Despite the shift towards stock markets, commodity trading continues to be an essential part of the Indian finance world. Just like the name suggests, commodity trading refers to trading commodities or a group of goods or assets. These goods are things that we use in our day-to-day lives like coal, gas, gold, silver, coffee, wheat, meat, rubber, etc. The activity of buying and selling these products to earn profits is known as commodity trading.
Commodity trading is a great way for investors to diversify their portfolios. Since the prices of commodities move differently from stocks, many investors use commodity trading to counter the effects of inflation. Commodity trading has, in a way, existed since ancient times. Merchants have always exchanged goods as a way to earn more money or increase their assets. However, with the introduction of the stock market and exchanges, commodity trading has now evolved to a more formal form of buying and selling. While earlier, people bought and stored goods in their physical form, investors today invest in different commodities on the exchange.
Just like the stock market, commodity trading also requires a dedicated market where buyers and sellers can trade their commodities. A commodity exchange is a market space where people can buy and sell commodities. There are six national commodity exchanges for commodity trading in India:
Commodities can be bought and sold in the market, similar to shares and equities. Investors need to first identify the commodity that they wish to trade. They can then buy this commodity at a low price and predict its rate of appreciation in the future. When the commodity’s value reaches the appreciated price, they sell it to earn a profit.
Investors also trade with a future contract wherein they agree to buy or sell a pre-determined amount of a commodity at a fixed price in the future. This is useful to hedge unwanted risks in the future. Commodity exchanges function from Monday to Friday between 10:00 a.m. and 11.30 p.m. or 11.55 p.m. IST, as per the U.S daylight saving time.
Commodity trading has many benefits and is a great avenue for investors to increase their financial pool. Here are some of its advantages.
Religare Broking offers online commodity trading options with many benefits, such as:
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