Online commodity trading allows you to invest in precious metals and everyday essentials and make money every time their price increases or decreases. While long trades help you benefit from an increase in prices, short-sell trades lets you sell high and buy low.
What is Commodity Market | Types of Commodity Market | Commodity Trading
Online commodity trading is a convenient way of hedging against inflation and geopolitical events. It also allows investors to diversify their investments and reduce the risks of capital loss. The commodity market generally goes against the capital market. For example, when inflation rises or the GDP falls, shares of companies might go southwards, but commodities might show unprecedented strength.
This article will answer your questions about What is ROE in the stock market and provide a clear definition of return on Equity.
The discussion so far might have made you wonder how to trade in commodities. And why not? The commodity market offers immense potential for making profits. Moreover, since the commodity market remains open for more than twelve hours (for non-agricultural commodities), you can get more time to monitor the market and place trades.
Here is a laydown of the steps you need to follow to invest in the commodity market.
Unlock the full article - sign in with Gmail!
Expand Your Market Knowledge with 5paisa Articles
How to Trade in The Commodity Market - A Three-Step Guide
The following is a step-by-step guide to online commodity trading:
Pick a Commodity Broker
Earlier, commodity trading was very complicated, prompting retail investors to stay away from the commodity market. But, thanks to the Securities and Exchange Board of India (SEBI), investors can now indulge in online commodity trading without any hassles.
Brokers are classified into two categories - full-service brokers and discount brokers. Full-service brokers have many brick-and-mortar branches across the country, and they often charge higher fees due to higher establishment costs. Discount brokers follow a lean model and mainly operate online. Hence, they usually charge lower fees and may offer higher benefits.
Full-service and discount brokers may offer free/paid commodity recommendations, free trades, low brokerage, and free account opening. Before choosing the broker, it is wise to evaluate the costs and services. Moreover, you must read some reviews about the broker to make the right choice.
Open a Demat and Trading Account
Once you have finalised the broker, it is time to open a demat and trading account. Demat and trading accounts are mandatory for trading in the commodity market.
If you are considering opening a demat and trading account, you need to submit your PAN card, Aadhar card, age proof, income proof, and bank account statement. Brokers allow online uploading of documents and send the account information to your registered email address within one business day. However, your application will be subject to detailed scrutiny to evaluate your eligibility.
Since online commodity trading is mostly leverage-based, checking the investor’s income status is crucial for the broker to minimise risks.
Make The Initial Deposit
Once the broker sends you the account details, you need to make an initial deposit. Try depositing about 10% of the contract value of the commodity you wish to trade, along with a maintenance margin.
For example, if the margin money for trading a commodity is ₹40,000, you need to make a deposit of ₹4,000 plus the maintenance margin. The maintenance margin is essential to compensate for any losses should the market goes against the perceived direction.
Now that you know how to trade in the commodity market online let us find some ways to increase your profits.
How to Trade For Maximum Profits in Commodities
Understand The Market Cycle
Commodities generally follow a cycle to increase and decrease. Take any commodity, and you can find that the price frequently increases and decreases. Expert traders ride these price swings to make money from the commodity market.
Most commodities follow a cyclical pattern. For example, when the demand for a commodity shoots up, the manufacturer’s capital expenditure increases. When the capital expenditure increases, the company increases the commodity’s price. And, when the commodity’s price increases, people buy less, which results in less demand for the commodity. When the demand dries up, the company reduces the capital expenditure and the commodity’s price decreases.
It is crucial as an investor for you to understand the cyclical nature of the commodity you are trading and place the trades at reasonable prices.
Respect Volatility
If you are investing in commodities for the first time, the volatility or wild price swings might make you nervous. The problem increases when you trade on excessive leverage. Since commodity brokers often provide leverage of up to 16 times, any losses may quickly magnify themselves into an outrageous figure.
Hence, before learning how to trade in commodities, you must observe how commodities move and find their price range. A quick scan of the top commodities suggests that agricultural commodities and metals like copper are more volatile than gold or crude oil commodities.
So, if you are a beginner, a wise step would be to trade in less volatile commodities before moving to highly volatile commodities.
The EndNote
Now that you know how to trade in the commodity market and maximise your profits, it’s time to choose the best broker to test your knowledge. 5paisa is a trusted commodity broker for millions of traders in the market. Experience low-cost brokerage and plenty of resources to efficiently scale up your knowledge level and trade.
Disclaimer:
Investment in securities market are subject to market risks, read all the related documents carefully before investing. For detailed disclaimer please
Click here.
Before investing in securities, consider your investment objective, level of experience and risk appetite carefully. Kindly note that, this article does not constitute an offer or solicitation for the purchase or sale of any financial instrument.
These articles have been prepared by 5paisa and is not for any type of circulation. Any reproduction, review, retransmission, or any other use is prohibited. 5paisa shall not be responsible for any unauthorized circulation, reproduction or distribution of this material or contents thereof to any unintended recipient. Kindly note that this page of blog/articles does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. This article is prepared for assistance only and is not intended to be and must not alone be taken as the basis of an investment decision. The value of the investments may be affected generally by factors affecting financial markets, such as price and volume, volatility in interest rates, currency exchange rates, changes in regulatory and administrative policies of the Government or any other appropriate authority (including tax laws), or other political and economic developments. Please note that past performance of financial products and instruments does not necessarily indicate the prospects and performance thereof. The investors are not being offered any guaranteed or assured returns.
The securities quoted in the article are exemplary and are not recommendatory. The investors should make such investigations as it deems necessary to arrive at an independent evaluation of use of the trading platforms mentioned herein. The trading avenues discussed, or views expressed may not be suitable for all investors. 5paisa will not be responsible for the investment decisions taken by the clients.
Open Free Demat Account
Be a part of 5paisa community - The first listed discount broker of India.
