Commodity Trading: A Beginners Guide

Commodity Trading: A Beginners Guide

Commodity Trading: A Beginners Guide

Commodity may be defined as a raw material or any agricultural product which is used in commerce such as Copper and Coffee.

Trading in Commodity has very long history, and, India has a vibrant future market and over a period of time India has become a new home for retail investors and traders. For people who want to expand their investment portfolios beyond real estates, bonds, or life insurance policies; commodities are one of the best options. It is advisable that they understand the risks and advantages of trading in commodities before taking the leap.

Due to the rising awareness of investment in the commodity market, the “commodity future” was introduced in India around 2002 by the Indian Government. Government also approved the setting up of three multi-commodity exchanges. These commodity exchanges are nationwide and are screen based. The approval was given by Forward Markets Commission. These are:

1. National Commodity & Derivative Exchange

NCDEX is an online commodity exchange. They have independent board of directors and professionals who have interest in commodity markets. It was incorporated on April 23, 2003 and began its operation on 15 Dec 2003. They provide commodity platform for marketing participants so that they can easily trade in commodity derivatives.

2. Multi Commodity Exchange

Multi Commodity Exchange (MCX) is an independent commodity exchange based in India. It was incorporated on November 10, 2003. Having 88.8% market share, MCX became the India's top commodity exchange in quarter ended June 30, 2016.

3. National Multi-Commodity Exchange

The National Multi-Commodity Exchange is India’s first demutualized commodity exchange which was launched on November 26, 2002.

These exchanges are controlled by the Forward Market Commission (FMC). Here a broker has no need to register with the controller.

Commodities market has categories in three ways:

1. Hedgers

Hedging means to reduce the risks and the person who is looking at reducing his risk is known as Hedger. Although hedgers are protected from any loss and also they are restricted from any gains.

2. Speculators

A speculator is basically a trader whose intention is to make profit by buying at Low and selling at High price i.e. making good returns on their capitals. They are risk taking investors and have good knowledge of market in which they are trading.

3. Arbitrageurs

Arbitrageurs are type of investor who wants to make profit or advantages from price difference between 2 or 3 markets.

Government has made all the above commodities eligible for futures trading; Agriculture and Metal commodities come under the NMCE, while agriculture, metal, and energy commodities come under NCDEX. MCX also offers many commodities for future trading. If your trade is squared off (meaning a trader buys a particular quantity of an asset and later on the same day sells that asset in the hope of earning profit) then you have no need to pay sale tax. The sale tax is applicable only in the case of trade resulting into delivery.

DISCLAIMER: The views expressed in this blog are those of the author and may not reflect those of Jindal Bullion Limited. The author has made every effort to ensure accuracy of information provided; however, neither Jindal Bullion Limited nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Jindal Bullion Limited and the author of this article do not accept culpability for losses and/or damages arising from the use of this publication.