Commodities Trading: How To Trade In Commodity

Commodities available for trading are typically categorised into four broad groups: metals, energy resources, livestock and meat, and agricultural products. For investors, commodities offer a valuable avenue to diversify their investment portfolios, moving beyond traditional securities. In essence, commodities are considered risky investments because their market dynamics, influenced by factors like unpredictable weather patterns, epidemics, and both natural and human-made disasters, make it challenging or even impossible to foresee trends accurately.


Various investment avenues exist for commodities, including futures contracts, options, and exchange-traded funds (ETFs). How to start commodity trading will be answered through this article. So, let’s read below.

How To Trade In the Commodity Market?

Becoming acquainted with the assets you plan to trade and invest in is essential for potential traders and investors. It entails understanding not only the specific commodity but also the exchange where it is traded, among other aspects of commodity trading. Here are some practical steps to learn how to engage in commodity trading in the Indian market:


  • Familiarise Yourself with Commodity Exchanges: In India, commodities are traded on prominent exchanges such as the National Multi Commodity Exchange of India (NMCE), the Multi Commodity Exchange (MCX), and the National Commodity and Derivative Exchange (NCDEX). Knowing these platforms is crucial for commodity trading.


  • Select a Reputable Broker: It's advisable to choose a reliable broker registered with the Securities and Exchange Board of India (SEBI). Full-service brokers can offer valuable insights and recommendations for commodity trading strategies.


  • Open a Trading Account: Once you've identified a trustworthy brokerage, the next step is to establish a trading account for commodities. Similar to equity trading, this account is linked to a Demat account.


  • Deposit Funds and Formulate Plans: After setting up a trading account, investors are required to deposit a margin amount, typically ranging from 5% to 10% of the value of the commodities trading contract.


By following these steps, you can gain a solid foundation in how to participate in commodity trading in the Indian market.


While a Demat account is a prerequisite for engaging in commodity trading, the process itself is more complex. Commodity trading encompasses investments in futures and options contracts or direct purchases (e.g., buying physical gold). Additionally, certain commodities, such as gold, can also be traded through ETFs. Commodity trading serves as an effective means to diversify a portfolio, much like the potential profitability of investing in upcoming IPOs. To start commodity trading, check out the Kotak Securities app.

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