Before we understand about commodity trading, let us know what commodity means. A commodity is anything in the market, on which you can place a value. It may be a market item similar to food grains, metals, oil, which help in satisfying the wants of the availability and demand. The price of the commodity is subject to fluctuate primarily based on demand and supply. Now, back to what’s 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 achieve, then it is called as commodity trading. These could be traded as spot, or as derivatives. Note: You too can trade live stocks, resembling cattle as commodity.
In a spot market, you purchase and sell the commodities for fast delivery. Nevertheless, within the derivatives market, commodities are traded on numerous financial principles, reminiscent of futures. These futures are traded in exchanges. So what is an change?
Trade is a governing body, which controls all the commodity trading activities. They ensure smooth trading activity between a buyer and seller. They assist in creating an agreement between buyer 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 at present’s price. Futures contract is completely different from forward contract, unlike forward contracts; futures are standardized and traded in accordance with the phrases laid by the Exchange. It means, the parties involved in the contracts do not resolve the terms of futures contracts; but they just settle for the terms regularized by the Exchange. So, why spend money on commodity trading? You make investments because:
1. Commodity trading of futures can convey huge profit, briefly span of time. One of many important reasons for this is low deposit margin. You find yourself paying anywhere between 5, 10 and 20% of the total value of the contract, which is way lower when compared to different types of trading.
2. Regardless of performance of the commodity on which you have invested, it is easier to purchase and sell them because of the nice regulatory system fashioned by the exchange.
3. Hedging creates a platform for the producers to hedge their positions based on their exposure to the commodity.
4. There isn’t a firm risk concerned, when it involves commodity trading as opposed to stock market trading. Because, commodity trading is all about demand and supply. When there’s a raise in demand for a particular commodity, it gets a higher worth, likewise, the opposite way too. (may be based mostly on season for some commodities, for example agricultural produce)
5. With the evolution of online trading, there’s a drastic development seen within the commodity trading, when compared to the equity market.
The data involved in commodity trading is complex. In today’s commodity market, it is all about managing the data that’s accurate, update, and contains data that enables the client or seller in performing trading. There are lots of corporations within the market that provide options for commodity data management. You need to use software developed by certainly one of such companies, for efficient management and analysis of data for predicting the futures market.