Commodity trade has a long history in India. It began far earlier than many other countries, and it predates equities and bonds. However, given India’s tumultuous geopolitical history and the government’s shaky support, it was pushed to the sidelines. In recent years, it has progressively regained its prominence.
There are six major commodity trading exchanges in India as listed below.
- Multi Commodity Exchange – MCX
- National Commodity and Derivatives Exchange – NCDEX
- National Multi Commodity Exchange – NMCE
- Indian Commodity Exchange – ICEX
- Ace Derivatives Exchange – ACE
- The Universal Commodity Exchange – UCX
The Forward Market Commission (FMC) was in charge of commodities, same as the SEBI was in charge of Indian securities markets. However, in 2015, the two merged.
Commodities are divided into four categories as a general rule. Metals, which comprise Silver, Gold, Platinum, and Copper, are the first category, followed by energy, which includes crude oil, natural gas, gasoline, and heating oil. The other two categories include agricultural commodities such as corn, beans, rice, wheat, and so on, and livestock and meat, which includes eggs, pork, and cattle, among other things.
What method do we use to trade?
Futures are the best option to invest in commodities (they are available for almost every commodity category). They can be used to mitigate the risks associated with price fluctuations.
Futures trading includes a number of benefits as well as drawbacks. The futures market is extremely liquid, and there is a lot of room for profit if you trade it correctly. Commodity futures trading requires a very low balance in terms of technical requirements.
At the same time, investors should be aware that the futures market is extremely volatile and carries a high level of risk, as prices can fluctuate significantly before a position is closed.
Other options for trading commodities include exchange-traded funds (ETFs) and exchange-traded notes (ETNs) (ETNs). They can be used to profit from price movement without investing in the asset, in this case the commodity itself, just like the stock market. Mutual funds are an indirect way to invest in commodities because they invest in firms whose operations rely largely on commodities, such as agricultural or mining companies.
Finally, investors can do so via the MCX trading platform. It serves the same purpose as the BSE in terms of stocks.
Why do people trade commodities?
Commodities are a method for most people to diversify their portfolio beyond traditional assets. They’re especially handy during periods of stock market volatility because they tend to move in the opposite direction of stocks.
Despite the fact that it is a market rife with uncertainty – commodity demand and supply movements are frequently influenced by things like unusual weather patterns, epidemics, and natural and man-made disasters that no one can predict or control – commodities have become a very valuable tool for hedging one’s portfolio.
Global economic trends and technological advancements, particularly in the metals sector, are another factor that influences commodity pricing. India’s and notably China’s spectacular rise to become global industrial powerhouse shifted the scales in Asia’s favour when it came to commodities trade. As a result of the increasing demand for metals and the restricted supply, their prices skyrocketed, resulting in a commodity boom.
Other macroeconomic factors, such as OPEC (Organisation of Petroleum Exporting Countries) actions, can affect the price of energy commodities like crude oil, so investors should be aware of these.
Investors in the agricultural sector should be mindful of changing weather patterns and account for the risk properly. Territories with strong population growth but low agricultural supply are ripe for the picking.
Why should you invest in your own education?
As previously stated, many parts of commodities trade are unpredictable. Rather than being considered as a danger, this should be viewed as an opportunity. With the right information, one may make the most of this chance. As a result, it is most profitable for newcomers to begin with a commodity trading course. A good commodity trading course will explain key ideas initially, then lay a solid foundation before moving on to more difficult topics. You will learn how to implement these theories in your investing/trading adventure side by side. Technical analysis, demand and supply trends, and global macroeconomic indicators are all examples of approaches to analyse commodity patterns.
A comprehensive commodities trading course will assist you in determining the suitable criteria on which to base your actions and maintaining a healthy risk-reward ratio.
A good education can also help you have a thorough understanding of commodity trading regulations and help you make smarter selections. Finally, they will assist in developing the proper mindset for this voyage. In any type of security or asset trading, psychology plays a significant part, and mastering one’s emotions is enough to distinguish an expert from a novice. As a result, one should not skimp on the resources they employ to educate oneself.
If you wish to learn more about commodity and currency trading in India, check out this course by FinLearn Academy on Introduction to commodity and currency trading. You will be able to learn the basics and master it with the advanced trading strategies