Like Forex and stocks, commodity derivatives trading is becoming popular with Indian investors as the market has opened up national platforms for retail investors and traders to engage in commodities.
Multi-commodity exchanges such as the National Commodity and Derivatives Exchange, India Ltd Multi-Product Exchange and India Ltd National Multi-Product Exchange are established in the country to support retail investors, who want to diversify their portfolios beyond stocks, bonds, real estate. real estate and begin trading commodities.
The trading and settlement system on these exchanges is electronic, which makes it convenient to trade commodity futures such as gold, silver, base metals, crude oil, natural gas, agricultural commodities, among others, without the real need to own them. as physical stocks. Additionally, 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 begin to familiarize yourself with the rules of order placement and trading strategies in order to trade wisely and avoid over-trading.
When trading commodities, investors need to do their homework well, understand the fundamentals of supply and demand, and make decisions based on product 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. Forward Markets Commission regulates exchanges, but here brokers do not have to register with the regulator.
Similar to stock trading, here too, the investor will need a bank account, a commodity delay account, and an account with the depositary to get started. An agreement with the broker is needed. The investor must also provide the required essentials in the Know Your Client and By Exchanges and Broker format.
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 up front to exchanges. through the corridors.
Each broker and each commodity may have different quantity and quantity requirements. For example, in the case of gold, a commercial unit (10 grams) is between Rs 30,040 and at 10 percent it is prepaid Rs 3,004. Trade lots and rates for agricultural products also differ from one exchange to another (in kg, quintals or tonnes). However, the base fund starts at approximately Rs 5,000.
Cash vs delivery mechanisms
While each exchange allows for cash payment and in-store delivery mechanisms, when your choice is settled in cash, please indicate this up front when placing the order that you will not deliver the item. And when taking or making a delivery is your chosen option, have all your warehouse receipts handy for your review. Additionally, you are free to change your selection multiple times between cash settlement and mode of delivery, 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 also apply starting at Rs 6 and Rs 10 per lakh / per contract. While researching and gathering information from various channels such as financial newspapers and magazines is helpful, following commodity rates online and on stock price portals live is the key to being informed and successful in trading. of commodities.
