Trading in Commodity

Before we understand about commodity trading, allow us to know what commodity means. A commodity is anything in the market, on which you may place a value. It may be a market item resembling food grains, metals, oil, which assist in satisfying the needs of the availability and demand. The price of the commodity is subject to differ based on demand and supply. Now, back to what’s commodity trading?

When commodities such as energy (crude oil, natural gas, gasoline), metals (gold, silver, platinum) and agricultural produce (corn, wheat, rice, cocoa, coffee, cotton and sugar) are traded for a financial achieve, then it is called as commodity trading. These will be traded as spot, or as derivatives. Note: You can also trade live stocks, reminiscent of cattle as commodity.

In a spot market, you buy and sell the commodities for fast delivery. Nonetheless, in the derivatives market, commodities are traded on various financial principles, akin to futures. These futures are traded in exchanges. So what is an change?

Trade is a governing body, which controls all of the commodity trading activities. They guarantee smooth trading activity between a buyer and seller. They help in creating an agreement between purchaser and seller by way of futures contracts. Examples of Exchanges are: MCX, NCDEX, and ECB. Wondering, what a futures contract is?

A futures contract is an agreement between a buyer and seller of the commodity for a future date at as we speak’s price. Futures contract is totally different from forward contract, unlike forward contracts; futures are standardized and traded based on the terms laid by the Exchange. It means, the parties concerned within the contracts do not resolve the phrases of futures contracts; but they just accept the phrases regularized by the Exchange. So, why spend money on commodity trading? You invest because:

1. Commodity trading of futures can carry enormous profit, in short span of time. One of many important reasons for this is low deposit margin. You end up paying wherever between 5, 10 and 20% of the total value of the contract, which is far lower when compared to other forms of trading.

2. Regardless of efficiency of the commodity on which you’ve invested, it is easier to purchase and sell them because of the good regulatory system shaped by the exchange.

3. Hedging creates a platform for the producers to hedge their positions based mostly on their publicity to the commodity.

4. There is no such thing as a company risk concerned, when it involves commodity trading as opposed to stock market trading. Because, commodity trading is all about demand and supply. When there’s a raise in demand for a specific commodity, it gets a higher worth, likewise, the opposite way too. (may be based mostly on season for some commodities, for example agricultural produce)

5. With the evolution of online trading, there’s a drastic development seen in the commodity trading, when compared to the equity market.

The data concerned in commodity trading is complex. In as we speak’s commodity market, it is all about managing the data that’s accurate, replace, and includes info that enables the customer or seller in performing trading. There are many companies within the market that provide options for commodity data management. You should utilize software developed by one in all such companies, for environment friendly management and evaluation of data for predicting the futures market.

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