To decide whether or not to trade commodities, you need to know what is commodity trading. Besides, not many know the things to consider before they can trade in commodities. A commodity is a raw material or agricultural product that can be bought or sold, and any physical or virtual market that allows the purchase or sale of such goods is considered a commodity market. Commodity trading in India is on the rise. And you surely should know things to consider before starting to invest in commodities.
How are commodities bought and sfold?
While you can buy commodities in India and store them, most commodity trading is done through futures exchanges. Historically, the oldest known commodity market was situated in ancient Sumer sometime between 4500-4000 BC Contracts were written on clay tablets and represented the quantity of each commodity (such as goats or quantity of wheat) that promised to deliver – not unlike today’s futures contracts.
Why it is ideal to trade commodities
Diversification- When looking at historical data, you can see a low to a negative correlation between commodity prices and stock and bond prices. This allows you to lower your risk concerning your stock investments.
Inflation protection- While inflation lowers bond and stock prices, commodities nevertheless seem to benefit from it. This makes sense because inflation drives commodity prices up, and the commodities used to create those commodities rise with it.
Exposure to growth opportunities- As demand for certain commodities increases over time, their price increases simultaneously.
Commodities go far beyond their main uses in our daily lives. You have seen that it is possible to make money trading soy, corn, coffee, index, dollar, and cattle. And trading is done through futures contracts or mini-contracts directly on the home broker or trading systems.
But you need to be prepared before embarking on commodity trading in India. You should have a suitable investor profile, and access the best tools and support to take better advantage of this market’s many opportunities. And if it’s up to us, you’ll have everything you need to succeed in this market that attracts so many investors!
What to do before investing in the commodities market?
Define your investor profile
Defining your investor profile is a step that precedes any investment, and investing in commodities would be no different. Only from this planning and financial self-knowledge will it be possible to understand your expectations with your assets and be aware of the risks you can take in exchange for more voluminous gains.
Learn how to buy commodities
Before trading in commodities in India, it is essential to understand how their purchase works, different from other fixed-income investments. Our tip, once again, is to study carefully to understand the investment model you are opting for entirely. In addition, the futures market works with leverage, a perfect tool to maximise your gains; but also a risk potentiator.
Have the minimum necessary to invest
As you operate leveraged to invest in commodities, it is unnecessary to have very large equity to invest significant amounts. But it is necessary to have the minimum conditions to make this investment. After all, the brokerage requires this type of guarantee to know if the investor can afford the possible losses that the investment can provide.
Commodities are an essential aspect for many people. They are basic necessities used in commerce and are interchangeable with goods of the same type.
Commodities are essential for investors as they are a way of diversifying their portfolios beyond traditional securities. Since the commodities prices move opposite to the stocks, the investors rely on such commodities during market volatility times.