A commodity market allows a trader to choose a preferable one among the wide range of commodities. The market trades in two categories, one is spot and the other is derivatives market. When the commodities are bought and sold on-time delivery, it is termed as the spot market, whereas, when several financial instruments based on the commodity values are traded, it is termed as derivatives market. With the setting up of worldwide multi-commodity exchanges, commodity trading in India has reached the new avenues in the country. The exchange has digital trading and settlement systems which make the trading easy and transparent for the traders.
Commodities actually hold enormous potential to become a separate asset class for trade-savvy investors. Retail investors, who assert to recognize the equity markets, might find commodities a vast market to invest in. Commodity trading is easy to understand in terms of fundamentals of demand and supply, therefore, the commodity trading tips are designed to help traders to understand the risks incurred with the benefits of the commodity trading. Historically, it is observed that the futures market has been less volatile than any other investment instruments such as equity and bonds. Thus, it provides a diversified portfolio to the traders.
Commodity trading in India is comprised of three basic steps:
Choosing a broker – it is essential to concentrate on the following factors while choosing a broker:
- Competitive edge offered by the broker
- His credibility
- Knowledge of commodity markets
- Years of experience
- Quality of trading platforms
- Net-worth of the broker
Depositing the margin – to start the trading process, a trader is required to deposit a marginal value with his broker. Margin can be of two types:
- Initial margin – this ranges from 5 to 10% of the contract value
- Maintenance margin – this is usually lower than the initial margin
Access to information and trading plan – with the broker’s commodity trading tips guidance, the investor should assess and monitor the price movements to ensure the profit.