The standardised resources or raw materials that are used in the manufacturing of finished products are commodities. In terms of commodity trading, they are raw materials having an intrinsic value. These are unrefined resources which are used in the process of making refined goods that are sold and used by consumers in their daily lives. The quality of certain commodities may vary, but they are uniform based on some criteria in any class of a particular commodity.
In the market, there are two kinds of commodities for commodities trading. They are broadly categorised as hard commodities and soft commodities. Hard commodities are those which are used for inputs to produce other goods and services. These may constitute minerals and metals. Soft commodities are made use of primarily for the purpose of initial consumption, and these include wheat and rice.
Commodities can be traded on the exchanges for commodities or in the spot markets. If they are traded on any of the commodity exchanges, they have to meet some minimum standards of exchanges for trading to take place. Traders are able to make purchases of commodities through contracts of a derivative (futures and options) nature, or buy in the spot markets. You may have already had to open a demat account to trade in stock, but now you should turn your view to commodities. They offer a great way to diversify a financial portfolio. Since the direction of prices in the commodities markets shift in sharp contrast with stock prices, you can partake in online commodity trading when the stock markets display volatility.
Resembling other markets, commodities markets are either virtual or physical spaces in which any interested investors trade in commodities. These are generally raw products which are traded in currently or at a future time (as with futures and options contracts). Prices of commodities, as history tells us, are largely dictated by demand and supply variables, which in turn may be influenced by factors of a geopolitical nature. If you wish to partake in commodities trading, you have to do some background work based on the commodity or commodities you want to trade, just like you have to do some background checking if you invest in any company offering an upcoming IPO subscription. This brings us to the types of commodities you can trade in and their implications for price changes.
In the world today, there exist 50 main commodity markets. These trade in excess of 100 commodities. Broadly speaking, traders and investors can invest in four primary categories of commodities:
On an international playing field, the commodities which are the most traded are Brent oil, crude oil, silver and gold, natural gas, corn, coffee, wheat and cotton.
The MCX in the Indian context of commodities trading stands for the Multi Commodity Exchange of India. Traders and investors can trade commodities like agricultural commodities (cotton, palm oil, castor seeds, etc.), energy commodities (crude oil and natural gas), base metals (brass, zinc, aluminium, copper, nickel, etc.), and bullion (silver and gold) on this exchange.
On the National Commodity and Derivatives Exchange (NCDEX) in India, traders may also trade soft commodities like sugar, and other commodities like pepper, castor seed, refined soy oil, etc.
In India, trading in commodities is regulated by the Securities and Exchange Board of India or SEBI. The commodity exchanges work according to rules and regulations under its watchful eye. This brings in a lot of transparency in trading activity and draws many investors. This is just one among key advantages of commodity trading and more are explained below:
Conventionally, investing in stocks has become something of a boring investment activity for many traders. Although the stock markets see the most investment activity globally, those who already have a satisfactory stock portfolio can venture into commodities trading. It is easy to do online as you just have to open a demat account along with a linked trading account. As with any investing, you will need a linked bank account for the seamless flow of capital too. While you are in the process of diversification, you may want to check out any upcoming IPO investment too.
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