Commodity
tradings happens in commodity markets. Commodity market is a place
where commodities are traded or exchanged under standardized
contracts. In a commodity market tradings follow different methods like
forward trading, futures trading and spot trading.Commodities trading
or Futures trading is considered to be a great way to invest and make
money. This is one investment option particularly when the stock
markets are volatile.
Commodity Trading, Futures trading
Commodities
are traded under different methods. Usually in a commodity market there
are spot trading, forward trading and futures trading.
Spot trading
Spot trading means that the trading and delivery takes place
immediately or there many be a small delay in the delivery due to
technical constraints.
Forward contracts
is a trading that takes place between a buyer and a seller. It is a
contract whereby seller agrees to sell the commodity to the buyer at
the present rate on a future date. The trading will be completed on
the day specified.
Futures contract Futures
contract or trading follows the same routine like the forward contract.
The actual transaction of selling or buying will happen at a later
date. But the contract here is regulated through an exchange. Futures
exchange of the respected countries will execute the contract there by
eliminating the fear of non execution of the contract.
Hedging
Hedging is another practice that insures against poor harvests. This
practice is carried on by cooperatives mainly. They try to reduce the
risk of poor harvest by actively participating in the futures market.
They take futures contracts and offset the loss they may incur on
account of poor harvest.
Commodity
Futures trading takes place in commodity exchanges and it has some
great advantages. Due to Commodity futures trading poor farmers can
afford to make profit and insure themselves against low prices by
entering in to a contract to sell at the time the product prices are
high. Buyers also benefit from the fluctuating prices at the time of
the harvest. Futures also are regulated very well by futures exchanges
of the respective countries.
Commodity futures thrive particularly when the stock markets are volatile. That is the co relation between stock markets and gold futures.
When stock markets are falling FIIs or Foreign Institutional Investors
withdrew their stock market investments and invest is gold and
commodities that push the commodity market. It is another advantages of
commodity trading. When the stock markets are volatile or crashing you
can invest in commodities as you can speculate better in commodities
than stock markets.
How to Join Commodity Futures trading
You can join with limited formalities in a futures trading. Formalities
to join are similar to Stock market. You are required to open a Dmat
account with a Commodity broker or a bank that offers commodity option.
You are required to possess a Pan card or Income tax payment no in
India before joining Commodities trading. You the Broker charges are
very less considering equities market. You have the benefit of Margins
here. You can learn more about margins in the next chapter.
