Basics of Commodity and Future Trading


Commodity Trading:

Commodity trading is a one type of trading of commodity products, goods, raw materials and agriculture product on major commodity market exchanges via standardized contracts. The first question is that, what are commodities? and how to trade them. It is very essential to recognize what commodities are and why populace trades them.

Most of the common commodities bought and sold around the world include metals like gold, copper, silver etc.; Energy products like gas, oil, etc.; Agricultural products like corn, sugar, cotton, coffee etc. The prices of these commodity products measured by on its demand & supply in the world wide market. Many types of broker and adviser are available in the market that can guided you and provide efficient Commodity Tips.

There are 3 types of major national commodities exchanges in India.

  • National Commodity and Derivatives Exchange Ltd,
  • Multi Commodity Exchange of India Ltd and
  • National Multi Commodity Exchange of India Ltd.

 Apart from these commodity exchanges, about 18 other domestic level commodity exchanges are also managing in India.

Why commodity trading?

Why are the people trade in the commodities, and how to. The one only main reason of this trading only profit and earn money.  After this many of other advantages and benefit of this commodity market investment also attract the new investors towards it. Liquidity is most important advantage of this. In the presence, participation of many speculators and investor, the commodity trading market is among the much more liquid in the world.

Apart from this liquidity, commodity products trading also gives leverage, which give us the permission to manage for margin money. This means that, people can build large-value market transactions by paying a little part of the whole transaction value.

Moreover, the commodities market permitted for making profit from the decreasing market as well. By this you can invest your money downside as well as upside, according to the price movement of commodities.

The commodity market has more risky, if the price movement is constant. It provides the opportunity for us to make big profits with the help of good and reliable MCX Tips by the advisory company as like TRIFID RESEARCH. Besides, if the positions are hedged properly, risk is reduced significantly.

Major Points That Impact Commodity Rates?

On the basis of the utter volumes traded each and every day, the commodity market is the second biggest market in the world after the Forex market. According to given volume of the market and different types of the offers, it is very difficult to know the actual reasons that bring movements in this commodity market. However, In the short and long term trading, there are many factors that can affect the commodity product price movements.  Mentioned below are some of them.

If the supply of a commodity is less than demand, its rats increase. There has been forever some difference between the two, when it comes to supplies, which outputs in constantly changeable prices.

Weather conditions:

The agricultural goods are the biggest commodities that can be traded in world commodity markets. And the production and creation of these Agriculture goods based on the weather. Sudden changes in climatic situations like draughts or inadequate rainfall might affect the accessibility of agricultural products in the world commodity market,

Economic & political conditions:

Every country has its own weak or strong economic system and its political issues. That can affect the commodity prices. That are consuming & producing them. For instance, for the period of the Gulf War in the Iraq—which was a very big producer of crude oil—the rate of crude oil fluctuated very commonly. Moreover, very weak economic conditions decrease the spending power of the consumers, leading to go down in demand, which output in movement in rates.

Government policies:

Any type of changes in the govt. policy, particularly the ones impacting export or import cost to the traders will have an enormous impact on commodity rates. If, for example, If the govt. of India increases the import duty of edible oil. Its rates will explain a proportionate increase and vice versa.

These are factors can affect the price movement of commodities. And many other factors like seasonal variations, inflation, and currency movement’s etc. are majorly dependable for price movement in the commodity market.

What Are Commodity Futures?

This is one type of agreement or contract between the two parties or trader agreeing to sell or buy a certain lot size of a commodity on an upcoming date at a fixed rate. On this future date, the traders (buyer) have to give the price that was decided when the agreement was made, and the trader (seller) has to move the rights of the said commodities to the buyer.

So, if you consider some fixed commodity prices as like coffee, will increase in the next week, you can purchase a future agreement which deals to sell coffee at the current rate. When this commodity agreement transfers in your own name, you can anytime sell it at a good profit. However, if the rate falls, you will have to lose in you sell agreement. If you want loss free trading in commodity future you can take advice and Free NCDEX Tips from the market side.

Where to trade?

Commodity futures, as like currency derivatives, permit you to manage on a margin base. This means that you require investing only a little percentage of the whole transaction wroth while trading. This permits you to make more profit, with a very lesser amount (until exposed you to a high risk).

Things to remember

While incoming into a commodity future agreement, it is very important to point that the buyer must sell his holdings, previous to the last date of the agreement. Not closing an existing situation might result in control of a large quantity of surplus commodities.

What Is Hedging?

General put, hedging is the one type of your portfolio. When the people hedge, they are, in realism, insuring their commodity market investment against any type of unpredicted events and happens. Hedging doesn’t prevent, such as events, but decreases the impact they may otherwise have on your portfolio.

Portfolio managers, corporations, retail investors as well as governments utilize this hedging to decrease their risk exposure. Conversely, when it comes to dealing with commodity products, hedging is not as easy & simple as paying your premium. To offset the peril arising from one tool, many traders use other type of instruments.

How does it work?

The fluctuation of commodity prices is constant. If the traders want to secure themselves from the peril of the future movements, they trade positions in the commodity futures markets.

We can understand this with an example. If an individual person involved in the sugar processing, believes that the rate of sugar—which is presently say Rs 30/kg—will increase in the upcoming months, he will always buy a position in the commodity futures market at today’s rate. So, even if the rate rises from the Rs 30/kg to Rs 33/kg in a single month, he will acquire a rate of Rs 30/kg from the seller side at the end of the agreement. This act of buying very long positions to neglect upside risk in the commodity futures market is called long hedging.

Similarly, A farmer anticipates, that the rate of wheat might go down from Rs 60/kg to Rs 50/kg, he will sell commodity futures contracts at the current price (i.e. Rs 60/kg). So, even if the rate falls to Rs 50/kg, he will still find Rs 60/kg according to the agreement. This act of a selling position in the commodity future market in order to guard one’s investments in opposition to downside peril is called short hedging.

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