Frequently Asked Questions
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What is commodity market?
A commodity derivative market is the platform for trading of commodities that fall under the four segments of agricultural commodities, bullion and gems, metallic commodities and energy commodities. Derivatives are financial vehicles whose valuation is based on the asset value of equities, currencies, or commodities. Any commodities derivative contract, therefore, has commodities as its prime asset. Based on the exchange of derivative contract based on commodities, a commodity derivative market is a prime source of market variations.
Why invest in commodities?
Investing in commodities helps diversify your overall investment portfolio, which means that the allotment of funds is broadened. This helps create a balanced portfolio and also helps mitigate the chances of any unwanted risk, generally associated with equity investment. Moreover, investment in commodities acts a cushion against future inflation as the commodity trade generally increases in volume during times of high inflation. Also, commodities constitute an economically cheap category of investment vehicles when compared to other future based alternatives.
How to start commodity trading?
For trading in commodities, you need a Trading account. A Trading account can be opened with a certified brokerage firm. This trading account serves as the exchange place for trading in the commodity market. It must be noted, however, that the broker that you choose must be registered with commodity exchanges. The notable commodity trading exchanges in India are MCX and NCDEX. The first step, however, is to understand and list your goals and the type of market that you wish to deal with. There are a variety of options for trading in commodities and you should choose as per your financial consultation and your risk appetite.
Which exchange should I select for trading?
You can choose either MCX (Multi Commodity Exchange) or NCDEX (National Commodity and Derivatives Exchange. The broker that you choose must be registered with both of these or with either of them. Just like a futures exchange, both MCX and NCDEX trade in standardized contracts; however, while MCX is a leading exchange for gold and metal commodities, NCDEX is the leading exchange for agricultural commodities. Thus, the choice of commodity segment definitely marks your choice of an exchange.
What is difference between goods and commodity?
A commodity can be thought of as an ingredient for a finished good. Goods are the final result that we get after value addition is done to commodities. For example: yarn is a commodity and once processed, the final textile that we get is a good.
How safe is commodity trading?
Financial specialists emphasize the need to include commodities in your trading portfolio because they act as a hedge against inflation and at the same time, diversify your fund allocation to increase the degree of safety of investment. Therefore, commodity trading is fairly safe and low risk mode of trading.
Do commodity traders make a lot of money?
The amount of money that a commodity trader can make depends on the market choices made, the quality of commodities traded, the valuation (both net and gross) and finally, on the degree of balance achieved in the overall portfolio. Commodity traders can and do make lot of money but the quantitative aspect is not so much important as is the qualitative one.
How much can one earn in commodity trading in India?
Commodity dealers get up to multiple times influence for intraday trading. Contrasted with stocks, trading in products is a lot less expensive, on the grounds that edges are a lot of lower than in stock prospects. Again, the net amount that can be earned depends on which stocks you invest in and the risk to reward ratio that is generated by the varied parameters that influence the commodity market.
How much do commodity traders earn?
The earnings of a commodity trader depend on the number of ventures, the gross profit over each venture, the risk calculation, the incurred losses (if any) and price fluctuations.
Which is better equity or commodity?
It all depends on what your specific goals are. Equity markets in India and elsewhere are known for the higher rate of returns over a period of time. However, equity stocks come with a higher volume of risk as well, when compared with commodity trading. On the other hand, the earnest profits in commodity market are lesser, but so is the risk involved. If you prefer high risk trading, then equity is the right channel for you. On the other hand, if you prefer low-risk but steady ventures, then you should allot more funds towards commodities.
What makes a good commodity trader?
<p>A good commodity trader must fulfill the following criteria:</p> <ul> <li>He/she must be well versed with the technicalities involved in pricing mechanisms of commodities.</li> <li>He/she must be aware of the global scale supply-demand ratio of the commodities.</li> <li>He/she must have the required dedication and patience to gradually divulge and create a sustainable trade base.</li> <li>He/she must have the ability to take informed and quick decisions and must be able to make strategies as per the market dictums.</li> </ul>