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    What Is Commodity Trading?

What Is Commodity Trading?

What Is Commodity Trading?
  • Published Date: May 12, 2022
  • Updated Date: January 31, 2025
  • By Team Choice

Commodity trading carries potentially high returns and just as significant risks with it. Commodity trading is not for everyone. It can be advantageous, but it is risky, and commodity trading may not be for you. It is also essential to research commodities, futures, and options before investing. Once you have done your research, drafting and following a strategy will help you stay focused as markets change over time.

Commodity Trading Meaning

A commodity is a basic good used in commerce interchangeable with other commodities of the same type. Commodity trading in India also finds its use as an input to exchange other related services or goods. Most producers have a uniform quality of commodities barring a few exceptions. Commodities need to have a basis grade when you want to trade them on exchanges. These are nothing but bare minimum standards.

Types of Commodity Market

Here are the different types of commodity markets across different online commodity brokers.

  • Metals: Aluminium, copper, brass, lead, nickel, etc.
  • Bullion: Silver and Gold.
  • Energy: Natural gas and crude oil.
  • Agri commodities: Black pepper, castor seed, cotton, rubber, etc.

What Are Traded in Commodities?

Commodities are essential raw materials that come from the earth. These raw materials are called commodities. Commodity trading means buying and selling these raw materials for profit. Here are some examples of commodities:

Gold, silver, and copper are commodities because they are mined from the earth or produced in a refinery.

Oil is a commodity because you can get it by drilling oil wells underground and producing oil. Wheat and corn are commodities because they come from crops grown on farms.

How Does Commodity Trading Work?

You may wonder how to trade in the commodity market. Commodities are goods that can be bought and sold, such as gold, coffee, or grains. Stocks are shares of ownership in a company, also known as equity. Both commodities and stocks are bought and sold through exchanges. However, the two types of assets differ dramatically in trading. Commodity trading platforms in India offer an intelligent way of trading in the country.

Commodities are traded on the commodity exchange, and they get sold off over there to the highest bidder. It's not as easy as it sounds since you have to open an account with a broker and deposit some money that can be used for trading purposes. Once you open up your account, you can start to trade whatever commodity you want over there.

Before a commodity can be traded on an exchange, it must be processed into a standard unit of measurement. For example, the oil must be measured in barrels before it's traded on the market because trading "oil" without any specified unit of measurement is not helpful for investors or producers who need to know precisely how much oil they have at any given time.

On the other hand, stocks don't need to be processed into standard units because they represent shares of ownership that investors buy and sell based on each company's worth.

Commodity Market Timings

Commodity trading is one of the oldest businesses that started in India. The commodity trading time is 9 am to 9 pm IST. The new MCX (Multi Commodity Exchange of India) trading time is 9.00 am to 11.30 pm. India is one of the largest trading markets globally, and it is necessary for many countries. Most individuals take advantage of the best trading platform and become successful traders.

Commodity Trade Classification

Commodities are classified into four broad categories.

  • Agricultural: Corn, beans, rice, wheat, cotton, etc.
  • Energy: Crude oil, coal, and other fossil fuels.
  • Metals: Silver, Gold, Platinum, Copper.
  • Meat and livestock – Eggs, pork, and cattle

Agricultural Commodities: These commodities are grown or raised on farms and ranches. They include grains such as corn and wheat; livestock products such as beef cattle and hogs; dairy products like milk and cheese; fruits and nuts; vegetables such as tomatoes or potatoes; cotton; tobacco; coffee beans; cocoa beans; tea leaves; flaxseed, oilseed crops such as canola (rapeseed); soybeans (beans), sunflower seeds (oilseed), safflower seeds (oilseed); sugar cane; tobacco leaves; cocoa beans (cocoa), tea leaves (tea).

Energy Commodities: These commodities are sources of energy used by people worldwide to heat their homes, drive their cars, and power their factories. Examples include crude oil from wells drilled deep below the earth's surface. It remains trapped in underground rock formations for millions of years until tapped by human ingenuity for its usefulness in modern society today.

Commodity Trading Platforms

There are four major commodity exchanges in India.

  • The National Stock Exchange (NSE)
  • MCX stands for Multi Commodity Exchange.
  • The National Multi-Commodity Exchange of India Limited (NMCE)
  • The New York Mercantile Exchange (NYMEX)


How To Choose The Best Commodity Broker in India?

To choose the best commodity broker, you should carefully look into the brokerage charges. There are many factors on which the brokerage is charged, such as low brokerage, low margin, and lowest brokerage. The best broker charges less brokerage as compared to other brokers in India such as Choice India.

If your trading frequency is high, you can go for a lower brokerage plan; if your trading frequency is less, you can go for higher share market plans. The following are some of the essential points to be taken into consideration before selecting a commodity broker:

  • Selecting a company with good financial strength and stability.
  • Examining the commodity broker's brokerage fees, trading platform, and services.
  • Checking whether the broker provides ease of deposits and withdrawals, research calls on commodities, and a trading platform.
  • Other important factors include customer reviews/feedback, the location of a branch office near you, and good referrals from friends or close relatives.

Choosing the appropriate commodity broker is the first step when traders look to open an online commodity trading account. We will guide you in choosing a reliable commodity broker in India.

Commodities Brokerage Firms' Commission Fees: The services by these firms include training, advisory services, and research reports. Their good track record concerning other investors investing with them and their overall market reputation. Information about their terminals, which are usually user-friendly and easy to operate.

If you are planning to open a commodity trading account online, then you should know these things:

  • Check the returns they offer.
  • Examine their past performance.
  • Check the trading account charges they charge.
  • Know what types of services they provide.

Find out whether they offer research or advice based on fundamental and technical analysis. If you are looking to earn high returns, check whether your broker offers a margin for commodities trading.

To select the best broker for commodity trading in India, traders must consider the following factors

Returns On Offer

The first thing you will be looking for while choosing the best commodity broker in India will be the returns they offer. Returns are essential to know before deciding which broker will benefit your commodity trading account. Returns are calculated as a percentage of the total cost paid by the trader to trade with a particular brokerage firm.

Different brokerage firms have different methods of calculating the return on investments. Some consider only the number of trades done, while some consider other factors, like the number of orders placed, time spent on the website, etc.

There is no right or wrong way to calculate returns since it is an average calculation where multiple items like commission fees, exchange fees, etc., remain constant for most brokers. Ultimately, it boils down to how many trades are done in a particular period. Brokerage firms calculate their commissions based on the assumption that the higher the number of trades done, the more the commission.


What Are The Charges They Charge?

The next factor to consider when choosing a commodity broker is the fee they charge. There are standard charges like brokerage, transaction, account opening, and annual maintenance charges, but each broker has its structure of fees, and they also vary based on the services you choose. It would help if you compared various brokers before finalizing one to get the best deal for yourself.


What Type Of Services Do They Provide?

The massive trading volume buoys the yield of investing in futures transacted every second. The best-earning rate on the market is ensured only through a robust infrastructure, which includes advanced algorithms and analytics; high-performance computing facilities; infrastructure to keep a constant check on markets; and a fully functional back office with an array of services. This is what an ideal commodity trading platform should have in place.

Commodity brokers should offer their clients all kinds of investment opportunities across commodities. To ensure that your portfolio is always top-notch, look for industry-leading research reports with actionable insights on commodities that can rationalize moving into a different commodity without revisiting older ones. It helps you stay ahead of the pack in your commodity trading journey and ensures that you continue to enjoy steady returns.


Are Their Commodities User-Friendly?

The broker should have a user-friendly terminal on the web, desktop, tablet, and Android phones. It should be easy for everyone irrespective of their experience in the trading world. For example, some people may be at a beginner’s level and may not have much understanding of how commodity trading works. The platform should offer ease of use and simplicity.

Conclusion

Before trading, it is essential to understand how the commodity market works and how participants influence prices. It is also essential to research commodities, futures, and options before investing. Once you have done your research, drafting and following a strategy will help you stay focused as markets change over time. Choice India is a leading platform for trading as it delivers all the benefits mentioned above with trusted and secure transactions.

You should only trade commodities if you are prepared for losses that may occur from time to time due to expected price movements or other risks related to changes in supply or demand for the commodity. Please be advised that the capital needed for trading must not come from funds needed for daily living or retirement savings.

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