What is commodity trading?
A commodity is any raw material or primary agricultural product that can be bought or sold, whether wheat, gold, or crude oil, among many others. When you engage in commodity trading, such commodities can diversify your asset portfolio.
If you want to explore commodity trading, take the first step, and brush up on your basics. Get acquainted with the commodity market and how things work here.
Types of commodities
Before you begin commodity trading, learn about the types of commodities available for trade. Some common categories are:
- 1. Agricultural (e.g. chana, soya bean, jeera, rice, rubber)
- 2. Metals (e.g. industrial metals like aluminium, copper and lead, and precious metals like gold and silver)
- 3. Energy (e.g. natural gas, crude oil, coal)
Commodity exchanges
To participate in the commodity market in India, you must know how to trade in commodity exchanges. A commodity exchange is a regulated market where the trading of commodities takes place. Traders may choose not to take physical delivery of commodities and instead deal in Futures contracts. A Futures contract is an agreement to buy or sell a fixed quantity of a commodity at a pre-decided price and within a stated expiry date.
Here are the national commodity exchanges in India:
- 1. Multi Commodity Exchange of India Ltd (MCX)
- 2. National Commodity and Derivative Exchange (NCDEX)
- 3. Indian Commodity Exchange (ICEX)
- 4. National Stock Exchange (NSE)
- 5. Bombay Stock Exchange (BSE)
Trade in commodity futures
Many traders in the commodity market in India trade through Futures contracts. Businesses use Futures to hedge against the prices of commodities that they handle to minimise the risk of financial loss. The commodity market in India also draws participation from speculators.
Benefits of commodity trading
- Diversification - Commodity returns have a low correlation to returns from other assets. As an individual asset class, commodities can be considered to diversify your investment portfolio.
- Inflation safeguard - Commodities are considered a good hedge against inflation as their prices tend to rise during periods of high inflation. This helps maintain the purchasing power parity.
- Hedge against event risk - Supply disruptions during a natural disaster, an economic crisis, or war could push up the prices of commodities. However, the trading of commodities could help you guard against loss by leveraging strategically on price swings. For instance, to lock in the input price of a raw material, a consumer could take a long hedge by buying a Futures contract based on the commodities price today. Meanwhile, a producer that is aiming for a high sale price could choose a short hedge by selling a Futures contract.
The Kotak Securities advantage
Our products and services enhance your commodity trading experience. Have a look at our bouquet of offerings:
Our trading platforms
- Self-trading platforms: Trade through our website, desktop application, or mobile app to trade on the go. Open a commodity trading account with us to enjoy:
- Easy portfolio tracking
- Market alerts and research reports
- Commodities market live streaming
- Personalised watchlist feature
- Real-time commodity market trading
- Live technical commodity charts
- Dealer-assisted trading: Visit the nearest Kotak Securities branch or get the support you need from a dedicated dealer desk/relationship manager. Here’s what else to expect:
- Dealing support at designated branch
- Access to Call and Trade facility
- Efficient risk management
- Research reports via SMS and email
- Real time trade alerts
Benefits of commodity trading with Kotak Securities
Know the advantages of being a Kotak Securities customer when you open a commodity trading account with us.
- Operational support: From explaining how to open a commodity trading account and other commodity trading basics, to resolving order-related issues, we support you at every step.
- In-depth research: Make the most out of our commodity research reports and snapshots. We provide outlooks on active commodities in Bullions, Metals, Energy and Agri.
- Trade recommendations: Get detailed buy and sell recommendations in real-time for commodity market trading.
- Educational resources: Hone your knowledge of commodity trading basics with our comprehensive guides to the commodity market.
- Corporate advisory: Our corporate desk advises on hedging strategies and monitors your positions. We help you withstand market fluctuations to generate high risk-adjusted returns.
Trade in commodities with Kotak Securities
Open a trading account today to reap the benefits of commodity trading.
How to open a commodity trading account
To trade in commodities, you need a trading account, and a linked savings bank account. Here’s the account opening procedure:
- 1. Fill account opening form
- 2. Submit relevant documents
- 3. Complete the in-person verification
We provide you with the account details once your application is processed successfully.
How to trade in commodity futures
Now that you know how to open a commodity trading account, let’s examine the process:
- 1. The trader deposits the margin amount with the broker
- 2. He places the order
- 3. The buyers and sellers are matched on the exchange platform electronically
- 4. The exchange determines a 'settlement price' for each commodity when the market closes. Depending on how the price has moved, the difference is credited to or debited from the trader’s account
- 5. The trader pays the margin shortfall (if any)
- 6. The trader closes his position before the contract expires. He may also choose to opt for the delivery option that requires a separate documentation process.
Ready to try your hand at commodity trading? Sign up for a commodity trading account today and take charge of your financial future.