Earlier than we understand about commodity trading, let us know what commodity means. A commodity is anything in the market, on which you possibly can place a value. It can be a market item such as food grains, metals, oil, which assist in satisfying the wants of the provision and demand. The worth of the commodity is subject to range based on demand and supply. Now, back to what is commodity trading?
When commodities equivalent to 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 financial gain, then it is called as commodity trading. These might be traded as spot, or as derivatives. Note: You may also trade live stocks, akin to cattle as commodity.
In a spot market, you purchase and sell the commodities for fast delivery. However, in the derivatives market, commodities are traded on various financial principles, comparable to futures. These futures are traded in exchanges. So what’s an exchange?
Change is a governing body, which controls all of the commodity trading activities. They guarantee smooth trading activity between a purchaser and seller. They help in creating an agreement between purchaser and seller in terms of 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 right this moment’s price. Futures contract is completely different from forward contract, unlike forward contracts; futures are standardized and traded in line with the terms laid by the Exchange. It means, the events involved in the contracts do not decide the phrases of futures contracts; however they just accept the phrases regularized by the Exchange. So, why put money into commodity trading? You make investments because:
1. Commodity trading of futures can bring large profit, in brief span of time. One of the principal reasons for this is low deposit margin. You end up paying anyplace between 5, 10 and 20% of the total value of the contract, which is far decrease when compared to different forms of trading.
2. Regardless of performance of the commodity on which you’ve invested, it is easier to purchase and sell them because of the nice regulatory system formed by the exchange.
3. Hedging creates a platform for the producers to hedge their positions primarily based on their publicity to the commodity.
4. There isn’t any company risk concerned, when it comes to commodity trading versus stock market trading. Because, commodity trading is all about demand and supply. When there is a raise in demand for a selected commodity, it gets a higher price, likewise, the other way too. (may be based on season for some commodities, for example agricultural produce)
5. With the evolution of online trading, there is a drastic growth seen in the commodity trading, when compared to the equity market.
The data concerned in commodity trading is complex. In right now’s commodity market, it is all about managing the data that is accurate, replace, and contains information that enables the client or seller in performing trading. There are a lot of corporations within the market that provide solutions for commodity data management. You should use software developed by one among such corporations, for environment friendly management and evaluation of data for predicting the futures market.