What Happens When a Commodity Futures Contract Goes to Compulsory Delivery?
In commodity trading, certain futures contracts are settled through physical delivery instead of cash. When a commodity contract on the MCX or other exchanges enters its delivery period, traders with open positions may be required to either deliver (if short) or take delivery (if long) of the underlying commodity. At FYERS, we closely follow exchange-mandated rules to help our clients manage such obligations smoothly and avoid penalties.
Understanding Compulsory Delivery
Not all commodities are cash-settled. Some contracts are marked as compulsory delivery contracts, meaning open positions must be settled through the actual transfer of the commodity unless squared off before the expiry notice period begins.
- Applicable exchanges: MCX, NSE Commodity Derivatives, NCDEX
- Commodities covered: Gold, Silver, Crude Oil, Copper, Zinc, and other physically deliverable metals and agricultural products
- Settlement type: Physical delivery through exchange-approved warehouses and quality norms
MCX Rules and Timeline
As per MCX guidelines, each compulsory delivery contract has a defined delivery intention period—typically beginning five trading days before expiry. During this period:
- Members and clients must declare whether they intend to give or take delivery.
- At FYERS, we disable fresh positions close to the delivery window to prevent accidental carryforward into delivery.
- Exchanges progressively increase margin requirements as the contract nears expiry to account for delivery risk.
Important: Once the delivery period begins, our RMS (Risk Management System) may square off non-compliant or uncovered positions to prevent forced delivery and penalties.
How to Manage Positions During Delivery Period
- Exit or roll over: If you do not wish to take or give delivery, square off or roll over your position to the next expiry before the delivery notice period begins.
- Check contract specifications: Always verify whether a commodity allows cash settlement or requires physical delivery under “Contract Info” on the exchange or FYERS platform.
- Maintain sufficient margins: Delivery participation requires adequate margins and warehouse arrangements as per MCX and SEBI regulations.
Example
Suppose you hold one lot of MCX Gold (1 kg) futures nearing expiry:
- If you hold a buy position and do not exit, you’ll need to take delivery of 1 kg of exchange-grade gold through the designated warehouse.
- If you hold a sell position, you must deliver 1 kg of gold meeting MCX quality and purity norms.
- Failure to comply results in an exchange-enforced close-out at a premium price and may attract penalties.
Key Points to Remember
- Compulsory delivery applies only to designated contracts identified by the exchange.
- FYERS will auto-square non-compliant positions to ensure clients are not exposed to unwanted delivery obligations.
- Penalties may apply for margin shortfalls or non-fulfilment of warehouse delivery requirements.
Tip: Always close your open commodity positions at least two trading days before the delivery period. You can check delivery schedules and updates anytime on the FYERS Notice Board or MCX website. What If...
| Scenario | Outcome |
|---|
| I hold a buy position till expiry | You must take physical delivery and pay the full contract value as per MCX delivery rules. |
| I hold a sell position till expiry | You must deliver the commodity through an approved warehouse in exchange-specified format. |
| I fail to meet delivery obligations | The exchange may impose penalties or conduct a close-out at a premium rate. FYERS may liquidate your position to prevent non-compliance. |
| I don’t want to take or give delivery | Close or roll over your contract before the delivery notice period begins. Our RMS team will notify you in advance if a position is at risk. |
Important: At FYERS, we strictly adhere to MCX and SEBI regulations on compulsory delivery. Please monitor your commodity positions and expiry timelines regularly. For assistance, you can contact our support team. Last updated: 06 Nov 2025
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