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Commodity trading has been happening in this world since ancient civilizations people depended on the barter system. Commodity trading is the oldest form of trading. Today commodity trading is an important part of the world economy where billions of dollars are traded daily. Today no economy can survive without commodity trading.
In simple words, commodity trading involves buying and selling primary products or raw materials such as gold, silver, zinc, aluminum, wheat, oil, and coffee. You may find the concept of Commodity trading simple to read but Commodity trading is affected by many factors like demand and supply, geopolitical events, and market sentiments.
If you want to know how to start in commodity trading and how to earn profit in commodity trading, then continue reading this article.
The goal of commodity trading is also to earn profit, but the factors (demand and supply, geopolitical events, and market sentiments) affecting this form of trading are quite different, due to which commodity trading can be a bit challenging.
In simple words, commodity trading involves buying and selling primary products or raw materials such as gold, silver, zinc, aluminum, wheat, oil, and coffee. You may find the concept of Commodity trading simple to read but Commodity trading is affected by many factors like demand and supply, geopolitical events, and market sentiments.
If you want to know how to start in commodity trading and how to earn profit in commodity trading, then continue reading this article.
What is Commodity Trading?
Whatever raw material is used in the production of any item or service, understand that its trading will happen in the commodity market. Commodity trade can also be physical like buying gold, silver, oil, and grains directly or you can trade in futures and options of these commodities by visiting any trading platform.The goal of commodity trading is also to earn profit, but the factors (demand and supply, geopolitical events, and market sentiments) affecting this form of trading are quite different, due to which commodity trading can be a bit challenging.
Types of Commodities
Commodity trading includes many types of commodities like agricultural commodities, energy commodities, and metal commodities.| COMMODITY | TYPES OF COMMODITIES |
|---|---|
| AGRICULTURAL | Wheat, Rice, Cocoa, Ragi |
| ENERGY | Crude oil, Gasoline, Heating gas |
| METAL | Gold, Silver, Platinum, Copper |
Exchanges for Commodity in India
1. MCX (Multi Commodity Exchange of India): MCX is the largest commodity exchange in India. Bullion Commodities (Gold, Silver), Energy Commodities, Agricultural Commodities, and Metal Commodities are traded on mcx. Mcx Headquarters in Mumbai and also provides hedging opportunities to market participants.
2. NCDEX (National Commodity and Derivative Exchange Limited): NCDEX is another national-level commodity exchange. NCDEX headquarters in Mumbai and operates in several states across India. NCDEX trades mostly in commodities related to agricultural products, energy products, and metal products. NCDEX also provides value-added services to market participants.
3. Regional Exchange: Many regional exchanges also function for commodity trading. FMC (Forward Market Commission) regulates all these regional exchanges. The two prominent regional exchanges for commodity trading in India.
1. NMCE (National Multi Commodity Exchange of India Limited): The national multi-commodity exchange of India Limited is a prominent regional commodity exchange in India. NMCE is headquartered in Ahmedabad and facilitates trade in commodities such as agricultural products, metals, and energy.
2. NCDEX (National Commodity and Derivative Exchange Limited): NCDEX is another national-level commodity exchange. NCDEX headquarters in Mumbai and operates in several states across India. NCDEX trades mostly in commodities related to agricultural products, energy products, and metal products. NCDEX also provides value-added services to market participants.
3. Regional Exchange: Many regional exchanges also function for commodity trading. FMC (Forward Market Commission) regulates all these regional exchanges. The two prominent regional exchanges for commodity trading in India.
1. NMCE (National Multi Commodity Exchange of India Limited): The national multi-commodity exchange of India Limited is a prominent regional commodity exchange in India. NMCE is headquartered in Ahmedabad and facilitates trade in commodities such as agricultural products, metals, and energy.
2. Indian Commodity Exchange Limited (ICEX): The Indian Commodity Exchange Limited (ICEX) is another regional commodity exchange in India. ICEX is headquartered in Mumbai and offers the facility to trade in commodities such as demand, steel, and energy.
1. Registration: First of all, you have to register on exchanges. You need to submit your documents like identity proof, address proof, and bank details.
2. Deposit Your Margin Money: After registration, a trader has to deposit margin money in the exchange because it ensures that the trader has enough money in case of any loss tomorrow.
3. Placing Orders: Traders can place orders either by visiting the exchange online platform or by calling their brokers to place orders. Orders can be buy or sell and can be limit orders or market orders.
4. Execution of orders: After the order is placed, the order is executed according to the market condition, if there is a market order, then it gets executed immediately and if there is a limit order, then the order gets executed when the market comes to your price.
5. Settlement: Settlement is the process of transferring ownership of the commodity and funds between the buyer and the seller. Settlement is done on a T+2 basis, where T is the day of trade.
1. Asset Class: Commodity trading involves the buying and selling of physical commodities such as gold, silver, crude oil, and agricultural products. On the other hand, equity trading involves buying and selling shares of listed companies.
2. Market Factors: Commodity prices are affected by demand and supply, global economics conditions, weather conditions, and geopolitical events. On the other hand, in equity trading, the prices of shares are influenced by the financial condition of the companies, market sentiment, and industry trends.
3. Risk Profile: Commodity trading is considered riskier and more volatile than equity trading due to the influence of global events. Equity trading is less risky and offers higher return potential in the long term.
4. Trading Strategies: Different trading strategies are used in commodity and equity trading. Commodity trading tries to make profit through trend following, mean reversion and price movement. Strategies such as fundamental analysis, technical analysis and quantitative analysis are used in equity trading.
5. Market Accessibility: Both small and big traders participate in the commodity market and equity market. But equity market requires a bit more capital and skill.
Convenience: Through the app, you can trade and access your portfolio at your fingertips from anywhere, anytime.
Real-Time Data: Through the app, you get real market data which helps a trader to make trading decisions.
Cost Effective: Many apps charge less brokerage and fees. Due to this the cost of the trader is also reduced.
User-Friendly: Trading apps are designed in such a way that they help even an inexperienced trader to trade with ease.
5paisa: 5paisa is also a popular trading app in India. There is not much difference between its fees and brokerage and Zerodha's fees and brokerage.
Groww: Groww apps have been launched in the recent past. The interface of the Groww app is awesome. Groww app is a commission-free trading app that is a cost-effective option for a trader.
Upstox: Upstox is also a low brokerage trading app, you will get real-time market data in this app and financial reports of companies are also available in this app so that you can easily do fundamental analysis.
Angel Broking: Angel Broking is one of the oldest brokerage firms in India, its trading app has almost all the features that other trading apps have.
Advantages: -
High Returns: High returns are expected in commodity trading. Due to this the commodity becomes an attractive investment option for investors.
Diversification: There are many options available in commodities such as gold, silver, crude oil, grains, natural gas, and many more so that your portfolio gets diversified.
Hedge against inflation: It is believed that when inflation increases, then the prices of commodities like gold and silver increase. It is believed that when inflation increases, then the prices of commodities like gold and silver increase. In this way, you can use commodities against inflation.
Low correlation to other asset classes: Commodities have a low correlation to other asset classes like stocks and bonds, making them a useful addition to a well-diversified portfolio.
Trading Opportunities: You can play the role of a bull or a bear in commodity trading. Which is better for a trader that can play a role according to the market situation.
Disadvantages: -
Market Volatility: Due to the ever-changing global conditions, the game of demand and supply, volatility of weather, and other factors, the commodity market remains volatile due to which many traders have to bear losses due to inexperience.
High risk: See there is always a possibility of risk or loss in trading but if you do not gain experience and learn how the market works, then you can take a huge loss in the commodity market.
Limited options: The options are very limited in commodity trading as compared to equities. Due to this, a trader may find it difficult to diversify his portfolio.
Regulatory Challenges: The compulsion of laws and regulations is more in the commodity market, big traders can overcome it easily but there can be problems for small traders. Because it is very complicated and time-consuming
Environmental and ethical concerns: Commodity trading sometimes involves products such as oil or conflict minerals that have negative environmental or ethical impacts. Commodity trading sometimes involves products such as oil or conflict minerals that have negative environmental or ethical impacts. Investors have to keep all these factors in mind while making a decision.
Commodity trading timings are decided by MCX (Multi Commodity Exchange of India) and NCDEX (National Commodity and Derivative Exchange Limited) in India. The two leading commodity exchanges in India. Commodity Trading timing is as follows: -
MCX Trading Timings:
Monday to Friday: 9:00 AM to 11:30 PM
NCDEX Trading Timings:
Monday to Friday: 10:00 AM to 5:00 PM
It is important to note that the above timings are subject to change due to market holidays, government regulations, or other factors. Traders should check with the relevant exchange or their broker to confirm the current trading timings before placing any trades. Additionally, traders should also be aware of the potential impact of global commodity prices and news events, which can impact trading activity and timing.
How To Trade in Commodity in India
There are no separate specific procedures or laws for trading in commodities, just like trading in other financial markets, trading in the commodity market is done. The process involves the following steps: -1. Registration: First of all, you have to register on exchanges. You need to submit your documents like identity proof, address proof, and bank details.
2. Deposit Your Margin Money: After registration, a trader has to deposit margin money in the exchange because it ensures that the trader has enough money in case of any loss tomorrow.
3. Placing Orders: Traders can place orders either by visiting the exchange online platform or by calling their brokers to place orders. Orders can be buy or sell and can be limit orders or market orders.
4. Execution of orders: After the order is placed, the order is executed according to the market condition, if there is a market order, then it gets executed immediately and if there is a limit order, then the order gets executed when the market comes to your price.
5. Settlement: Settlement is the process of transferring ownership of the commodity and funds between the buyer and the seller. Settlement is done on a T+2 basis, where T is the day of trade.
Difference Between Commodity Trading and Equity Trading
Commodity trading and equity trading are two different types of trading with different assets and markets.1. Asset Class: Commodity trading involves the buying and selling of physical commodities such as gold, silver, crude oil, and agricultural products. On the other hand, equity trading involves buying and selling shares of listed companies.
2. Market Factors: Commodity prices are affected by demand and supply, global economics conditions, weather conditions, and geopolitical events. On the other hand, in equity trading, the prices of shares are influenced by the financial condition of the companies, market sentiment, and industry trends.
3. Risk Profile: Commodity trading is considered riskier and more volatile than equity trading due to the influence of global events. Equity trading is less risky and offers higher return potential in the long term.
4. Trading Strategies: Different trading strategies are used in commodity and equity trading. Commodity trading tries to make profit through trend following, mean reversion and price movement. Strategies such as fundamental analysis, technical analysis and quantitative analysis are used in equity trading.
5. Market Accessibility: Both small and big traders participate in the commodity market and equity market. But equity market requires a bit more capital and skill.
Best Commodity Trading App in India
Commodity trading app has their own advantages, I am telling you some reasons why you should use trading app:Convenience: Through the app, you can trade and access your portfolio at your fingertips from anywhere, anytime.
Real-Time Data: Through the app, you get real market data which helps a trader to make trading decisions.
Cost Effective: Many apps charge less brokerage and fees. Due to this the cost of the trader is also reduced.
User-Friendly: Trading apps are designed in such a way that they help even an inexperienced trader to trade with ease.
Top 5 Apps for Commodity Trading in India
Zerodha: The apps of Zerodha company, which shook the entire brokerage world, are very user-friendly. Zerodha Company charges the lowest brokerage and fees in the entire market. Market data is also available in real-time.5paisa: 5paisa is also a popular trading app in India. There is not much difference between its fees and brokerage and Zerodha's fees and brokerage.
Groww: Groww apps have been launched in the recent past. The interface of the Groww app is awesome. Groww app is a commission-free trading app that is a cost-effective option for a trader.
Upstox: Upstox is also a low brokerage trading app, you will get real-time market data in this app and financial reports of companies are also available in this app so that you can easily do fundamental analysis.
Angel Broking: Angel Broking is one of the oldest brokerage firms in India, its trading app has almost all the features that other trading apps have.
Advantages and Disadvantages of Commodity Trading
Advantages: -
High Returns: High returns are expected in commodity trading. Due to this the commodity becomes an attractive investment option for investors.
Diversification: There are many options available in commodities such as gold, silver, crude oil, grains, natural gas, and many more so that your portfolio gets diversified.
Hedge against inflation: It is believed that when inflation increases, then the prices of commodities like gold and silver increase. It is believed that when inflation increases, then the prices of commodities like gold and silver increase. In this way, you can use commodities against inflation.
Low correlation to other asset classes: Commodities have a low correlation to other asset classes like stocks and bonds, making them a useful addition to a well-diversified portfolio.
Trading Opportunities: You can play the role of a bull or a bear in commodity trading. Which is better for a trader that can play a role according to the market situation.
Disadvantages: -
Market Volatility: Due to the ever-changing global conditions, the game of demand and supply, volatility of weather, and other factors, the commodity market remains volatile due to which many traders have to bear losses due to inexperience.
High risk: See there is always a possibility of risk or loss in trading but if you do not gain experience and learn how the market works, then you can take a huge loss in the commodity market.
Limited options: The options are very limited in commodity trading as compared to equities. Due to this, a trader may find it difficult to diversify his portfolio.
Regulatory Challenges: The compulsion of laws and regulations is more in the commodity market, big traders can overcome it easily but there can be problems for small traders. Because it is very complicated and time-consuming
Environmental and ethical concerns: Commodity trading sometimes involves products such as oil or conflict minerals that have negative environmental or ethical impacts. Commodity trading sometimes involves products such as oil or conflict minerals that have negative environmental or ethical impacts. Investors have to keep all these factors in mind while making a decision.
Commodity Trading Timing in India
Commodity trading timings are decided by MCX (Multi Commodity Exchange of India) and NCDEX (National Commodity and Derivative Exchange Limited) in India. The two leading commodity exchanges in India. Commodity Trading timing is as follows: -MCX Trading Timings:
Monday to Friday: 9:00 AM to 11:30 PM
NCDEX Trading Timings:
Monday to Friday: 10:00 AM to 5:00 PM
It is important to note that the above timings are subject to change due to market holidays, government regulations, or other factors. Traders should check with the relevant exchange or their broker to confirm the current trading timings before placing any trades. Additionally, traders should also be aware of the potential impact of global commodity prices and news events, which can impact trading activity and timing.
