Commodity trading tips

The advantage of commodity trading is that you have a wide array of commodities to choose from, and so, you can adequately leverage risks and reap profitable returns on a long-term basis.

May 12, 2018 11:05 IST India Infoline News Service

Commodity Market is a place where the trade of physical commodities like precious metals or agricultural products takes place on a daily basis. The commodity market is of two types, namely the Spot market, where the immediate sale happens and the Derivatives market, where the sale occurs at a later stage. India has six commodity markets:
  • Multi Commodity Exchange of India Ltd (MCX)
  • National Commodity and Derivative Exchange (NCDEX)
  • National Multi-Commodity Exchange (NMCE)
  • Indian Commodity Exchange (ICEX)
  • ACE Derivatives exchange (ACE)
  • Universal Commodity Exchange (UCX).
Types of Commodities:
There are basically two types of commodities that are traded in the commodity market exchanges. They are:
  1. Hard Commodity: A commodity that is a natural resource or mined from the earth is a Hard commodity.
  2. Soft Commodity: An agricultural product is known as a soft commodity.
If you have basic knowledge of the Indian Stock Market, you can start trading on any one of these commodity markets. Here are some useful tips:
  1. Before you begin, gain basic knowledge about the how the markets operate and understand the trading process. Then choose the market that suits your requirements.
  2. Enlist the services of a broker to gain market insights and choose the right commodity. However, before appointing a broker, you should consider factors such as performance, brand value, brokerage fees, and facilities like online trading, offline trading, their local presence and so on. Choosing the right broker can help you reap benefits in the long run.
  3. In case the broker’s guidance is not beneficial, then it is better to switch to another reliable source but do not adhere to the guidelines of many experts at the same time.
  4. It is also helpful to know the type of risks involved in commodity trading.
  5. Invest slowly but steadily. When investing in a commodity market, it is always best to start with a specific percentage of your earnings.
  6. Do not be partial to a single commodity; invest in other profit-making commodities and reap benefits.
  7. Have a diverse portfolio when it comes to commodity trading. Investing in multiple commodities helps in spreading the risk.
  8. Know the charges associated with it like the brokerage commission, service tax, transaction tax, stamp duty and the exchange transaction fees, etc.
  9. When buying physical commodities, make sure to store it in a secure location and take insurance coverage for the commodities to stay protected against theft or accidental loss.
  10. Never invest in the commodity market using the means of borrowing or through a loan. Trade with your surplus funds. In case of loss, do not keep investing in the same commodity repeatedly.
  11. Always stay updated with the market trends nationwide and across globally as the happenings around the world influence commodity markets.
  12. The volatility of markets is part and parcel of commodity trading. Never exit your investment by taking a hasty decision. If you need to exit, consider all the pros and cons before doing so.
  13. Commodity market and stock market are not the same; both have their own set of regulations, rules and trading patterns.
  14. Change is a constant factor of this trading, so be ready to adopt the trends at a moment’s notice.
Commodity trading is fast becoming a popular vehicle for investment in India. By following these simple tricks, you can earn good profits. The advantage of commodity trading is that you have a wide array of commodities to choose from, and so, you can adequately leverage risks and reap profitable returns on a long-term basis.

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