What’s Commodity Trading?


February 26, 2018

Commodity trading is definitely an investing strategy which involves exchanging of commodities. Commodities are understood to be something which is regarded as of worth, includes a quality that’s standardized, and it is created in considerable amounts. When individuals purchase commodities, they often think when it comes to ‘commodities’ which are sources which may be purchased for an array of uses. For instance, metals whether precious or non-precious, are thought an investment and traded based on the number of goods that may be created with them like a key component.

Who invests in Commodity Trading?

Commercials: Entities active in the production, processing or merchandising of the commodity. In commodity trading, both player and the organization for instance ITC (a number one FMCG firm), which procures wheat in the maqui berry farmers, might be referred to as entities.

Investors: Several investors that pool their cash together to lessen risk while increasing gain.

Retail Investors: Individual commodity traders who trade by themselves accounts or via a commodity broker in order to benefit from the cost fluctuations.

Why Commodities Trading?

Commodities may be the only asset class that’s negatively correlated to bonds, which makes them an important tool for diversification. In most cases, bonds are just minimally correlated with stocks, but commodities have really been negatively correlated to both bonds and stocks in the past. Quite simply, when bonds and stocks increase, commodities have a tendency to decrease.

How Commodities Trading works?

Say, if you wish to make the most of rising gold prices, a much better strategy is to purchase gold via gold futures in the commodities exchange instead of really visiting the market and purchasing it.

So far as gold future trading is worried, you undertake three things.

1. Buy the quantity of gold specified by anything.

2. Purchase it in the cost specified by anything.

3. Purchase it around the expiry from the contract. This may be after 30 days or even more.

Pre-requisites of Commodity Trading

To be able to trade commodities, you have to first find out about contract specifications of each commodity as mandated through the exchange, not to mention find out about trading strategies. Basics stay the same just like any other investment -buy low then sell high.

Much like equity trading, Investors are needed to spread out a trading account having a broker or sub-broker documents creating address and identity proof are needed. While brokers vary around the documents needed for proof, most insist upon a PAN card as evidence of photo identity. Banking account facts are also requested for enabling remittance and payment.