Before getting started with the actual trading info, let’s get to know about this trading in detail. The first and foremost question, what is a commodity? A commodity can be defined as a group of materials that are used in everyday life and its trading is known as commodity trading[WU1] . This trading began in our country quite before many other developed countries. But with several mishaps such as invasion, natural calamities, etc. it didn’t flourish. But now with the outshine of the stock market, it has slowly and gradually started gaining prominence.
Now trading straight away does not mean people with barrels of oil gather in the market to sell. Rather it means the trading does happen of the usual material but not with its physical ownership. In all, there are 6 CTEs (Commodity Trading Exchanges) in India. These are the places where people can invest in commodities. Basically, commodities which are traded are divided into 4 types:
- Precious metals such as gold, platinum, etc.
- Energy sector products such as crude oil, gasoline, etc.
- Agriculture products such as rice, wheat, etc.
- Livestock such as cattle, meat, etc.
Investing in commodities:
The best way to do commodity trading is through a futures contract. It is a legal agreement between two sides who wish to fix the secure position of their assets amidst all the uncertainty and volatility in the market.
Benefits of commodity futures contract:
- Liquidity: There is a vast amount of liquidity associated with futures contact. So if one wishes to cash his/her commodities then it wouldn’t take much time. This makes it a safe investment option as the money can be obtained almost instantly at the market rate.
- Huge profits: Futures contracts are liable to fetch a sumptuous amount of profits if the trading is performed carefully. There is a good amount of risk for losing money too but one who trades with large amounts knows the ways and means and can make good money.
- Highly leveraged: Future contracts are also highly leveraged investments which means people with small capital but good knowledge can comfortably make money without any hassles. But at the end of the day, leveraged capital also has to be returned so only sure and surd trades should be made.
- Affordable: One chief advantage of future contacts is that they have minimum deposit accounts. This means people with comparatively smaller amounts can also start trading. Plus, if they want they can also obtain leverage very easily.
- Target setting: Targets can be set according to convenience be it farfetched future or short-term investment. According to the needs of the investor or the nature of the market the goals or targets can be set for the market.
Conclusion:
Examining and carefully studying the facts and details mentioned above we come to realize the working of commodity market; the methodology of trading, trade exchanges, trade commodities, etc.; the advantages associated with the trading, risks associated with it, etc. 5paisa is one of the best broking companies in the country. If you want to do commodity trading, you can open an account with them.
