When does this get back to normal?

  31. Narendra says:

    Can anyone explain this in simple way?

    • Matti says:

      If you are trading Crude Oil, Natural Gas, or Crude Palm Oil (CPO), you will need additional margin (300% of contract value) on the last two days of expiry, and MIS and CO will not be allowed on these days.

  32. Aman Choubey says:

    Im just tried to buy mcx crudeoil
    But now i dnnt wanna to buy this

  33. Hemant says:

    Is MIS and CO order are blocked permanently for cash settled commodities ?

    Please clarify, because we are not able to use these order type on normal trading days also.

  34. MANOJ GUPTA says:

    THANKS God as I am not did trading in commodity.
    Good initiative by Zerodha, both broker and client would be safe.


  35. Parthiban says:

    If I have shorted a Crude future in positive region and price goes negative on expiry day and if I close in negative zone how is profit calculated.

  36. Manish says:

    why zerodha didnt join hands with brokers who have challenged the same in Court? Wont it help brokers and clients? One can easily spend a good sum to fight legal case to save Rs. 10 Crore.

  37. Rengan Chinna ,Murli says:

    Hi This negative rate of crude oil vs margin related liability happens because of your software issues. Means software is developed assuming that rate is always positive and when the rate goes negative margin will be calculated instead of debit to client software calculates credit to client. That means more margin is available and client can do more trade. If the software does not assume rate is positive then this reverse margin can be avoided and so broker house liability. Always take absolute figure of rate instead of assuming rate is positive. That means whether rate is negative or positive client will always debited with the required margin. I don’t follow the logic of 300%, suppose the rate is 300% negative what is the solution. Use this function “ABS(Rate) * Margin” (use relevant syntax as per the language). I hope this will solve. Regards RCMurli zc6995

    • Chandra Shekar says:

      First of all, current broker system doesn’t support negative. Try entering -1 in buy position. You will receive message invalid price.

  38. Saurabh Birthalia says:

    Rather than charging 300% margin all you can do is sqoff all outstanding positions if any on ur time given let’s say 11pm

    • Matti says:

      What if there are no buyers available to square-off your position? Automated square-off isn’t always possible, nor should that be the default option for you. The responsibility of squaring0off your position lies on you.

      • Saurabh Birthalia says:

        So y only for the last two day what if today crude starting lower freeze today how can broker of any one closes position of there is no buyer and it settles same in negative?MIS positions will be there too what will happen to them?

  39. Saurabh Birthalia says:

    And y to close bo or co they are the safest sl is always there so no need to cut the positions it will be sqd off and you have always the option to sqoff earlier if your RMS team feels risky like u did in equity

  40. Biswajit says:

    I have mistakenly filled incorrect DP Id and clind ID in my application (sovereign gold bond schemes). What should I do?

  41. Indranil says:

    What is the current margin required for crude oil intraday?

  42. Chandab says:

    I still don’t understand the difference between crude oil and gold contracts ?

    Crude oil is cash settled then how is gold settled ?

    Arent all commodities physically settled ?

  43. Jairam says:

    When exchange or broker more margin required than probably unlimited profit or loss happened trade . worst goes.
    Sab paisa jaane ke baad exchange or broker yeah hotha recovery aane se recovery Hoge nahi

  44. Chandra Shekar says:

    This clearly states all April settlement prices are invalid. This is clear fault of MCX exchange which caused issue and made retail investors to go bankrupt. Who will be penalized for MCX/broker software glitch? Why Zerodha not fighting with MCX for loss? What happens if suddenly tonight /may contract crude goes to -$100 or -$200? Why are you allowing trading on faulty system? What would have happened if trading continued till 11.30pm Apr 20 contract?
    I need answers for this.

  45. Prashant joshi says:

    Why r u charging square off charge 50+gst. …..it directly affect capital

  46. Chandra Shekar says:

    We are having sleepless nights due to Crude April Contract. One person was mentioning he may go for suicide if Court rules in favor of MCX. Somehow we convinced him. For 1 lot , loss is 3.88 lacs. So may people accounts in negative 10’s of lacs. My humble request to all people here, please dont trade on faulty MCX system and loose your hard earned money. We are filing suit with bombay HC but its night mare.

  47. Appaswamy says:

    I’m trying to buy uttam steels since long time. But everytime it’s get cancelled, but I can see huge volume gets transacted everyday

  48. Manjunatha says:

    Before 9.15Am not possible to place orders.
    Some scripts are reached upper price, so how to buy ?

  49. Sakthivel says:

    Have changes of amount(equity) have share in my account (bank) within 12 hours…

  50. P.S.SATHYAMURTHY says:

    3 days before expiry day, if i square off my trade, and switch to next month contract, will this 300% margin will still apply?

  51. Sardar singh Choudhury says:

    Price can never be native before expire day

  52. Nivas says:

    For next month contract can be traded in MIS or CO before to expiry

  53. sumit says:

    I am not able to trade INDIAVIX, though i am able to trade in currency.
    Despite raising and reopening closed tickets for the same problem for the last 5 days, no solution is being done, zerodha guys just reply:’futures are enabled on your account’. Then why am i not able to trade in indiavix?

  54. Syed says:

    Hi I wanted to know that from when we can buy r sell crude r anything in normal as before n I dint get about this 300 crores to 10 crore thing can u explain it

  55. Ram says:

    Please confirm if BO will be available after 3rd May. It’s been blocked since the end of March…

  56. Syed says:

    Hi I wanted to know that from when we can buy r sell crude r anything in normal as before n I dint get about this 300 crores to 10 crore thing can u explain it n wt is dis about 300%margin

  57. Afzal says:

    Hi, The lowest Crude April contract has gone is Rs 848 then how it traded in negative, can someone explain this?

  58. Saurabh kaushal says:

    Is it affected any kind of intra day or investers

  59. Shezad says:

    When can we get to trade with crudeoil as there’s no leverage + orders are blocked too and options contracts are blocked too in crudeoil

  60. Sumit Barik says:

    What does cash settlement and physical delivery mean?

  61. Santosh says:

    1. From last some days crude trading is not allowed at any broker including zerodha. Whether crude trading is blocked by mcx itself or by broker only?
    2. If the trading is blocked, how contracts are happening for crude every day I. e. why there are buyer’s & sellers in market depth & how price is changing?
    3. If the trading is blocked by broker himself, is there is possibility that some of the brokers allowed crude trading due to which contracts are happening

  62. Praveen says:

    Commodities trading enabled in my account and able to trade in futures, but not able to trade in options Eg: Crude oil options. Why is it so?

  63. Navneet says:

    Was there anyone who had a crude outstanding in “sell” position at 5pm on 20th April.

    Was it settled for him at -2880? Has his profits been paid already by Zerodha or being put on hold?

  64. Anitha says:

    By negative price settlement seller has to pay the buyer. In the present case at NYMEX, buyers receive $37 and crude oil for free from sellers. Hence buyers are the beneficiaries here. If MCX follows the NYMEX blindly it should definitely have settled the contract accordingly in favour of the buyers i.e. sellers have to pay buyers Rs.2888. Is it possible? Then how can you conclude MCX is right.

  65. qureshi says:

    crude option shortselling kabse start hoga aur kitna margin lagega

  66. Arunkumar says:

    When will release BO order? We are ready to give full margin for BO. You may allow those who are interest to accept full margin for BO order.

  67. Harikiran says:

    Hi Nithin:

    Do you mind mailing me personally?
    I have an imp thing to discuss with you. Its more of use to you than me.
    I have included my email.


  68. prakash says:

    300% margin required is definately hurt traders like me already i am in very huge loss.plz tell me when will you allow MIS and BO And CO Orders

  69. Chandrakant says:

    Is zeroda going to chalage this 20 April crude oil case in Bombay hicourt

  70. Qureshi says:

    Please start crude oil option short selling. Crude oil option short selling kabse start hoga.

  71. Rakesh Kumar Gupta says:

    If you not allowed crude in mis ,will close zerodha trading account and will start other broker,it is difficult 3 lac for 1 lot crude trafing

  72. Putul devi says:

    Presently, how much margin amount required for one lot of crude oil trading?

  73. venkateswaran says:

    Dear Sir/Madam,
    I am really shocked to know that your BO/CO has been blocked for more than 3 months.
    Per margin amount is higher even now.
    Natural Gas margin was Rs.2500/- per lot and now Rs.50,000/-.
    You had also blocked Limit order.
    No proper communication and chatting facility.
    Astha and Alice are giving still better service.
    If the trend continues then I also need to closer zerodha account.
    Today, 25.5.20 why no BO/CO and Limit order has been blocked???
    It required nearly Rs.50,000/- to trader one lot of natural gas compared to Rs.2500/- few months before.
    My id is ZO7251.


    • Matti says:

      Read the post above to know why margin requirements are higher. Today is Natural Gas contract expiry. Margins are higher for last two days as explained above.

  74. renu says:

    Natgas Jun expires on 25.6.2020 . Why it requires 2x margin?

  75. Ashlesha Natu says:

    Has option sellling in crude oil been banned? Coz for last several days i have not been able to do so even when i am placing a NRML order

  76. rashmi says:

    when it going to become as earlier, means crude oil mis can tread around 5000 ….any expected date

    • Subhajit says:

      I have the same question in my mind. Can someone from Team Zerodha throw some light on this please? Will we get the benefits of margin in Crude MIS (both regular and CO) as it was given 3 months back (if yes, after how many months approximately) or the change is permanent? I think thousands of traders with very little capital who trades in Crude have same questions in their mind. Some one from Zerodha please answer.

  77. Preet Patel says:

    The volatility in crudeoil seems to have subsided now, when will you lift the trading restrictions like CO?

  78. yougesh says:

    Can you please let us know by when we can start trading in crudeoil by CO/MIS. Other platforms are allowing and still you have blocked this services. Small traders who want to trade are not able to do so .

    Please mention the tentative target date so that we can decide to go ahead with Zerodha or some other brokerage for commodity trading

  79. Sandeep Kumar says:

    Kindly Help……Showing this message when i am trying to installed Pi software.
    ModuleC:/zerodha/Pi/TradeScript.dll failed to register. HRESULT-2147-24770. Contact your support personnel

  80. Ajay Arora says:

    Why we can’t sell option in Crude?
    Is it because some regulations from MCX Or from your side?

    Why I’m not able short sell option in commodity?

  81. Maulik says:

    I checked zerodha brockrage calculator..is BO order , CO order , MIS order , Normal order Brockrage same in option buying or selling??

  82. Subhasis says:

    What’s the margin required for 1 lot crudeoil fut? Also where can I check it?

  83. Sanjeeb says:

    When will mis and co open for cruse oil.

  84. Sanjeeb says:

    How much margin i required for a 1lot crude oil co order

  85. Sanjeeb1 says:

    How much margin i required for a 1lot crude oil co order.

  86. Akash says:

    What happens with gold mini contracts? How do I take delivery? Is delivery possible on Zerodha?
    If not when does the position auto-square off, taking the example of aug goldm, which has an expiry of aug 5?

  87. Shaahid says:

    Can you please send me the latest margins required for intraday commodity trading. Its showing different on the website and on kite. Where can I check how much fund is required for a particular commodity lot

  88. TOM says:

    Hello Everyone,

    I am a new user & just joined yesterday only. Here my query is, when we use the leverage in MIS, is it mandatory to put SL? I know SL become to lower our risk, but just for information purpose, because I can’t see the Terms & Conditions of leverage for MIS/BO&CO and sq. off time. So, that’s why I raised this questions

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