Invest In Commodities
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Things You May Also Like to Know
Which commodities are best for trading in India?
Here are a few items that are frequently traded in the Indian commodity market.
- Crude Oil
- Copper Cathode
- Natural Gas
- Farm Commodities
What are the commodity trading hours in India?
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.
Is commodity trading in India profitable?
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.
How do I start trading in commodities?
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.
Is commodity trading suitable for a retail investor?
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.
What are the various factors to be kept in mind before trading in commodities?
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
Who are the participants of the commodity market?
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
Do I have to open separate Demat & Bank Account?
To trade in commodities, you’ll need a separate commodity trading account and commodity DEMAT account. A commodity trading account enables you to trade in commodities in the commodity exchanges.
What are the working hours for the commodity exchanges?
Commodity exchanges, MCX, ICX and NCDEX, remain operative from 9 am to 11 pm, except weekends and national holidays.
Who regulates the commodity exchanges?
The Security and Exchange Board of India is responsible for regulating the commodity derivatives market. Before SEBI, until 2014, the Forwards Market Commission acted as the regulatory body of the commodity market.
How risky are these markets compared to stock & bond markets?
Risk is present in all forms of investment, but the commodity market is riskier compared to the stock market; mainly because commodity traders trade in a futures market with a high degree of leverage. Leverage is the primary reason why so many new traders lose money in commodity trading.
What is a commodity trading account?
Like a trading account for stocks, you need a commodity trading account to trade in commodity exchanges.
You open a commodity trading account with a trading member or broker. Nowadays, the whole process of opening an account has become online.
How do you trade commodities online?
Commodity trading has become fast and efficient with the online process. Now you don’t have to take the trouble of contacting the broker and wait for him to execute the buy/sell. To trade online, you need to open an online commodity trading account, which only takes a few minutes. Once the account is active, you can start transacting immediately. The broker website or the exchange will have a list of all active trades in the exchange; all you’d need to do is select the one you find appealing.
Which broker is best for commodity trading?
Select a broker who gives you wide options across the asset classes for investment. Select a broker based on the following criteria,
- Affiliation with the exchange
- Proven track record
- Market reputation
- Wide client base
- Competitive brokerage fees
- Online trading facilities
- Prompt customer service
What is margin in commodity trading?
Margin is a part of a commodity traders life. In simple terms, margin means borrowing money from the broker to take a position in the derivatives market. Commodity futures are highly leveraged instruments, where traders can enter the market by paying only a fraction of total trade volume. For example, gold futures require a margin of 4 percent, which means one can trade up to a volume of Rs 1 crore by paying only a margin on Rs 4 lakhs.
Do I need to pay sales tax on all trades? Is registration mandatory?
When you are trading in commodities in India, there are additional taxes apart from standard Securities Transaction Tax (STT), GST, and stamp duty, that apply to equity trading. Commodity trading includes additional VAT, cess, and sales tax since it involves physical movement of the underlier. It is because commodities are the source of revenue. The government uses tax as a restrictive measure to prevent speculation build up on commodities classified for mass usage.
What is the date of expiry?
The derivatives expiry date is a future date when the contract will expire. Like for commodity futures, the contract expires on the last Thursday of a month. If you trade in the commodity market, you need to be careful about the expiry date of the agreement to avoid ending up on the wrong side of the trade.
Does the exchange guarantee the trades/settlement?
Yes, the exchange safeguards the interests of the parties involved in futures trading.
The clearinghouse acts as the counterparty, and the trade happens through the clearinghouse. For example, seller A sells the asset to the clearinghouse, and buyer B buys it from the clearinghouse. In case one party fails to meet the commitment, the exchange settles the other party account from the Settlement Guarantee Fund.