What is Commodity Trading?
Commodities are a category of asset/goods (usually natural resources)which:
- Holds commercial value in our day-to-day life
- Moveable from one place to another
Commodity trading is the trading (buying or selling) of these commodities. In simple words, like stocks are traded in equity trading, goods are traded in commodity trading. This trading takes place on a commodities exchange, wherein various commodities and/or their derivative products are traded (i.e. bought or sold).
Commodity Trading in India
The Indian commodity trading market dates back to 1875. The major commodity trading exchanges in our country are:
- Multi Commodity Exchange of India (MCX)
- National Commodity and Derivatives Exchange (NCDEX)
- Indian Commodity Exchange Limited (ICEX) *
Many regional exchanges also provide trading in commodity futures. MCX is the largest (trade volume wise) commodity derivative exchange in India. TradeSmart offers online trading facility in MCX and NCDEX.
*National Multi Commodity Exchange of India Ltd (NMCE) got merged with ICEX in 2018.
Exchange based commodity trading in India can happen either in the spot market or the futures market. The trading in the spot market happens instantly and is done in exchange for cash. Physical commodity trading companiesensure immediate delivery through actual delivery (or the exchange of warehouse receipts till such delivery).In the futures market, transaction is done electronically wherein the buyer and seller agree to fulfill their obligations at a future date and specific price.Commodities Options Trading India was approved in 2017. Gold futures were the first commodity option to get traded.
Types of Commodities
Commodities can be broadly divided into two groups – soft and hard. Soft commodities are grown and are perishable or have a shorter life span. For instance, rice, wheat, spices, etc. The prices of soft commodities are prone to fluctuations as they can easily get spoiled due to climatic conditions. Hard commodities, on the other hand, are extracted or mined. For instance, oil, aluminum, etc.
How to invest in commodity?
While investing in commodities, you need to remember that there is no “best” strategy that will work for everyone. A good and balanced commodity trading strategy is one which takes into account the below factors:
- Prevailing trends (medium as well as long-term) as they can be good pointers for probable market movements.
- Market research backed decisions rather than emotions. Focusedinvestments and patience go a long way in generating lucrative returns in this market.
- Technical indicators such as moving averages, etc as they can help you take your exit/entry decisions
- Seasonality of the commodity plays a crucial role. Demand and supply of certain commodities are influenced by the seasons and hence the price levels also fluctuate accordingly.
If you are new to the world of commodities trading it is always better to start small and grow gradually. Most importantly, get in touch with a good broker who will help you open to trading account (a pre-requisite for commodity trading) and complete all the formalities.
Trade Commodities with TradeSmart
There are numerous commodity trading brokers in India. But choosing the right one plays a crucial role in determining the success of your investments. TradeSmart is a reputed name in the Indian broking segment. Here is why you should trade commodities with TradeSmart.
- Smart technology
At TradeSmart you benefit from implementation of cutting-edge technology in processes, tools and a smart commodity trading platform. It not only simplifies the process but also helps to bring down the transaction costs.
- Technical AnalysisTechnical analysis is like reading the horoscope prediction for price movements, albeit with more surety. Charts in our trading app SINE provides more than 85 different technical indicators which aids new as well as experienced investors to fine-tune their trading decisions.
- Continuous operational support
The TradeSmart team is there with you at all steps in the commodity trading journey. Whether it is opening a commodity trading account, teaching how to trade or resolving queries, you will receive continuous support.
TradeSmart is one of the most cost-effective trading companies in India. The flexible plans (Rs. 15 per order and 0.007 paisa plan) ensure that all investors or traders (irrespective of their trading volume) can get the best results with minimum costs.
Commodity trading in India takes place on all business days (between Monday to Friday). The trading hours depend on the exchange. For instance,
- MCX – 9am to 5pm (agri commodities) / 11.30pm* (non-agri commodities)
- NCDEX – 10 am to 11.30pm
- ICEX -9am to 5pm (agri commodities) /11.30pm* (non-agri commodities).
Commodity Trading in India can be grouped into five major categories-
- Precious metals / bullion – Gold, silver
- Metals – Copper, brass, aluminum etc
- Energy – Natural gas, Crude oil, etc.
- Agriculture and allied activities – Grains, oil, spices, pulses and livestock
- Services – Mining service, oil services, etc.
There are two kinds of options – American (parties can exercise their buying or selling right before the expiration date) and European (parties can exercise their right only on the date of option contract expiration). In Indian commodity trading, only European style options are permitted.