In the olden days, to meet the requirements of people, commodities like grains, cotton, oil, and cattle were heavily traded. Not much has changed in the 21st century. People and countries trade these items even now. Nowadays, anyone can trade in commodities to make a profit from trading the same way they do while trading traditional stocks.
Let’s discuss the step-by-step process of how to trade in the commodity market in India in 2021.
What exactly is a Commodity?
Commodities are a wonderful approach to diversify your portfolio if you don’t want to invest in gold or stocks. A commodity is a physical form of interchangeable goods that can be bought or sold with another similar commodity.
Some of the typical examples of commodities include foodstuffs (Grains, wheat, corn, soybeans), oil, cotton, iron, natural gas, steel, gold, and so on.
What is commodity trading and how does it work?
Commodity trading is Similar to stock trading, wherein one buys and sells shares of certain companies. Commodities are traded on specific exchanges and traders make a profit off the market by buying or selling these commodities.
Commodity classification –
Commodities are divided into four main groups that make it easy investing ~
Metal commodities
Metal commodities include metals used in construction and manufacturing such as iron, copper, aluminum, nickel as well as metals used in jewelry such as platinum, silver, gold.
Energy commodities
Energy sources are used to power the world and are also carried to our homes and factories. Oil, natural gas, uranium, coal, electricity, and other commodities are examples of this commodity.
Agricultural commodities
This commodity includes crops and farm livestock like sugar, cocoa, soybeans, wheat, cotton, cattle, and hogs. It provides nourishment as well as contributes to the textile industries.
Environmental commodities
This commodity includes renewable energy.
Why do people trade commodities?
Commodity trading is a good option for those who are trying to diversify their investment portfolio. Here are few points to consider:
Trading opportunities
As commodities prices are often extremely volatile which acts in the favour of traders. Traders profit from both upward and downward price movements in the market.
Leverage
An important concept to remember is that it magnifies both your gains and losses. You can easily control a large amount of money with small deposits by using LEVERAGE.
Flexible trading schedules
For the majority of the week, commodity markets allow you to trade at your leisure. Commodity exchanges are active from 9 AM to 11:30 PM every day for business. For agricultural commodities, the trading hours are 9 AM to 9 PM.
Protective hedge against inflation
Unpredictable events can increase the risk. Natural disasters, economic crises, and wars can affect the economy adversely and during these inflammation currencies also lose purchasing power.
Types of Commodity traders
There are two types of traders you can find in the commodity market. The first one is
Hedgers
Also known as producers or buyers that use commodities futures contracts for buying purposes. And when the futures contract expires the traders take the delivery position of the original commodity.
Speculators
Speculators are those who enter the market for the sole purpose of profiting from the price movement.
Commodity trading exchanges in India
In our country, commodities are traded into five exchanges and the traders are allowed to trade commodity derivative contracts from any of them. Trading in commodities is launched by NSE and BSE only in 2018 and further, the market is regulated by SEBI.BSE- Bombay Stock ExchangeNSE- National Stock Exchange Of India LimitedMCX- Multi Commodity Exchange Of India LimitedNCDEX- National Commodity and Derivatives ExchangeICX- Incoming Exchange
How to do commodity trading in India?
Step 1
You need a Demat account and trading account to trade commodities in India.
Step 2
In your commodity trading account, you must have a margin balance. The margin balance changes from regular to MIS trading. There is a distinction between regular trade and MIS. For regular trades, the stocks can be traded for the long term, whereas in MIS, the stocks will square off their positions on the same day.
Step 3
Choose commodities such as gold, silver, gas, crude oil, etc.
Step 4
After selecting the commodities that you want to invest in, you can start buying and selling commodities of your choice. Here you can start purchasing a share in 2 ways
Market Order – When you start purchasing the shares at the current price
Limit Order – When you fix the price you want to buy the shares
Step 5
When you are trading CFD, the lot value changes depending on the commodity you wish to trade. After you give the lot size, It is advisable to put the stop-loss to avoid huge losses.
Step 6
Observe the market sentiment every minute. Ensure that you are making a profit.
Tips for commodity trading in IndiaNever adopt the same approach as you do in the case of stock trading look at multiplying commodities and diversify your portfolio never invest in a specific commodity unless you are convinced us technical analysis to obtain a better concept of commodityDistinguish between cyclic and non-cyclical commodity always fix the target price for your earnings never forget to fix the target price track trends on the market
Conclusion:
Commodity trading is one of the fastest-growing sectors for trading in India. Although risky, commodities trading contributes to its portfolio the necessary diversification pinch if carried out with thorough evaluation and full comprehension.
Earlier perception of the stock market was that it is a space that is highly unpredictable hence, shouldn’t be ventured into if you do not know the mechanisms. While the unpredictability factors remain there, Stockative is a platform where anyone can log in anytime and learn by interacting with experts, young investors, and stock traders.
We at Stockative are India’s first social networking platform for stock traders and investors. We are committed to building a community of like-minded stock market geeks and experts where holistic growth takes place.
