Commodity trading is a type of selling and buying of valuable goods that are essential for all especially food, metal, and energy. It is one of the most common investment assets which, if done wisely, can incur much profit and return. With the exception of actionable claims and monetary gain, commodity trading includes all kinds of buying and selling of moveable goods.
Although investment in commodities has its risk factors as well as the time and effort that has to be put in to be updated with the news of the market, nevertheless it can rake in a sizeable amount of return. The influx of online investment systems has given an impetus to commodity trading because of the ease of operations.
Moreover, the new-age investors are always looking for alternative options for investment other than the traditional stocks and bonds. Hence this is where commodity trading becomes a big success as an investment asset.
In India, commodities can be categorized into a few sectors such as agriculture, metals, and materials, precious metals, energy services. Crude oil, natural gas, furnace oil, and Brent crude are the popular energy commodities for trading. Then again, soybean, pepper, coriander, turmeric are agriculture-based commodities traded in this asset class. Gold and silver make up the bullion category in the commodity trading sector.
Moreover, metals such as copper, lead, aluminum, zinc, nickel are considered profit-making goods for trading in commodities. Oil services and mining services comprise the energy commodity category for commodity trading.
There are 6 of the most important platforms for commodity trading recognized by the government in India and they are Multi Commodity Exchange (MCX), National Commodity and Derivatives Exchange (NCDEX), National Multi Commodity Exchange (NMCE), Indian Commodity Exchange (ICEX), Ace Derivatives Exchange (ACE) and The Universal Commodity Exchange (UCX)
Investment in commodities takes place through a futures contract. A futures contract is considered as an agreement for an investor to buy or sell commodities, at a specified time for a specific price. Although lucrative, it is highly risky for new investors for the volatility of the market and the dwindling prices of commodities.
The rise in the number of investors has considerably gone up because of the online commodity trading platforms. To start, one needs to select a broker amongst an array of them in the form of online platforms. Some of the best online portals for commodity trading are Zerodha, Angel Broking, Sharekhan, TradePlus Online, and Upstox.
After choosing, one needs to open a Demat account and trading account through the platform. A certain fee may be charged by the brokerage platforms for opening and maintaining the trading account. Then again, the brokerage is also charged by the online platforms for commodity trading for each trade that the investor does. The chargeable fee for the brokerage of trading in commodities differs from one online platform to the other.
At the initial stage of investment, one needs to invest an average amount as risks are involved with it. After the initial investment in the choice of commodity, one needs to follow the market and start buying and selling commodities online through the brokerage platforms. Hence, commodity trading is a good investment asset class if it is done wisely.
Before you know how to trade commodities, first set specific financial goals and carry out a comprehensive analysis or just use the guidance of industry professionals. Yields are high in the case of commodity trading but at the same time, the risk involved is high.
In the most simple context, commodities are known to be volatile investment ideas as they can be impacted by variables that are difficult, if not impossible, to anticipate, such as unpredictable weather conditions, epidemics, and natural and man-made disasters.