Commodity trading is regulated by the government in India. Commodity contracts like spot, futures and options can be used to do trading. If you are new to trading and investment, all these jargons are too complex for you, aren’t they? If works like derivatives, forwards and swaps are giving you a hard time, don’t worry and read this post. You will understand commodity market meaning and how to invest in gold, metal, oil and gas like a pro.
What are the basics of the commodity market?
A commodity market is a place where you get the facility to buy, sell and trade for commodities like raw materials or primary products. Crude oil, gold and spices are the most popular commodities in the Indian market.
The Forward and Future markets are regulated by the Forward Market of Commissions which allows trading for 120 commodities. These commodities are moving goods and can be categorized as agriculture commodity, metal commodity, bullion commodity and energy commodity. The prices of commodities change with the basic concept of demand and supply and when someone invests in a commodity they take care of government policies, the global economy and climatic conditions to estimate the profits.
What are the contracts in the commodity market?
Commodity trading can be done under different contracts, such as Spot, Forward and Options. Based on the type of contract, a commodity derives its value.
- Spot Contract: Spot contracts are immediate activities. The buyers and sellers can perform spot trading through counter purchases for getting instant cash.
- Forward Contract: In this type of contract, selling or buying is done at a future date. The price for future buying or selling is agreed today irrespective of the fact that the prices may be higher or lower in the future.
- Options Contract: Options contract commodity contract provides the option to the buyer or the seller to trade within a specific period. These may sound similar to forward contracts, but the difference is that when choosing options contract, buyers or sellers are not obliged to trade on the agreed price within specific dates.
What should you know about commodity trading?
Before you try to learn how to invest in the commodity market, there are certain factors that you need to understand. Knowing how the commodity market works provide you with a basic understanding of activities and help you make an informed decision.
- Advantages: You don’t have to worry about the risks related to capital risks. Commodity prices are ineffective of equity and debt markets and can perform as expected. Investors like the commodity market because the growth rate is higher than inflation, hence providing them a good return.
- Margins: Commodities offer higher returns because the margins are low. The profits can be higher when compared to bonds and stock markets.
- Sale: Commodities are sold to traders and wholesalers and the equilibrium of demand and supply determines the cost of a commodity during the distribution trade process.
- Timing: Knowing the commodity market timings in India in 2022 can help investors to make crucial investment decisions. The market opens at 9:00hrs and closes at 23:30 hrs. When searching for the commodity market timings in India, you should also keep in mind that trading is allowed only on working days, there are certain holidays that are considered trading holidays. Trading done on these holidays can be cleared on the next banking day.
How to invest in commodities in India?
Commodity markets are considered volatile, any change in the political scene, government policies and even climatic conditions can directly impact the prices of commodities. It implies that the risk can be higher, and so can the rewards. Therefore, understanding the ins and outs of commodity market investment is crucial.
Stock exchange: It is the most popular platform for buyers and sellers who like to invest in commodities. The stock exchange provides a list of commodities that traders can use to invest. There are many platforms to leverage the list provided by the stock exchange. For instance, you can do it on your own with the help of the internet or can access stock exchange information at your broker’s office.
Individual traders who can’t facilitate the trade of commodities on their own can rely on a broker. A commodity broker is an individual that buys and sells commodities for you on the basis of commission. Leveraging their expertise is the best option for traders as they work round the clock and know in and out of the commodity market. A broker usually works on a commission basis, thus they work hard and always strive to make the best decisions so that they can make money for their clients and profit for themselves.
How to invest in Gold Commodity?
To invest in gold, you have the option to purchase in forward and options contract. You will need a Demat account to start trading through Exchange Traded Funds which are listed on the stock exchange. Taking the right guess is important to minimize the risk of money loss. Therefore, it is important to understand what is the status of the commodity market today.
- Invest in gold without physically buying gold by investing in MCX (multi commodity exchange).
- Use a margin account and a commodity trading account to invest in gold.
- Determine your risk appetite and choose a suitable size of gold.
- Invest when the market is less volatile and enjoy a higher return on investments.
Bottom line To Trade In Commodity
Trading commodities is a great investment option for those who understand the market. Depending on the risk appetite, you can make informed decisions and make money via trading. However, there are certain rules and regulations for leveraging the gains, that should be kept in mind during investing. Futures contracts are seemingly more popular and beneficial than stock markets. However, in-depth knowledge is crucial to minimize risk on investments. Commodities offer superior protection for your investments against inflation, although expert consultation is necessary to make key decisions. Knowing the market conditions and global economic status are important to take the right guess in commodity trading.