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To Learn About Commodity Trading, We Must First Know What
Commodity is in the Share Market.
Commodities are undifferentiated raw products like wheat, crude oil, gold, copper, silver, etc. They are bought and sold in physical form as a product. In the commodity share market, the future price of a commodity is used to create futures contracts to buy or sell some ‘x’ quantity of a commodity at an agreed-upon price sometime in the future.
So, What is a Commodity in the Share Market?
The underlying product usually comes from nature, and commodity trading is selling future contracts made in exchanges that handle commodities trading. Commodity futures trading began in the 1840s in the USA for Wheat and in 1875 in India for Cotton. Now, it is one of the most talked about futures trading types, where speculators take advantage of price movements of commodities. The most popular commodities traded presently are,
The most popular commodities traded
presently are
SILVER
CRUDE OIL
GOLD
NATURAL GAS
LEAD
ZINC
ALUMINIUM
COPPER
Commodity Options
Commodity Options are options (Call options and Put options) on a commodity futures contract. It is a right but not an obligation to buy or sell the commodity futures contract. The Commodity Futures and Options together from what is commonly called Commodity derivatives trading, wherein you do not own the commodity as such but profit from its price fluctuations.
How can you trade in commodities?
Open an Account
First of all, open a commodity trading account with a well-established broker. Check their website and trading app if Commodities trading is included.
Choose the commodity market
Next, choose which commodity you want to trade in. Here you must consider the various choices and your risk appetite. Commodities trading is slightly riskier than share trading usually. But even within Commodity trading, you should be clear about which particular commodity you are willing to invest in. For e.g., Crude Oil is widely popular but the risk involved is also high. Every commodity differs in risks involved, trends and investment involved.
Understand the current trend
First of all, open a commodity trading account with a well-established broker. You must first check their website and trading app if Commodities trading is included. Also check if they have a separate section for Commodity tips today. It is very important to get timely tips in commodities trading.
Decide when to buy and when to sell
Based on the trend analysis, if you feel the price will rise in future, then you can go ahead and buy now. This step is called “go long”. If you feel the price will go down sometime soon for a futures contract, then you can decide to sell. This step is called “go short”
Decide the volume of trade
After deciding to buy or sell, you must then carefully analyse and come up with the volume of trade you want to buy or sell.
Take Risk Management measures
Monitor your commodity price chart closely, and ensure you are covered with a “Stop Loss order” where you decide to cut your losses or cap your profit. This is a very important step since prices may suddenly rise or drop based on world events or natural calamities over which we have no control. Overall, trading in commodities is more volatile compared to share markets. Always, learn about commodities trading first and then invest.
Frequenlty asked questions
What is the Difference Between Equity and Commodity?
Am I Eligible For a Trading Account?
Is Commodity Trading Good for Beginners?
What is Equity in the Share Market?
