How to start Commodity Trading? A guide

Deepika Chelani
Updated: 15 Dec 2021, 12:52 PM IST
TL;DR.

Commodity trading is one of the fastest growing kinds of trade, and as a consequence, many traders have begun to participate in commodities after investing in stocks and real estate.

To start commodity trading, traders are required to choose a trustworthy and effective stock broker to open a Demat account.

To start commodity trading, traders are required to choose a trustworthy and effective stock broker to open a Demat account.

India's economy is rapidly expanding. The expanding economy allows individuals to participate in and profit from the industry's expansion, with GDP growth of 6-7 percent year over year. This is why there are so many investors seeking excellent investment opportunities in the Indian markets. 

While some people prefer to keep their money in a fixed deposit, or provident fund, others go to the capital markets and invest directly in firms that help the country thrive.

The majority of investors in the capital markets use bonds, stocks and mutual funds to invest in equity or debt. The commodities market, on the other hand, is another investing option for individuals seeking portfolio diversity. 

It is less popular in India than equities trading, owing to a lack of understanding, but it provides equally appealing opportunities to invest money and produce long-term riches as well as short-term benefits.

Commodity trading is one of the most rapidly growing types of trade and as a result, after investing in equities and real estate, a number of traders have begun to participate in commodities.

On the other hand, it has the same dangers as equity trading, but it is also a money-making platform that allows traders to make a significant profit by buying and selling items. Let us try to understand the steps to start commodity trading.

Educating yourself on commodity trading exchanges

To begin commodity trading, a trader must first get acquainted with all of the exchanges where commodities are exchanged. Commodities are traded in India through three major exchanges:

1) India's National Multi Commodity Exchange (NMCE)

2) India's Multi Commodity Exchange (MCX)

3) National Derivatives and Commodity Exchange (NCDEX)

Choosing an effective stockbroker

The next crucial step in beginning commodity trading is to choose a trustworthy and efficient stockbroker. The Securities and Exchange Board of India must regulate and register the broker (SEBI). Because the account is handled by the stockbrokers who execute all deals, choosing an effective stock broking business is difficult. Through their suggestions, the brokers also assist traders in learning more about commodities trading and making educated selections.

Opening a trading account

Once a trader has chosen a reputable brokerage firm with which to begin commodities trading, the following step is to create a demat account. They must complete an application form and supply their broker with all essential information, such as their salary, age, financial situation, and so on. The information given by a trader is then checked and analysed by the broker. 

The firm determines whether or not to create a demat account based on the investor's trading expertise,credit, and risk-taking ability. When a trader's application is approved by the broker, the demat account is established immediately.

Making your first deposit

To begin trading, a trader must deposit a modest amount of money into their commodities trading account. They must, however, deposit the first margin, which is usually between 5 and 10 percent of the contract value.

Make a trading strategy

Now that all of the procedures for commodity trading have been fulfilled, a trader must establish a trading strategy in order to start trading commodities. The fundamental objective for creating a trading strategy is to have a better understanding of the market. 

It also takes into account his risk appetite, financial capabilities and personal style. It's possible that a trading strategy devised by one commodities trader will be ineffective for another.

A trader is always advised to be well-versed in all required facts before beginning commodities trading in India. He may also practice all of the strategies in order to avoid losing more money than he can afford. 

One of the most important aspects of becoming successful in commodities trading in India is that a trader may put in a lot of time and devotion to prepare and succeed.

First Published: 15 Dec 2021, 12:52 PM IST
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