Commodity Trading Basics for Beginners

This articles explains beginner level commodity trading. Do you have doubt what actually commodity market is? Commodity trading is? Commodity exchange is? Then you are landed in the right place. Here we will explain the commodity trading concepts from the scratch.

commodities

What is commodity trading?

Buying & selling of any products are called ‘TRADING’. In Commodity Trading, retail customers / traders are doing purchase & selling of products through the exchange MCX (Multi Commodity Exchange) with the help of Internet/Online.

Major Commodity products are: Gold, Silver, Copper, Aluminum, Nickel, Zinc, Lead, Crude oil, Natural gas.

How Can I Trade in Commodity Market?

There are two types of trading are there:

  1. Online trading: By Using Internet you can trade on your own – Buy/sell independently. (Advantage : By trading on your own- no one is misguide / Broker can offer lower brokerage)
  2. Offline trading: With the help of Dealer working in your Broker Company you may call and trade. (Advantage : You can trade anywhere by phone- call and trade/ Dealer may help right entry / exit)

You can choose the option which one is suitable on you.

Commodity Exchanges:

  1. MCX (Multi Commodity Exchanges) &
  2. NCDEX (National commodities derivatives exchange) are the two major exchanges in India.

mcx_ncdex

MCX – International/ Global products like Gold, Silver, crude oil are trading in this exchange with more volume& liquidity.

NCDEX – Including metals like Gold, Silver and Agri products are trading in this exchange.

Commodity Regulators:

Like SEBI in equity market, FMC – Forward market Commission regulates the commodity market.

Difference between Online Trading & Physical Trading

ONLINE TRADER PHYSICAL TRADER
Margin is low here 10% enough Full margin needed
Safe your position in exchange/computer Need to safe in locker/warehouse
Charges are very less (1/10 of physical trade) Charges are high
No need Need manpower/warehouse/transportation
Risk & return is high Moderate

Trading example for online trading

Mr. Vishal, thought of increasing copper prices on coming months, so decided & purchased copper at 425 * 1000 kg = 4,25,000/- he paid initial margin of 6% 24,000/- only, as per expectation price went up by 5rs in a month i.e 430rs/- He booked profit 5*1000 kg = 5000/-

So = 24,000 margin investment+ profit 5,000 = 29,000/– (   )his current CAPITAL amount.

If prices are unfortunately comes down by 5 rs means he made a lose of 5,000/-

Here, 24,000 margin investment- loss 5,000 = 19,000/- his current CAPITAL amount.

High returns / high risk of 5,000/- is possible by investing 6% of margin 24,000/- in commodity online trading.

 

3 Comments on Commodity Trading Basics for Beginners

  1. Thank You for this post which makes me aware of some Basic for Trading in Commodity Market of India. Your Commodity Trading Beginner Guide helps me lot. thanks…

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