Before we understand about commodity trading, allow us to know what commodity means. A commodity is anything within the market, on which you can place a value. It can be a market item comparable to food grains, metals, oil, which help in satisfying the needs of the availability and demand. The worth of the commodity is topic to differ primarily based on demand and supply. Now, back to what’s commodity trading?
When commodities reminiscent of energy (crude oil, natural gas, gasoline), metals (gold, silver, platinum) and agricultural produce (corn, wheat, rice, cocoa, coffee, cotton and sugar) are traded for a monetary achieve, then it is called as commodity trading. These could be traded as spot, or as derivatives. Note: You can too trade live stocks, resembling cattle as commodity.
In a spot market, you buy and sell the commodities for fast delivery. However, within the derivatives market, commodities are traded on varied monetary ideas, similar to futures. These futures are traded in exchanges. So what is an change?
Alternate is a governing body, which controls all the commodity trading activities. They ensure smooth trading activity between a purchaser and seller. They assist in creating an agreement between purchaser and seller when it comes to futures contracts. Examples of Exchanges are: MCX, NCDEX, and ECB. Wondering, what a futures contract is?
A futures contract is an agreement between a purchaser and seller of the commodity for a future date at as we speak’s price. Futures contract is completely different from forward contract, unlike forward contracts; futures are standardized and traded based on the phrases laid by the Exchange. It means, the events concerned in the contracts do not decide the phrases of futures contracts; but they just accept the terms regularized by the Exchange. So, why invest in commodity trading? You make investments because:
1. Commodity trading of futures can bring huge profit, in brief span of time. One of many principal reasons for this is low deposit margin. You end up paying wherever between 5, 10 and 20% of the total value of the contract, which is much decrease when compared to different forms of trading.
2. Regardless of efficiency of the commodity on which you will have invested, it is simpler to buy and sell them because of the good regulatory system fashioned by the exchange.
3. Hedging creates a platform for the producers to hedge their positions primarily based on their exposure to the commodity.
4. There is no such thing as a company risk involved, when it involves commodity trading as opposed to stock market trading. Because, commodity trading is all about demand and supply. When there’s a increase in demand for a selected commodity, it gets a higher price, likewise, the opposite way too. (might be based on season for some commodities, for example agricultural produce)
5. With the evolution of on-line trading, there’s a drastic progress seen in the commodity trading, when compared to the equity market.
The data involved in commodity trading is complex. In at this time’s commodity market, it is all about managing the data that is accurate, replace, and consists of info that enables the client or seller in performing trading. There are a lot of companies in the market that provide solutions for commodity data management. You need to use software developed by one in every of such corporations, for efficient management and evaluation of data for predicting the futures market.