About Us|Contact Us|Register|Login


A Basic Guide to Commodity Trading

Commodity trading is a term used frequently in the investment world. Aside from equities, markets also trade a variety of commodities, which can help you diversify your portfolio and increase profits. Commodities, due to their fluctuating prices over time, can produce good long-term returns if invested wisely.

What are Commodities?

Commodities are the primary raw materials used to make everyday goods. Commodities, which include products like oil, sugar, metals, and so on, are the foundation of a global economy. There are four basic categories of commodities traded in India (see table below).

Commodity Category

  • Energy – Oil and Natural Gas
  • Base Metals – Copper Aluminium, Zinc, Lead
  • Bullion – Gold and Silver
  • Agriculture – Cotton, Black Pepper, Rubber, Cardamom and Oil.

Gold, corn, crude oil, coffee, wheat, and other commodities are among the most widely traded worldwide. The change of one commodity’s price has an impact all across the world. When crude oil prices rise, for example, the effect is felt all around the world.

How To Start Trading in Commodities?

To begin with commodity trading, the first step is to know about the types of commodities that exist (mentioned above). Then you need to:

Where to invest my money if I have a large sum?

Open a Demat Account with a Reputed Stockbroker

You’ll need a demat account to trade commodities, just like you’ll need one to trade stocks. While there are numerous brokerage houses where you may register an account, it is critical to choose a reputable organisation that can provide you with important trade suggestions. To navigate the commodity market maze, you’ll need the right information and advice.

It’s also critical to choose a brokerage with competitive prices. Selecting a broker with a high brokerage fee can reduce your profits. Examine the services provided by the broker through its platform.

A full-service broker is best for you because they have a team of professionals who provide in-depth research and recommendations on a regular basis.

What are the alternate investmen ideas?

Deposit an Initial Amount

You must make an initial deposit after you have opened an account. The deposit amount varies depending on the commodity you are trading and ranges from 5% to 10% of the contract value.

This information can be found on the brokerage firm’s official website. You must keep a sufficient cushion to cover any potential losses.

Commodity trading plans that help you better understand markets and your risk appetite are also vital. In terms of risk preferences and cash flow, each trader is unique. You make a decision based on your financial situation.

Different Ways to Trade in Commodities

Direct Investment

It is the most prevalent method of commodity investment. You can, for example, acquire gold and silver coins and jewellery immediately. Direct investing in these things, on the other hand, has a significant transaction cost. There are also concerns about storage and purity.

A Basic Guide to Commodity Trading and the prerequisites for investing.

Purchase Stocks

This is another method of commodity trading. You can acquire stocks in an energy company, for example, if you want to trade energy. The price of energy will be clearly indicated by the stock price. If you invest in commodities through direct stocks, you can make money even if the commodity isn’t performing well.

For example, if you buy shares in a well-established energy company, even if energy prices fall, you can still profit due to the company’s strong fundamentals.

Commodity ETFs and Mutual Funds

Commodity-based ETFs and mutual funds are many. If you wish to invest in gold or silver, for example, you can buy gold or silver ETFs. Because ETFs are maintained electronically in your demat account, there are no purity or storage difficulties.

Bottom Line

Commodity trading can be profitable provided you understand the fundamentals and appropriately determine your risk tolerance. To get the most out of commodity trading, make a good plan and stick to it.

Dear Readers – Hope you found this post useful. If you are trading in stocks and have made a difference, share your thoughts in the comments section.