Commodity trading brings a basket full of diverse avenues for investment, away from the traditional avenues of equity, bonds and real estate. Based on the historical data, adding commodities exposure to your existing portfolio helps you increase the returns while lowering the risk. Commodities have very little or negative correlation with other asset classes.
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Yes, there are circuit limits (upper and lower) or daily price ranges (DPR) to prevent sudden and extreme price hikes. When a circuit limit is hit, commodities trading is stopped for fifteen minutes.
Yes there is a maximum permissible limit to the quantity that can be traded or held in any paticular commodity. This limit is determined by the respective exchanges and regulators and varies from commodity to commodity.
There are two parts to the commodity trading process: order processing and mark to market (MTM) settlement. You can place an order over the phone by calling up Motilal Oswal’s dealing desk or any other broker with whom you have an account and this intiates the trade. The dealer gives a price and asks you to deposit the initial margin.
Commodity Trading is the process of dealing in commodities exchanges around the world. Commodities are classified into 4 types: Metals – Silver, Gold, Platinum, and Copper, Energy – Crude oil, Natural gas, Gasoline, and Heating oil, Agriculture – Corn, Beans, Rice, Wheat, etc. and Livestock and Meat – Eggs, Pork, Cattle, etc.
Commodity trading in India is done on the following exchanges: Multi Commodity Exchange (MCX) National Commodity and Derivatives Exchange (NCDEX) Universal Commodity Exchange (UCX) National Multi Commodity Exchange (NMCE) Indian Commodity Exchange (ICEX) ACE Derivatives & Commodity Exchange Limited (ACE) In order to trade in in live commodity market in India, you need to choose a trustworthy broker and open a demat and trading account with them. Select an initial investment amount to start commodity trading. Start practising on simulations and make a commodity trading strategy based on the understanding of the market, risk appetite, availability of capital etc.
The most common way to invest in a commodities market is through a commodity futures contract, which is an agreement to buy or sell a specific quantity of a commodity at a set price at a later time.
A live commodity market is an organized, regulated market that provides platform, rules, regulations and procedure for the trading and exchange of commodities and related investment products. There are several types of modern commodities exchanges, which include metals, fuels, and agricultural commodities exchanges. Traders trade futures contracts agreeing to buy or sell commodities at an agreed upon price by a predetermined date. India has six commodity exchanges namely, Multi Commodity Exchange (MCX), National Commodities and Derivatives Exchange (NCDEX), National Multi Commodity Exchange, Indian Commodity Exchange, ACE Derivatives Exchange and the Universal Commodity Exchange.
The commodities that can be traded fall into either of the following 4 categories: • Metals and Materials such as gold, silver, platinum, copper, iron ore, aluminum, nickel, zinc, tin, steel, soda ash, rare earth metals etc. • Energy such as crude oil, heating oil, natural gas, and gasoline, thermal coal, alternate energy. • Agri-Commodity (including soybeans, castor seeds, pepper, coriander, turmeric, chana, urad, toor daal, crude palm oil, groundnut oil, mustard seeds etc.) • Services such as oil services, mining services and others.
The main differences between a commodity spot market and a commodity futures market are in the delivery dates and prices. The spot price is the current price of a spot contract at which a particular commodity could be bought or sold at a specified place for immediate delivery and payment on the spot date. The Commodity Futures Price is a contract between two parties in which one party agrees to buy a certain quantity of a commodity or financial instrument at an agreed price, and delivery of the stuff is done at a later date (pre-specified) in future. A commodity’s futures price is determined on the price of the commodity in relation to its current spot price, time until delivery, risk-free interest rate and storage costs at a future date.
