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Types Of Commodity Market

Types Of Commodity Market

Commodity trading in India started before many countries participated in it. However, foreign invasions and ruling, natural calamities, government policies, and their amendments were major reasons for the decline in commodity trading. Today, commodity trading has regained its importance in the market.

Let's start with the basics!

What is Commodity Trading?

Commodities are physical substances such as gold, silver, oil, crops, etc. These commodities are traded on a day-to-day basis and in bulk. Based on the demand and supply, there's a constant fluctuating impact on the prices of goods. Commodity trading leverages these price changes while traders gain from these price movements.

In India, traders can trade directly or via commodity options trading and commodity futures trading. Also, you will need a commodity trading account to trade in commodities via a commodity broker and through commodity exchanges established in India.

What Are the Types of Commodity Markets in India?

Generally, commodity trading occurs either in derivatives markets or spot markets.

Spot Markets:

"Cash markets" or "physical markets" where traders exchange physical commodities and get immediate delivery.

Derivatives Market:

The derivatives market has two types of commodity derivatives- Futures and Forwards. These derivatives contracts use the spot market as the underlying asset and give the control of the same at a given point in the future for a predefined price. When the contract expires, the commodity is then physically delivered. The main difference between futures and forward is that futures are standardized and are traded on exchanges, whereas forwards are customizable and traded over the counter.

The commodity trading market in India is a digital trading platform for market participants to buy and sell commodities. The two major commodity trading markets in India:

  • MCX - Multi Commodity Exchange of India
  • NCDEX - National Commodities and Derivatives Exchange Limited

NCDEX and MCX are two major commodity exchanges that help commodity traders to trade in precious metals, energy products, and agricultural products.

Who Are the Participants of the Commodity Market:

There are two participants in the commodity market, which are:

  1. Speculators: Along with hedgers, speculators drive the commodity market. Speculators constantly analyze the prices of commodities to forecast future price movements. For example, if they predict the price to move higher, they will purchase commodity futures contracts, and when the prices rise, they can sell the contracts mentioned above at higher prices. Similarly, if the prices are predicted to fall, they will sell the commodities and buy them at even lower prices.
  2. Hedgers: Producers/manufacturers hedge their risk through the commodity futures market. For instance, during harvest, if the prices fluctuate and fall, then farmers will have to bear the loss. To hedge the risk, farmers can get a futures contract. Therefore, when the prices fall in the local market, the farmers would have mitigated the risk and compensated for the loss by making profits in the futures market. In contrast, when there is a loss in the futures market, farmers can mitigate that risk by making profits in the local market.

How Does Commodity Trading Work?

Let's understand the working of commodity markets!

Opposite to shares and securities, commodities are delivered by the end of the contract, which can be a cash settlement of delivery. Here delivery means the actual transfer of physical goods on termination of the contract. However, cash settlement means the settlement of differential prices in the expectation of the contracting parties. Moreover, cash settlements are preferred over delivery.

MCX is where commodity trading takes place in India. To trade on MCX, you would require a commodity trading account.

The best commodity broker would advise opening a commodity trading account to trade on MCX. The best commodity broker can assist you in making the right decision while trading. Moreover, the commodity trading account must be linked with the Demat account of the trader. Most contracts that commodity traders go for are commodity futures settled in cash.

Types of Commodities Traded in India

Let's see what is traded in commodities in India (MCX):

Agri commodities: Black pepper, Cardamom, Castor seed, Cotton, Crude palm oil, Mentha oil, Palmolein, Rubber
Energy: Crude oil, Natural gas

Bullion: Gold, Silver

Base Metals: Aluminium, Brass, Copper, Lead, Nickel, Zinc

Let's understand what is traded in commodities in India (NCDEX):

Cereals and pulses: Barley, Chana, Maize Kharif/south, Maize rabi, Wheat, Moong, Paddy (basmati)

Spices: Pepper, Turmeric, Jeera, Coriander

Fibers: Kappas, Cotton, Guar seed, Guar gum

Soft: Sugar

Oil and Oilseeds: Castor seed, Cottonseed oil cake, Soybean, Refined soy oil, Mustard seed, Crude palm oil

Which Are the Most Traded Commodities?

Gold, Brent oil, Silver, Corn, Natural Gas, Soybeans, Crude oil, Cotton, Wheat, and Coffee are the most traded commodities globally.

Let's see the detailed information of a few commodities belonging to the list of traded commodities.

Crude Oil: The most sought-after commodity is crude oil as several products are produced after refining crude oil, such as petroleum, diesel, etc. With the growing demand for vehicles, the demand for crude oil is poised to increase.

Gold: Gold is no less than haven. Whenever the US dollar price takes a hit, people start buying gold, and when the dollar price increases, gold prices go down. Gold prices are inversely proportional to US dollar prices.

Soybeans: The soybean prices are affected by biodiesel demand, demand for dollars, and weather.

Why Should You Choose Choice India?

As a registered commodity broker with both MCX & NCDEX, Choice provides you with a Commodity Trading Account for trading/investing in commodities as per your objectives and goals.

Commodity markets are highly influenced by global developments. Our Commodity Research and Fundamental Team keenly observe worldwide news and couple them with effective analysis to create reliable research reports.

Choice tends to make commodity trading easy and effective for you.

Still Not Convinced? Let's Give You More Reasons:

  • Precise Research Desk: Choice provides commodity trading insights backed by our dedicated research teams performing thorough research to get the right insights from the commodity markets. Your trading and our research equal no unnecessary threats to your potential profit.
  • Insightful Analysis Team: Our highly experienced and analytical team analyses the best commodities for you to trade in NCDEX & MCX. Choice commodity trading, arbitrage desk & hedging solution provides accurate analysis to make the right decision.
  • Expert Advisory Solution: While trading in commodities, it is crucial to seek advice from experts. We have a dedicated team of experts for each commodity you want to trade in, making your trade an easy and expert process.
  • Robust Tools: Our research team uses the latest tools and techniques to analyze the best commodity trading prospects to meet your long and short-term goals.

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