To trade in commodities, you need to open a commodity trading account with a broker.
This type of trading is essentially in futures and options of products like agriculture (wheat, cotton, etc.), minerals (petroleum), and precious metals (gold, silver, etc.).
Commodity futures and options
Before you open a commodity account, you need to know a little bit about derivatives. There are two main types of products – futures and options. Futures contracts give you the right to purchase or sell a certain amount of a particular commodity at a predetermined date in the future. Options give you the right, but not the obligation, to buy or sell a specific commodity at a predetermined price in the future.
Futures and options are traded on commodity exchanges like Multi-Commodity Exchange (MCX) and National Commodity and Derivatives Exchange (NCDEX). Only members (brokers) are allowed to trade on these exchange, so you need to open commodity trading account with a broker like AngelBroking.
How to Open Commodity Trading Account
Note: You can do commodity trading account opening online by filling in all details online and submitting the documents at our nearest AngelBroking office.
You will also need to deposit margin money before you start trading in commodity futures and options. The initial margin is a percentage of the transactions you carry out and could vary from 5-10 percent. Lower the margin, the higher the leverage. If you trade in Rs 10 lakh worth of futures, you will have to pay Rs 50,000 as initial margin if it is 5 percent. This percentage is fixed, and if price movements are adverse, you might have to pay additional mark-to-market (MTM) margin on your transactions.
Commodity Trading FAQ’s
Here are a few items that are frequently traded in the Indian commodity market.
- Gold
- Crude Oil
- Copper Cathode
- Silver
- Zinc
- Nickel
- Natural Gas
- Farm Commodities
The commodity trading market operates from 10 am to 11:30 pm to capture the full extent of global market movements in all traded categories.
Many people will tell you that it isn’t because it’s very different in nature. In the commodity market items are traded through futures contracts, which are sold differently. For a new trader, it can be challenging to make money initially through futures contracts.
There is more than one way to trade in commodities.
- Direct investment in commodity trading
- Investing through futures contracts
- Buying shares (from the exchange) of companies that produce these commodities.
- Buying shares of Exchange-Traded Funds (ETFs) that primarily invest in these commodities.
Yes. It is a good option for retail traders. It’s less complicated than tracking share performance and planning the right entry point. The commodity market is driven by strong trends, determined by demand and supply differences in the global market.
If you’re considering diversifying your portfolio, then include commodities trading to it.
Here are a few points to keep in mind while trading in the commodities market.
- Commodity prices are influenced by shifts in global demand and supply
- Economic trends are critical to determining market trends, a strong economy will push commodity prices upward, and a weak economy will do the opposite
- The sectoral performance will also influence commodity prices like industrial performance will determine the demand for metal commodities
- Commodities are volatile and therefore, risky
- You can select to invest in a group of commodities
- It may take you some time to master the art of trading in commodity markets
- It involves paperwork
It involves both individual and institutional players. You’ll find the following participants in the commodity market.
- Market speculators
- Directional Margin Traders
- Spot/Futures Traders
- Price Hedgers
