Like Forex and stocks, commodity derivatives trading is becoming popular among Indian investors as the market has opened up nationwide platforms for retail investors and traders to engage in commodities.
Multi-commodity exchanges such as the National Commodity and Derivatives Exchange, the India Multi-Commodity Exchange Ltd and the National Multi-Commodity Exchange of India Ltd were established in the country to support retail investors, who want to diversify their portfolios more beyond stocks, bonds, real estate. heritage and begin commodity trading.
The trading and settlement system in these exchanges is electronic, which makes it convenient to trade commodity futures such as gold, silver, basic metals, crude oil, natural gas, agricultural commodities, among others, without the real need to own them as physical shares. Also, live stock prices allow the trader to follow market movements quickly and make smarter decisions.
Know the basics
In commodity trading, investors can fund their account based on their comfort level and risk tolerance level. However, it is essential to start familiarizing yourself with order placement rules and trading strategies in order to trade wisely and avoid overtrading.
When trading commodities, investors need to do their homework well, understand the fundamentals of supply and demand, and make decisions based on commodity storage and consumption. It offers an excellent portfolio diversification option for investors because commodity futures are less volatile compared to stocks and bonds.
Retail investors can get involved in commodity trading by seeking the support of a broker and trading is done online over the internet in a similar way to stocks. The Futures Markets Commission regulates exchanges, but here brokers do not have to register with the regulator.
Similar to stock trading, here too, the investor will require a bank account, a commodity account, and an account with the depositary to get started. An agreement with the broker is required. The investor must also provide the essential elements required in the Know Your Client format and by the exchanges and the broker.
With a minimum amount of Rs 5,000, a retail investor can start their journey into commodity trading, as only a marginal amount (5-10 percent) of the actual value of the commodity contract is paid upfront to exchanges. through the corridors.
Each broker and product may have different quantity and quantity requirements. For example, in the case of gold, a trading unit (10 gms) is between Rs 30,040 and at 10 per cent Rs 3,004 is paid in advance. The trading lots and the rates of agricultural products also differ from one exchange to another (in kg, quintals or tons). However, the base fund starts at approximately Rs 5,000.
Cash vs. delivery mechanisms
While all exchanges allow cash and merchant delivery mechanisms, when your choice is settled in cash, please indicate up front when ordering that you will not deliver the item. And when pick-up or delivery is the chosen option, keep all warehouse receipts on hand for your review. In addition, you have the freedom to change your selection between cash payment and delivery mode several times, until the expiration of the contract.
Know the rates
A broker can charge 0.10 to 0.25 percent of the contract value, but cannot exceed the maximum limit set by the exchange. Transaction charges are also applicable from Rs 6 and Rs 10 per lakh/per contract. While it is helpful to research and gather information from various channels such as financial newspapers and magazines, following commodity rates online and on live stock price portals is the key way to be informed and successful in trading. of basic products.
