Tricks And Tips For Commodity Trading | Ajmera x-change

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Tricks And Tips For Commodity Trading
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Description

• Commodity trading has emerged as an attractive
  and lucrative option for financial market
  participants in the last few years. Most stock
  market trading providers offer commodity broking
  as well. Initially, the Government of India, in
  early 2003 gave permission to four entities to
  set-up nation-wide multi-commodity exchanges.
  Commodity Trading in India has come a long way
  since. When the domestic electronic trading
  started, only futures were allowed to trade. Now,
  commodity trading in India consists of futures
  and options. Popular commodities on local
  commodity exchanges include Gold, Silver, Crude
  Oil, Copper and a few agricultural commodities.
• Investing in commodities has a long history.
  Organized trading on an exchange started in 1848
  with the start of the Chicago Board of Trade
  (CBOT). India also had a functional commodity
  market as evidenced by the constitution of the
  Bombay Cotton Trade Association in the year 1875.
  India had a vibrant futures market in commodities
  till it was discontinued in the mid 1960s. While
  commodities offer a fantastic avenue to allocate
  your capital in the modern financial market
  trading, it is important to keep in mind a few
  factors for benefiting out of this asset class in
  totality.

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• Pay Attention To Margin Commodity trading in
  India primarily consists of futures. Futures
  contracts are legal agreements to buy or sell a
  commodity like Gold, Silver, Copper, Chana etc on
  a specific date or during a specific month.
  However, to trade futures, you will be required
  to pay Minimum margin requirements which
  represent a tiny percentage of a contracts total
  value.
• Supply and demand Commodities are driven by
  short term fluctuations in demand and supply. It
  is important to pay attention to actual
  demand-supply dynamics when analyzing the
  real-time price action in commodities. The latest
  tumble in crude oil prices, which fell to -37.63
  for WTI variety is a case in point. Oil fell into
  negative zone because lack of storage capacity as
  prices extended a massive slide on global
  economic concerns.

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• Watch Global cues Global cues impact the prices
  of not just metals and energy futures but also
  important agricultural commodities like edible
  oils and spices given the heavy reliance of India
  on foreign trade in these commodities. In this
  case, apart from tracking the local consumption
  patterns and weather and harvest related news,
  production trends in other major producing and
  consuming countries also have an impact on the
  prices.
• Pay attention to domestic factors For select
  agricultural commodities, India is the largest
  producer as well as a consumer. For effectively
  understanding the price dynamics of such
  counters, one has to keep a close track of daily
  arrivals in major mandies, weather patterns and
  government policies. The government announces
  minimum support prices for all major food-grains
  in the country. The trends in these prices
  clubbed with weather affect the output of these
  commodities.

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• Understand currency dynamics Currency markets
  inherently affect global commodity prices and
  have a ripple effect on local commodities too. US
  Dollar influences all major commodities globally
  as they are priced in the dollar. US dollar also
  affects the exchange rate of Indian Rupee,
  thereby having an impact on commodities like
  Gold, Copper, Crude oil etc on the local
  exchanges. A sharp depreciation in the value of
  the Rupee tends to push up the prices of these
  commodities in India.
• Global economic trends Global economic growth
  trends tend to weigh on industrial commodities.
  This is the primary reason why global Copper
  prices tanked to three years low in March 2020.
  The International Monetary Fund projected a
  negative 3 global growth for 2020, stressing
  that global markets were hurtling toward the
  worst recession since the Great Depression on the
  coronavirus pandemic.

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Conclusion

• Commodity trading and stock market trading are
  similar but due to the financial leverage
  provided to traders by the exchange, commodity
  futures are a substantially risky affair.
  However, with proper risk management and an
  efficient handling of trades, commodities can
  turn out to be a profitable venture. Commodity
  brokers tend to provide useful insights about the
  price trends and the likely action in the market.
  Such research can be extremely useful while
  investing in commodities. However, allocation of
  capital towards commodity trading needs to be
  kept strictly in tune with your overall financial
  appetite and long term financial goals.

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