Guide to Commodity Trading

India's economy is rapidly expanding. The rising economy allows citizens to participate in and profit from the industry's expansion, with GDP growth of 6-7 percent year over year. This is why there are so many investors looking for good investment opportunities in the Indian markets. While some people prefer to keep their money in a savings account, fixed deposit, or provident fund, others go to the capital markets and invest directly in companies that help the country flourish.

The majority of investors in the capital markets use stocks, bonds, and mutual funds to invest in equity or debt. The commodities market, on the other hand, is another investment option for people seeking portfolio diversity. Commodities trading is less popular in India than stock trading, owing to a lack of awareness, but it provides equally appealing opportunities to invest money and earn long-term riches as well as short-term benefits.

Open a Demat Account

Types of commodities

To begin trading commodities in India, one must first learn about the various commodities and investment options accessible. Knowing the market allows you to make informed financial decisions that will not lead you astray on your investing path.

Agriculture, precious metals, energy, services, and metals and minerals are the five key sectors of commodities. Commodities in these sectors include:
Spices, grains, pulses, oil, and oilseeds are all examples of agricultural products.
Iron ore, steel, aluminum, zinc, and tin are examples of metals and minerals.
Platinum, palladium, silver, and gold are precious metals.
Natural gas, Brent crude, crude oil, and thermal coal are all sources of energy.
Services include energy, mining, and other types of services.

Now, just like stocks, each of these commodities is traded on many exchanges. National Commodity and Derivative Exchange (NCDEX), Multi Commodity Exchange of India (MCX), Universal Commodity Exchange, and National Multi Commodity Exchange of India are among these exchanges.

How to Begin Trading Commodities

The Forward Markets Commission regulates a total of 22 commodities exchanges in India.

To begin trading in commodities, you'll need a bank account to use for transactions, as all trading is now done online. Second, in order to trade on exchanges like NCDEX, one must have a separate commodity Demat account with the National Securities Depository Limited.

The Demat account functions similarly to a bank account in that it records all of your transactions and saves your commodity holdings, as well as their futures and options.

Futures are a popular way to trade commodities. A future is nothing more than a contract in which two parties agree to deliver/pay on agreed-upon terms at a future date. This contract allows you to bet on the commodity's price and profit if the price moves in the direction of the agreed-upon price in the future.

Commodity futures settlement types

To be able to perform these transactions, you will need to trade through a broker. There are various brokers in the sector, and some of the bigger brands also allow you to trade directly through their interface.

The transactions are completely done electronically, and there is no monetary settlement. However, there are two forms of commodities transaction to be aware of:

Based on delivery
Based on cash payment

If you're buying or selling futures of a given commodity, you'll have to supply/receive the units of the commodity after the contract expires under delivery based. You can simply choose to settle the gains/losses in cash rather than taking delivery in cash-settled mode.

Conclusion

Commodity trading is not difficult, but it is important to consult a knowledgeable broker before entering the market. Simultaneously, it is critical to understand the types of commodities, contracts, and other factors before investing. A smart approach combined with in-depth market knowledge will go a long way toward making your investment worthwhile.

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