Commodity trading is where various commodities and their derivatives products are bought and sold. 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.
Before you begin commodity trading, learn about the types of commodities available for trade. Some common categories are:
Agricultural (e.g. chana, soya bean, jeera, rice, rubber)
Metals (e.g. industrial metals like aluminium, copper and lead, and precious metals like gold and silver)
Energy (e.g. natural gas, crude oil, coal)
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:
Multi Commodity Exchange of India Ltd (MCX)
National Commodity and Derivative Exchange (NCDEX)
Indian Commodity Exchange (ICEX)
National Stock Exchange (NSE)
Bombay Stock Exchange (BSE)
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.
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.
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.
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.
Our products and services enhance your commodity trading experience. Have a look at our bouquet of offerings:
1. 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
Personalized watchlist feature
Real-time commodity market trading
Live technical commodity charts
2. 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
Know the advantages of being a Kotak Securities customer when you open a commodity trading account with us.
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.
Get detailed buy and sell recommendations in real-time for commodity market trading.
Hone your knowledge of commodity trading basics with our comprehensive guides to the commodity market.
Our corporate desk advises on hedging strategies and monitors your positions. We help you withstand market fluctuations to generate high risk-adjusted returns.
Open a trading account today to reap the benefits of commodity trading.
To trade in commodities, you need a trading account, and a linked savings bank account. Here’s the account opening procedure:
Fill account opening form
Submit relevant documents
Complete the in-person verification
We provide you with the account details once your application is processed successfully.
Now that you know how to open a commodity trading account, let’s examine the process:
The trader deposits the margin amount with the broker
He places the order
The buyers and sellers are matched on the exchange platform electronically
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
The trader pays the margin shortfall (if any)
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 trading of commodities? Sign up for a commodity trading account today and take charge of your financial future.
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