What To Remember When Doing Commodity Trading?

Stock Market trading happens in numerous ways. The most prominent ones are Company Shares, Exchange-Traded Funds, Currency, etc. Among these, commodities like iron ore, fossil fuels, precious metals, and livestock provide unique opportunities to sophisticated investors. Their ever-changing prices are the major contributor to profits. However, investing in the commodity market requires specialised knowledge.

They also carry varying risks, like well-known investments. You can invest in agricultural products and natural resources, which opens new possibilities. With the different commodity investments, you can benefit from diverse risk levels. Before taking the plunge, remember some essential factors for efficient trading. These include:

Margin requirements

This is the deposit required by exchanges on the products they offer for trading. It is a prerequisite in commodities. The minor investment is generally 5% to 10% based on the contract value. This is the initial margin amount. Besides this, you also need to have a maintenance margin. This covers the losses when the market gets adversely affected.

Commodity trading exchanges

You can trade securities on the stock exchanges. Similarly, commodities also get traded in the exchanges that pertain to them. You need to learn about them before starting the trading journey. They get traded at three significant exchanges in India: the National Multi Commodity Exchange of India, the National Commodity and Derivative Exchange, and the Multi Commodity Exchange of India.

Trading plan

Like other trading avenues, you need a strategy for commodity trading. It enables you to gauge your financial capabilities, risk appetite, and trading style. As a single trading plan does not suit every trader, the broking company assist with your decisions. It does so by providing the required knowledge, practice, and information. You also get suitable technical and financial analysis tools and platforms for effective trading.

Attributes

Every commodity has dedicated properties. It is crucial to understand what an investor wishes to buy or sell. You get this information on the exchanges through price, volume, and open interest. Understand this and analyse the markets for informed commodities trading in India.

Market behaviour

Like Shares, commodity prices rise and fall with demand and supply. This is because it is a volatile investment. Suppose the demand falls and the supply increases. As a result, prices go down. Once the lower prices attract investors, the price again rises after reaching the bottom. Prices may increase, and the cycle repeats. Based on these trends, you should understand when the market is supportive and repulsive.

Analysis

Two types of analysis help with commodity trading: fundamental and technical analyses. You use the former to understand the feasibility of buying or selling. This is based on research on total supply vs total demand. Under technical analysis, you study the prices in the commodity markets. This happens using past price trends to predict future ones.

While you generally open Demat Account for Equity trading, commodity trading does not demand one. You only need an active Trading Account.