Aspects to know about Commodities Market in India

By- Shubhank Andhwan

Commodity Trading has been around for years in India. These are some assets that are important in our daily lives. This makes them alternate and exchangeable by nature. Hence, every movable good is bought and sold for profit except for actionable claims and money. Despite other forms of Stocks, Commodity Trading has retained its importance. This is because it offers higher profits when traded carefully.

When you engage in such a trade, you participate in the Commodities Market. Here, perishable and non-perishable goods get exchanged for profit. This includes spices, energy, agricultural products, precious metals, etc. They get broadly categorised as hard and soft commodities. This trade is great for diversifying your portfolio. But brush up on your basics before entering the market. Here are some aspects to consider:

Price determination

For successful Commodities Trading, understand the pricing. This primarily depends on the demand and supply, both domestically and from foreign sources. Socio-economic conditions and speculative news also affect commodity prices immensely. Other factors include global scenario, rise in production cost, Stock and Bond Market performance, etc. Having an outlook on these aspects includes making informed trading decisions.

Commodity exchanges

To participate in the Commodities Market, know the exchanges. These are regulated markets where Commodity Trading takes place. You can opt to deal in Future Contracts instead of taking physical deliveries of Commodities. It is an agreement that lets you buy or sell a fixed quantity of goods at a pre-decided price. Some of the popular exchanges for the same are:

• 1.National Commodity and Derivative Exchange (NCDEX)
• 2.Indian Commodity Exchange (ICEX)
• 3.National Multi Commodity Exchange of India (NMCE)
• 4.Multi Commodity Exchange of India (MCX)

Commodity Trading has been around for years in IndiaUnsplash

Participants

Trading in this market holds importance for two individuals based on the operations. Consider the suitability before deciding the participant you want to become. The categories include:

• 1.Hedgers: These investors protect themselves from market volatility by entering Futures contracts. This way, change in the price levels does not affect them. Most of them trade physical goods requiring stipulated commodities for resale purposes. If you want a level of security, consider becoming a hedger.
• 2.Speculators: Investors wishing to generate substantial profits adopt this role. Here, a prediction regarding the market movement is assumed before signing the Futures contracts. Depending on the accuracy, they incur positive or negative returns. Physical possession is not essential here, and cash settlement is better. You must do trading in this way to analyse the Commodities Market before trading.

Margin requirement

You need not pay the total cost of the Commodities Futures contract. Instead, buying and selling with a margin in your Trading Account is feasible. This generally gets valued at 5% to 10% of the actual contract value. Besides, you also must maintain an additional margin to accommodate the losses.

Disclaimer – ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. – ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai – 400 025, India, Tel No : 022 – 6807 7100. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.

Disclaimer: (This article is sponsored and includes some commercial links)