Commodity Trading Account
Currently the stock market and exchanges have seen a windfall in trading activity. This is in accordance with the fact that the number of Demat accounts in the country have increased multifold in the past year alone, and this is testament to individuals trading in stocks and other assets. With the recent inflow of funds in the stock market of India, India has earned a top spot among the ten most popular stock markets in the world. Having said all this about stocks being the ‘go-to’ assets for investors today, commodity trading has seen significant momentum with Indian investors. Continuing to play a pivotal role in the Indian financial arena, trading in commodities represents trading a group of assets or goods. Such assets and goods are the products we use in our daily lives. These include gas, coal, gold, coffee, silver, etc. Put simply, commodity trading is all about the purchase and sale of such products to earn profits.
Trading in commodities is a savvy way for investors to diversify financial portfolios. Related to the concept of commodities trading is derivatives trading in the stock market and exchanges. Derivatives represent financial securities of which values/prices are largely determined by underlying assets. These assets could well be stocks, currencies, bonds, commodities, etc. As the prices of commodities have shifts and movements that are different from stocks, traders and investors make use of trading in commodities as a countermeasure to ward off inflation and its effects. Commodity trading is not such a novel concept as it may seem. Trading in commodities has, technically, existed since ancient eras. This is because basic trading and bartering of goods has prevailed for decades. Merchants have always been involved in the exchange of goods to make gainful profits or raise the value of assets. Furthermore, the term ‘profit margin’ is not new in the current world of trading and has been around for centuries. Nonetheless, with the creation of the stock market and exchanges and its constant evolution, trading in commodities has changed into a form of selling and buying that is more professional. Earlier, individuals could buy commodities and store them in a physical fashion, but now these are traded on exchanges.
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About Commodity Trading Account
In order to trade in commodities, you have to open a commodity trading account. This is actually a trading account which is linked to a Demat account. A trading account facilitates your trading activity and transactions of ‘buy/sell’ orders can only be carried out with such an account. A Demat account is one which stores the commodities you buy in an electronic format. Commodity trading and investment is usually done with long-term prospects in mind, so a Demat account is necessary for stocking your assets. Both these accounts can easily and conveniently be opened at any reputed Indian broker, such as Motilal Oswal. Moreover, you can open both accounts in a simple online process, without much documentation, time and effort. A broker is a DP or a depository participant that is officially registered to trade on commodity exchanges on the behalf of investors.
How Commodity Trading Works
Similar to the way you trade online with stocks and shares, commodities can be bought and sold. The first thing that you should do to trade in commodities is to determine what commodity you wish to trade in. Depending on an individual’s varied financial goals and needs, several commodities may be considered. For instance, if you wish to trade and invest in gold, you may consider gold exchange traded funds (ETFs). You may buy the commodity you wish to at a price that is low and sell it when it increases, at some point in the future. Thus, you earn a profit on it. Commodity trading also involves investors trading with futures contracts. These are contracts wherein investors agree to purchase or sell a fixed quantity of a commodity at a predetermined price in the future. Such futures and options contracts are useful as a hedge against future risks.
What are the Various Types of Commodities?
Different commodities can be traded on exchanges that cater to distinctive commodities. For instance, the MCX (Multiple Commodity Exchange) lets investors trade primarily in gold and oil. Furthermore, when you open a commodity trading account, you should know what commodity you wish to trade with so that it is connected to the exchange. To decide what commodities to trade in, you should know the commodities that are available. These are mentioned below:
What are Commodity Exchanges?
Just as you have stock exchanges to trade in various companies’ stocks/securities, you have commodity exchanges for commodity trading. These are dedicated exchanges on which investors and traders can trade commodities and purchase/sell them. Essentially, this is an exclusive market area in which individuals may sell or buy commodities. Commodity exchanges may execute and conduct commodity trading in various commodities or a class of commodities in particular. Here are 4 main national-level commodity exchanges exist in India for commodity trading:
MCX or the Multi Commodity Exchange
This is an exchange in which you can trade commodities like metals predominantly (gold, silver, etc.) and oil.NCDEX or the National Commodity and Derivatives Exchange
Here, derivatives trading can be conducted in commodities related to the agri segment.NMCE or the National Multi Commodity Exchange
In this exchange, trading is conducted in commodities with contracts of futures and options. Commodities traded on this exchange range from oil seeds, jute, rubber and oils to pepper, cardamom, coffee and lentils.ICEX or the Indian Commodity Exchange
At this exchange, trading in futures is done for diamonds, steel, rubber and other commodities.
What are the Benefits of Commodity Trading?
On opening a commodity trading account linked to a Demat account, you can get a load of benefits when you engage in this kind of trading. Commodity trading is a super channel for any investor who wants to hike up their pool of finances. Below mentioned, are some of the advantages of commodity trading whether trading commodities on the MCX or any other exchange:
Diversification
For a financial portfolio to be balanced, weighing potential risks, it has to be diversified in a way that assets are allocated equally. Commodity trading is a perfect way to diversify asset allocation, reducing the risk factor in a portfolio.Reduced Manipulation
The stock market and exchanges are typically regulated by price shifts that are global in nature. This eliminates the risk of any manipulation in price that may occur internally.Inflation Hedge
The prices of commodities can prove to be a safeguard against inflation. In contrast to any other investment instrument, commodity prices move in a way that is the same as inflation. This is because inflation is the result of high prices of commodities in the first place. Hence, commodity prices can be predictable in a sense. Furthermore, the prices of commodities are bound to rise during high inflation periods in the nation and profits may be earned thereof.
Why Invest in Commodity Markets with Motilal Oswal?
Once you get a drift of how commodity trading can earn you substantial profits, you may think of seriously investing in commodities. These are usually long-term investments, and Motilal Oswal is the ideal place to start. Now, you’re probably thinking of why you should choose Motilal Oswal to invest with. Well, here are some great reasons to invest in commodities with Motilal Oswal:
Experience
Motilal Oswal has decades of experience in investing and trading. With experienced experts to help you make investments, you have your very own portfolio advisor to earn you profit in futures contracts, or any other commodity-style trading and investment.Monitoring Systems
You get a savvy portfolio tracking system that helps you to monitor your investments.User-Friendly Platform
Motilal Oswal gives you a user-friendly interface to trade commodities and an app, the MO Investor, to trade on the move.Reports
A broker as reliable as Motilal Oswal offers you up-to-date reports on commodities, so you can pick appropriate ones to invest in.Free Services
At Motilal Oswal, you can open a Demat account and a commodity trading account for free.Lower Margin
You can trade on lower margins at Motilal Oswal. This lets you earn a higher amount of profit.Various Commodities
Motilal Oswal gives you exposure to a wide spectrum of commodities to trade. Investors may choose to trade in bullion, agriculture, and energy. As commodities have a minimal, if any, correlation with other classes of assets, you are bound to earn profits with technical and expert guidance.Learning Potential
The online portal of Motilal Oswal enables you to learn about commodity trading through several instructional blogs and videos.Offers
Motilal Oswal is packed with offers for investors when they trade and invest. These include Amazon vouchers and deals on brokerage like cashback.
