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Commodity trades can only be performed only if you open a commodity trading account with a trusted source like Choice. Avail of several benefits like low brokerage on commodity trading and free commodity trading to investing in the commodities suited for your goal, long-term or short-term.

If you are familiar with the nuances of the commodity market, open a free demat account with us and break free from significant annual charges. Minimal DP charges of Rs 10 add to the appeal of our platform and make investing economical and accessible for everyone.

However, if you are new to commodities in general, make investment decisions after extensive research. To make learning more accessible, we have compiled the fundamentals of commodities and the associated commodity trading account to ease your transition into an investor.

What is a Commodity Trading Account?

The concept of a commodity trading account can be better grasped by understanding the term' commodities.'

Commodities are raw materials or primary agricultural products that can be traded or used for specific applications. Some common commodities include the following.

• Precious metals like gold, silver and platinum
• Agricultural materials like rice, coffee, cocoa, wheat and soybeans
• Energy sector essentials like natural gas

Certain commodities like rice and wheat are standard household purchases, while precious metals are luxurious. Given that the definition of commodities is clear, we are in a better position to answer the question:

What is a Commodity Account?

A commodity trading account, or a commodity account, is a consolidated platform for the buying and selling of several commodities and their derivatives. The basic commodity account meaning defines it as an exclusive internet portal for exchanging items - namely gold, energy and agricultural products.

Benefits of a Commodity Trading Account

The commodity trading segment has been rising since 2005, reaching a peak value of 1.8 billion options and futures for agricultural materials in 2019. This popularity arises from several benefits associated with commodity trading, as listed below.

Commodities act as a hedge against inflation

Whenever inflation strikes, it leads to an increase in the prices of goods and items around you. Since commodities are primarily raw materials used in everyday products, their price shoots up significantly and helps you balance your portfolio in these trying times.

Commodities increase in value during geopolitical events

The simple principle of demand and supply comes into the picture here. When geopolitical tensions between core export regions arise, it causes a shortage of several essential resources. In turn, the demand for raw materials increases exponentially while their supply is limited.

In such cases, the market is expected to take a hit, with company stocks faltering to record-low levels. Investing in certain commodities will help you deal with this better and prevent your portfolio from entering a negative value.

Portfolio Diversification

Financial experts constantly stress the importance of investing in multiple investment avenues. However, this is often misinterpreted in diversifying your portfolio concerning company stocks spanning different industrial sectors.

Diversification should span more than a single instrument due to the market's fluctuations. Events like inflation cause high borrowing rates for companies and may cause a decrease in stock value. At times like these, alternate instruments like commodities witness a rise, thereby balancing your overall portfolio.

Types and Classification of Commodities in India

In the developing country of India, commodities are classified mainly into the following categories.

• Agriculture
• Energy
• Services
• Precious and non-precious metals

These four influential groups comprise materials like gold, copper, palladium and wheat, which can be traded using two types of trading in the commodity market.

• Options contract: With the options contract, the individual who purchases the options of a particular commodity from the seller has the right (but not the legal obligation) to buy or sell the item at will. Option trading in commodity allows the buyer to utilise the fluctuating price of the entity to book profits.
• Futures contract: Choosing commodity futures trading enables the buyer to purchase specific quantities of commodities at a fixed and predetermined price (which changes according to market behaviour). The item can then be sold later at a higher price for profit.

With the knowledge of all commodity trading essentials, it is time to learn how to do commodity trading.

How to Start with Commodity Trading?

The primary step of commodity trading in India is creating a Demat account from a trusted broker like Choice. Riddled with advantages like low brokerage charges and a seamless system of paperless account opening, it is the perfect platform to kickstart your investment journey.

After creating the initial Demat account, here are the additional steps to make your first trade.

• Start with depositing a sum into your Demat account equating to the price and quantity of the commodity you plan to purchase
• You can choose from direct commodities, stocks or mutual funds to mark your first investment in commodities

Each of these instruments has its own merits and demerits. For instance, direct commodities enable you to purchase gold or silver items like coins but possess a high transaction fee. Research wisely and experiment with small sums before making a hefty investment.

Is Intraday Trading Available for Commodities?

You can conduct commodity intraday trading to prevent long-term commitment to commodities. However, intraday trading in commodity comes with a certain amount of risk, and it is preferable to conduct extensive research before trying this option.

Most brokerage platforms allow for intraday trading from Monday through Saturday. While the weekday trading sessions usually start at 10 am and continue until 11 pm, the Saturday session begins at 10 am and closes at 1:30 pm.

Does the Commodities Market Offer Options and Futures Trading?

Commodity options trading and commodity futures trading comprise a significant chunk of the commodities market. The standard timings for intraday are also applicable for both these options, and you can purchase commodities within the specified time.

How to Choose the Best Commodity Trading Platform in India?

For a beginner, it is advisable to check for the following factors before choosing a commodity trading app.

• Additional costs: Online commodity platforms may demand a hefty brokerage on commodity trading or increased Demat account charges. Look for platforms that focus on user satisfaction while charging nominal fees.
• Introductory offers: While introductory offers might be prevalent among various brokers, it is crucial to recognize the ones explicitly suited to your needs. Look for valuable resources like in-built online commodity advisories to learn along with investing.
• User-friendly interface: A friendly user interface is fundamental for users taking their first steps into commodity trading. Easy access to important pages and sections on the broker platform will help you better get acquainted with the website.

With over 25 years of experience in the field and a host of exciting offers, Choice India supplements its position as one of the best commodity trading platforms in India.

What are the Tax Implications on Commodity Trading?

The taxation system in India does not focus on levying a tax on your capital gains. The tax on commodity trading blends your profits from selling the commodities with your existing annual income. You are then asked to add these figures and pay the appropriate tax as per the current tax slabs specified by the Government of India every fiscal year.

The taxes on commodity trading are relaxed compared to stocks, where you have to pay significant sums on booking profits, both on short-term and long-term gains.

Overall, indulging in commodity training is an excellent choice for diversifying your portfolio to combat inflation and geopolitical tensions and also helps you save significantly on taxes.