Commodity trading is a market where buying and selling of various commodities and their derivative products take place. These commodities are primarily categorized into metal, energy, livestock and meat, and agriculture.
A commodity market facilitates trading in various commodities. The two types of markets in India are Spot market and Futures market. In Spot markets, the commodity trade happens immediately, in exchange for cash or other commodities.
Commodity prices do not move in tandem with the prices of other assets like stocks and bonds, providing an efficient tool for diversification.
The price of commodities rises in the phase of high inflation, protecting the value of your investments
Low Margin on commodity trading provides investors with access to higher capital for investment, thus helping them to leverage their position in the market
Commodity Trading have greater prospects of potentially providing high returns over time as one can invest in a diverse range of sectors and industries.
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Just like the stock market, commodity trading also requires a dedicated market where buyers and sellers can trade their commodities. A commodity exchange is a market space where people can buy and sell commodities. There are four national commodity exchanges for commodity trading in India:
Multi Commodity Exchange also known as MCX
Indian Commodity Exchange or ICEX
National Multi Commodity Exchange or shortly referred to as NMCE
National Commodity and Derivatives Exchange or NCDEX
Retail Investor to hedge their portfolio risk
Industrialists to hedge their raw material
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Importer/exporter
Physical Commodity Trader
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A commodity derivative market is the platform for trading of commodities that fall under the four segments of agricultural commodities, bullion and gems, metallic commodities and energy commodities. Any commodities derivative contract, therefore, has commodities as its prime asset. Based on the exchange of derivative contract based on commodities, a commodity derivative market is a prime source of market variations.
Products used for commerce that are traded on a separate, authorized commodities exchange. Commodities include agricultural products and natural resources such as timber, oil and metals. Commodities are the basis for futures contracts traded on these exchanges. It is classified as follows:
An Agricultural Commodity includes food grains, oilseeds complex, sugar, plantation crops, horticulture crops etc.
Non-Agro commodity includes base metals, precious metals etc.
Investing in commodities helps diversify your overall investment portfolio, which means that the allotment of funds is broadened. This helps create a balanced portfolio and also helps mitigate the chances of any unwanted risk, generally associated with equity investment. Moreover, investment in commodities acts a cushion against future inflation as the commodity trade generally increases in volume during times of high inflation. Also, commodities constitute an economically cheap category of investment vehicles when compared to other future based alternatives.
For trading in commodities, you need a Trading account. A Trading account can be opened with a certified brokerage firm. This trading account serves as the exchange place for trading in the commodity market. It must be noted, however, that the broker that you choose must be registered with commodity exchanges. The notable commodity trading exchanges in India are MCX and NCDEX. The first step, however, is to understand and list your goals and the type of market that you wish to deal with. There are a variety of options for trading in commodities and you should choose as per your financial consultation and your risk appetite.
Just as SEBI regulates the stock market, Forward Markets Commission (FMC) along with SEBI regulates the commodity market
Monday to Friday
Trading on exchange platform takes place on all days of the week (except Saturdays, Sundays and holidays declared by the Exchange) Market timings are as follows:
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