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Thinking of commodity market investments?
Commodity | August 11

A desire to grow money brings you to the investment markets. Share Trading, Mutual Funds, Commodity Markets, Insurance and various opportunities are available for you to start with investments. Commodity Trading is a great avenue for generating that additional wealth to meet your short-term and long term goals. Let us take a look at the basics of commodity trading for investors interested in the commodity markets.

What is a commodity market?

The commodity market is a trading market for buying and selling of primary goods. These goods are divided into soft commodities and hard commodities.

Soft commodities include agricultural products such as sugar, wheat, cocoa, pepper, etc. Hard commodities are generally mined goods such as gold, silver, oil and so on. In the commodity trading industry, these commodities move from one destination to another as per the demand of these primary goods in various markets.

For investors, the commodities market can be risky or beneficial due to its volatile nature. Factors such as economic changes, natural calamities, changing demand-supply in markets, etc. can play an important role in the rates of commodities. There are around fifty commodity markets across the world where close to 100 commodities are available for trading.

Instruments for investment

Investors utilise derivatives such as Exchange-Traded Funds (ETFs), Exchange-Traded Commodities (ETCs) and Forward Contracts as financial instruments to buy or sell commodities.

The commodity market is also known as futures market because traders also invest in commodities using future contracts. The future contracts give the investor an opportunity to buy or sell a specific quantity of the commodity at a set date in the future but using the current price. The investor earns when the commodity price increases or decreases in their favour.

A thorough understanding of the industry and forecasts by experts can be beneficial in creating successful strategies in commodity trading.

Watch this video by Financial Times to learn more about commodity trading https://www.youtube.com/watch?v=CxzHOGHLhVw

Commodity market in India

In India, equity broking financial firms such as Tradebulls can help investors to enter the commodity markets. The brokerage firm should have a valid membership with a commodity exchange for offering the commodity trading service to their clients.

There are several commodity exchanges in India that facilitate commodity trading for investors through investment broking firms. MCX and NCDEX are the leading commodity exchanges in India. Below is an exhaustive list of the commodity exchanges in India:

·      National Commodity and Derivatives Exchange Limited (NCDEX)

·      Multi Commodity Exchange (MCX)

·      National Spot Exchange Limited (NSEL)

·      Universal Commodity Exchange (UCX)

·      National Multi-Commodity Exchange of India Ltd (NMCE)

·      Indian Commodity Exchange Limited (ICEX)

·      Chamber of Commerce - Hapur (COC)

·      Bhatinda Om & Oil Exchange Ltd. (BOOE)

·      Ace Derivatives & Commodity Exchange Ltd. (ACE)

 

Benefits of Commodity Trading

Irrespective of your experience in the investment space, there are several benefits you can enjoy in the commodity markets.

·      Manage Inflation

Commodity trading works a hedge against economic concerns such as inflation. During inflation, the price of products in the markets go high. Generally, the price of primary goods also rise. This in turn, helps investors to earn profits on their investments.

 

·      Diversify

A wise investor keeps his eggs in various baskets. And commodity market can be a place for investors who wish to keep a diversified portfolio of investments.

 

·      Valuable returns

Commodity market helps you to make more money by giving you high returns with low margins.

How to become a commodity market investor?

You just need a bank account and a demat account with an equity broker. Here is a quick checklist for choosing the broker or equity firm:

ü  Membership

The broker has a membership with a commodity exchange.

 

ü  Experience in the commodities market

The broker has several years of experience and a good market reputation

 

ü  Brokerage costs

You are interested in investments to increase your earnings. Compare the brokerage charges offered by leading companies along with the service offerings to decide the firm that suits your requirements.

 

ü  Online Services

The equity firm has facilities for a good online demat account with good online tools and great backend support

 

ü  Expert Support

You will get a reliable advisor to help with strategies for maximizing your earnings as per your investment appetite. Usually, all the leading financial firms release research reports with tips and insights by their experts to support the investors with commodity market investments.

 

ü  Documentation

The company provides quick, hassle-free and minimum documentation to get started with commodity market investments.

 

ü  Customer Assistance

Check whether the customer support is good. It is extremely important for new investors to receive timely support to get acquainted with the trading interface. Also, if there is a technical glitch and you have a good lead for a trade where timing is crucial, you want the support team to help you as soon as possible.

 

ü  Mobile Apps

Check whether modern day apps and services for managing your account or for trading on the move is offered by the trading firm

You can start investing in the commodity market with as low as Rs. 5000/-

Regulatory Body for the commodity market in India

Commodities markets are more self-regulatory in nature. Hedgers, Arbitrageurs and Speculators generally invest in commodity markets. While the leading commodity trading service providers have their compliance and best practices frameworks in place, there might be issues at times that need attention.

In India, Forward Markets Commission (FMC) took care of regulatory affairs for Commodities till 2015. In 2015, the FMC was merged with SEBI (Securities and Exchange Board of India) to strengthen the regulatory system.

To conclude, commodity market investments are similar to stock market investments in many ways. Just begin with a demat account, understand the market, learn to apply the strategies and you get to tap the possibility to increase your wealth. It is an exciting market, invest smartly with the help of expert advisors from your equity firm. The risk in this market can be well worth the time and effort if managed well.

It is easy to find a good equity broker, open an account for commodity market online trading, and enjoy the benefits of diversifying your investments. To explore commodity trading, visit https://www.tradebulls.in/commodity-derivatives

You can post your queries related to the commodity market in the comments area for further discussion on this topic.

 

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ABOUT THE BLOGGERS
Aasif HiraniDirector Tradebulls

Aasif Hirani is the Director of Tradebulls Securities (P) Limited. Chartered Accountant (C.A.) by qualification, Mr. Aasif Hirani brings with him over 10 years of rich experience in the finance industry.

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