Commodity trading in India has a long history; it started much before it started in many other countries. Because of foreign rule, droughts and period of scarcity and government policies caused the commodity trading in India to diminish. It is any product, item or Raw materials which have a value and can be traded.
It is a market that is trading in the primary economic sector rather than manufactured products. There are two categories of commodity present one is a soft commodity which includes agricultural products and another one is a hard commodity includes mined products such as gold and oil. Physical trading and derivative trading are also included in this market with spot market, forward, future and option in future. Investing in commodity and secured by physical assets, futures can be used as it is the oldest way of investing.
Here, the Derivatives are either exchange-traded or over the counter (OTC). An exchange-traded fund (EFT) is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds and generally operates with an arbitrage mechanism designed to keep it trading close to its net asset value, although deviations can occasionally occur. Most ETFs track an index, such as a stock index or bond index. It has low costs, tax efficiency, and stock-like features.
Commodity market includes these following commodities-
Metals- silver, gold copper, aluminium, lead etc.
Financials- bonds, options, futures, etc.
Grains- rice, wheat, soyabean’s etc
Energy- crude oil, natural gas, heating oil etc.
More than 50 major commodity markets, worldwide with purely financial transactions increasingly outnumbering physical trades in which goods are delivered.
Why buy commodities:- If the stock market is a decline, commodities can sometimes be good investments. If the share price is tumbling, traders get a safe shelter under commodity market with the promise that people will always have to eat, so Rice and wheat may currently give a better potential return.
Traders protect themselves from the risk of only holding stocks in case of market crashes by add diversity to their portfolio by means of commodity trading.
Example, in winter energy prices, rises with increased demand and in summer energy prices are affected.
Risks involving in commodity trading:- Commodity trading as volatile as stocks, moves substantially against you in a very short period of time. Commodity trading is much tougher for the small investors, for the number of reasons spread for most commodities are much wider than with popular stocks, therefore, you need prices need to raise more before you break. To deal with these risks traders and investors mainly trading in commodity markets by Commodity tips provide by several experts, brokers and advisory firms.
Careful form this situation in commodity market:-
Scam artists- all brokerages should be registered with National Futures Association with a list of all complaints, arbitrations and sanctions.
Lack of knowledge- you should be updated from the market in which you are trading.
Costs- brokerage charges vary day to day and may be high, so careful pay ahead of time.
Poor money management- set clear entry and exit points, don’t take too much risk of your money trading on a single commodity.
India has 6 national commodity exchanges which are :-
MCX (Multi Commodity Exchange)
NCDEX (National Commodity and Derivative Market)
NMCE (National Multi-Commodity Exchange)
ICEX (Indian Commodity Exchange)
ACE (ACE Derivative Exchange) and,
UCX (Universal Commodity Exchange)
In 1953 a regulatory body was set up i.e. Forward Markets Commission (FMC), which is merged with the Securities and Exchange Board of India.
mcx tips and NCDEX are popularly traded in India. MCX is an electronic commodity futures trading exchange and NCDEX is an online multi-commodity trading exchange. Now a day’s investor is more likely to trade and transactions on the internet, the MCX &NCDEX are popularly by leaps and bounds.
MCX in November 2003 and NCDEX in April 2003 started their operations, they both have a headquarters in Mumbai and have been demutualised.
MCX is specialized in bullion and precious metals like silver and gold on the other hand NCDEX is highly trusted for the trading of Agri-based products like oil and oil seeds, cereals, etc.
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