You're in for a surprise if you thought the equity market was the only financial market in the world. In reality, the currency market and the commodities market are two other financial markets that are just as popular as the stock market. Let's take a closer look at the specifics of the commodities market and try to grasp the fundamentals.
Commodities are bought and sold in the commodities market in the same way that stocks are traded in the stock market. This financial market is commonly used as a price discovery method for numerous goods and commodities by producers, manufacturers, and wholesale merchants.
There are dedicated commodity exchanges, just like there are dedicated stock exchanges, that allow market players to conveniently buy and sell commodities online. In fact, India currently has three principal commodity exchanges: the Multi Commodity Exchange (MCX), the National Commodity and Derivatives Exchange (NCDEX), and the Indian Commodity Exchange (ICEX).
The majority of traders and investors simply divide traded commodities into agricultural and non-agricultural commodities. Non-agricultural commodities are divided into three groups: bullion, energy, and base metals. Here's a quick rundown of the many sorts of commodities that are commonly purchased and sold on the exchanges.
- Gold and silver bullion
- Crude oil and natural gas
- Agriculture products
- Base metals
To begin investing in commodities, you must first open a commodity trading account with your preferred brokerage firm. You simply need a trading account, not a demat account, because commodities are actual items rather than electronically held securities. However, you can invest in the commodities of your choice in one of two ways: through a futures contract or through an options contract.
Derivatives include both futures and options. They get their value from the underlying asset, which is the commodity in this case. When you buy or sell a derivative contract, you're basically agreeing to buy or sell the underlying asset at a certain price and quantity at a predetermined period in the future.
While having the commodities physically delivered to you is one way to invest in them, you can also take advantage of short-term price fluctuations. You may invest by purchasing futures or options on your favorite commodities, holding them for a period of time, and then selling them before the contract expires to profit.
Your path into the commodities market, like most internet investments, begins with the requirement to open a trading account with a brokerage business. You can start investing in numerous commodities of your choice through derivative contracts such as futures and options after you have your own trading account set up and ready.
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