In this article, You are going to learn about What is Commodity Trading and Why these exactly works? Where are they traded and how can you use them for your full benefit.
You have financial assets, which include stocks, bonds, and currencies, You also have commodities. However, commodities are physical assets.
Do you know that in the stock market we can do commodity trading besides stock trading, many people sometimes confuse what is the difference between share trading and commodity trading? So, Let’s Learn What is Commodity Trading…
What is Commodity Trading in India?
Commodity means things that we use in daily life like Rice, Oil, LPG, Gold or Silver, etc. Commodity trading is the buying and selling of daily-used commodities through the Commodity exchange. Such as Sugar, Black Pepper, Barley Sugar, Black Pepper, Barley, Wheat, Soybean, coriander, Pulses, Cumin, Turmeric, Cardamom, Maize, Cotton, Aluminum, Copper, Lead, Nickel, Zinc, Gold, Silver, Platinum, Crude Oil, Natural Gas, etc., This is called Commodity Trading.
Most of the trading of the commodity is in future derivatives, that is, on these four types of commodities, we can buy and sell futures contracts of different time durations.
One thing that distinguishes commodity futures from share futures is that You can buy or sell stock contracts for up to 3 months, but commodity futures contracts can be bought or sold for up to 6 months.
How do Commodities work?
Like the stock market, Commodities also go through an exchange. This is where all things are listed as well. There are many exchange facilities in the country for this. Most of this is done on MCX.
Now, The commodity market has a low margin because there are fewer ups and downs. In India, The commodity market is small because the agriculture commodity market is small and there is a high influence of the local landowner as well as government influence.
Sometimes, The government stops the trading of certain commodities because they become very expensive.
Types of Commodities?
There are two types of Commodities.
#1 Agriculture Commodity:- An agricultural commodity is a commodity that is directly related to the agricultural sector. Such as Sugar, Black Pepper, Barley, Wheat, Soybean, coriander, Pulses, Cumin, Turmeric, Cardamom, Maize, Cotton, Costar Seed, etc.
#2 Non- Agriculture Commodity:- An agricultural commodity is a commodity that is not related to agriculture but which is classified as a commodity of daily use, such a commodity is called a non-agricultural commodity. Such as Aluminum, Copper, Lead, Nickel, Zinc, Gold, Silver, Platinum, Crude Oil, Natural Gas, etc.
Commodity Exchange in India
Just as shares are traded on the stock exchange, commodity trading is done on the commodity exchange.
- Multi Commodity Exchange (MCX)
- National Commodity and Derivatives Exchange (NCDEX)
- National Multi Commodity Exchange (NMCE)
- Indian Commodity Exchange (ICEX)
- Ace Derivatives Exchange (ACE)
- The Universal Commodity Exchange (UCX)
Most active Commodity Exchanges in India.
Commodity trading in India is mainly done at two Commodity Exchanges.
#1 MCX:- MCX is a non-agricultural commodity exchange that primarily trades commodities that are non-agricultural commodities such as Aluminum, Copper, Lead, Nickel, Zinc, Gold, Silver, Platinum, Crude Oil, Natural Gas, etc. Most Traded Commodities are Crude Oil and Gold.
Non-agricultural commodity times in India are Monday to Friday from 10:00 AM to 11:55 PM.
#1 NCDEX:- NCDEX is an agricultural commodity exchange that primarily trades commodities that are agricultural commodities such as Sugar, Black Pepper, Barley, Wheat, Soybean, coriander, Pulses, Cumin, Turmeric, Cardamom, Maize, Cotton, Costar Seed, etc.
Agricultural commodity times in India are Monday to Friday from 10:00 AM to 05:00 PM.
Risk in Commodity Trading
Trading in a commodity is riskier than trading in shares, as the price of any commodity can change quite quickly in a short period. Because commodities are products that are based on physical supply-demand, such as if there is an issue with oil in Saudi Arabia, it can have a great impact on the price of crude oil. Similarly, if the production of sugar in India decreases, then the price of sugar in the Indian commodity market may increase rapidly.
Also Learn: What is Stock Market: A Beginner’s Guide
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