Everything You Need to Know About Trading Account
Trading is not limited to stocks. There are ample trading opportunities in which commodity trading emerged tremendously in today’s world. It is easy and convenient to participate in commodity trading. Only an individual needs to have a commodity trading account.
Table of Contents
What is a Commodity Trading Account?
Before knowing a Commodity trading account, let’s understand commodity trading. Unlike the stock market in India, where you buy and sell stocks, commodity trading means buying and selling various commodities and their derivatives products.
Commodity trading account meaning: To participate in the commodity market, you must open a commodity trading account. Many stockbrokers in India provide the facility of opening a Commodity trading account.
Types of Commodities
It is essential to understand the different types of commodities available to trade in the commodity market. They got divided into four categories-
Agriculture Grains- Wheat, Basmati rice, Maize, Rice, and Jeera
Oil and oilseeds: Mustard seed, Castor oil, Refined soy oil, Soy meal, Castor seeds, Soy seeds, Crude palm oil, Groundnut oil, Cottonseed, etc.
Spices: Jeera, Turmeric, Pepper, Red chili, and Cardamom.
Pulses: Yellow peas, Chana, Tur dal, and Urad.
Metals and materials Base metals- Copper, Tin, Nickel, Zinc, and Aluminum.
Bulk commodities- Coking coal, Iron ore, Steel, and Bauxite.
Others: Chemicals, Soda ash, and Rare earth metals.
Precious metals and materials- Platinum, Palladium, Gold, and Silver
Energy- Alternative energy, Thermal coal, Natural gas, Crude oil, and Brent crude.
Services- Oil services, mining services, and others.
Commodity Exchanges in India
There are four major commodity exchanges in India. These are —
- Multi Commodity Exchange of India (MCX)
- National Multi Commodity Exchange of India (NMCE)
- Indian Commodity Exchange (ICEX)
- National Commodity and Derivatives Exchange (NCDEX)
Commodity Trading in the Multi Commodity Exchange of India (MCX)?
- Bullion
Silver, Gold
- Agricultural commodities
Palmolein, Crude palm oil, Cardamom, Mentha oil, Cotton, Black pepper, Castor seed, and Rubber
- Energy
Crude oil, Natural gas
- Base Metals
Lead, Nickel, Brass, Aluminum, Zinc, and Copper
Trading in the National Commodity and Derivatives Exchange (NCDEX)?
- Cereals and pulses
Maize rabi, Paddy, Barley, Wheat, Maize, Chana, and Moong,
- Soft
Sugar
- Fibers
Cotton, Kappa, Guar gum, Guar seed
- Spices
Turmeric, Jeera, Coriander, Pepper
- Oil and Oilseeds
Mustard seed, Cottonseed oil cake, Crude palm oil, Castor seed, Soybean, Refined soy oil
Which Types of Commodity Market are Available in India?
Commodity trading takes place in the following two markets.
- Derivatives markets
- Spot markets
- Other names for the Spot market are the cash market and physical market. Traders participate in exchanging physical commodities on an immediate basis.
- There are two types of Commodity derivatives in the Derivatives market: futures and forwards. In derivatives contracts, two or more parties can participate, and such contracts’ value comes from a group of assets, an underlying asset, etc. After a contract expires, the trader will get the physical delivery of the commodity or asset. Forwards are customizable and tradeable Over-the-counter (OTC), and futures are standardized and take place on exchanges.
Advantages of Commodity Trading
Diversification
Trading in the Commodity market is the best way to diversify your investment portfolio. Diversification allocates your investments across various securities, industries, and other categories to spread risks and maximize returns. If one market is down, it will ultimately not affect your investment portfolio.
Safeguard against inflation
With commodity trading, you can hedge against inflation. The prices of commodities rise in times of high inflation. It is resultant to maintain the purchasing power parity.
Protection against risk related to events
Supply can be disrupted owing to a natural disaster, an economic crisis, or war. You can leverage strategically on price swings and hedge against your investment.
Trading transaction transparency
Price manipulation will not be there from the buyer or seller side when commodity trading takes place over the exchange. The order will get executed only when there is a match between the buyer’s quoted price and the seller’s quoted price. Traders can look at commodities’ prices without changes.
Conclusion
Before moving towards commodity trading, you need to understand the commodity market thoroughly. You must have a commodity trading account with a stockbroker in India. Different stockbrokers come with various benefits and offer commodity trading account opening for their customers.
Frequently Asked Questions (FAQs)
Both speculators and hedgers drive the commodity market.
- Many factors affect commodity prices. Understanding these factors helps you make the strategies well in advance to trade in commodities.
- You should have a proper understanding of the demand-supply chain in commodity trading.
- Higher risk comes with commodity trading.
- You can leverage it highly.
- It is essential to have a better understanding of the commodity market.
- You can take help from experts.
- You must constantly monitor the market to stay up to date.
Some of the most popularly and globally traded commodities are Gold, Silver, Crude oil, Brent oil, Natural gas, Soybean, Cotton, Wheat, Corn, and Coffee.
Soybean: Soybean is one of the most traded raw materials. Often, it gets affected by different factors like weather, demand for the dollar, and biodiesel.
Gold: There is a special place for Gold on a global scale. An inverse relationship takes place between the Gold’s price and the dollar. For example, when the US dollar falls in value, investors buy more gold for security. While the US dollar rises in value, there will be a decline in Gold prices.
Crude oil or Petroleum: Crude oil rises in demand worldwide owing to global geopolitical conflict. Slewing in petroleum and diesel makes Crude oil’s price increase daily.