How to Trade in Commodity Market: Commodity Trading Guide | 5paisa (2024)

FAQs

How do you trade in commodity market? ›

Commodity trading strategies are usually based on either technical analysis, fundamental analysis or a mixture of the two. In order to have the best chance of successfully trading commodities, it's a good idea to incorporate some form of fundamental analysis, as commodity prices tend to be sensitive to global events.

One of the most common options strategies would be to buy calls and puts at the same time to profit from changes in market volatility. Generally, commodity traders adopt long positions when they anticipate market volatility. However, when traders feel that volatility would be normal, they take a short position.

1. Metal commodities: Metals like iron, copper, aluminium, nickel are used in construction and manufacturing, while platinum, silver and gold are used for jewellery-making and investment purposes.

Mutual funds, exchange-traded funds (ETFs) and exchange-traded notes (ETNs). These securities can provide you wide exposure with relatively low investment minimums. Funds can be specific to a particular commodity, such as gold or precious metals, or cover a broader array of commodities.

How do I start trading commodities? First, choose from 35 commodity markets, or commodity-linked stocks and ETFs. Next, decide whether to speculate on market prices by going long or short. And finally, you'd need to open a live account with a provider who offers commodity trading.

Number one Commodity Broker – Zerodha

Zerodha is the top commodity trading broker that charges you just Rs 20 maximum fee on MCX trading on the Kite platform. Angel One is the second top commodity broker because it also offers you daily, weekly, and monthly commodity research reports.

Key Takeaways

Commodities are considered risky investments because the supply and demand of these products are affected by events that are difficult to predict, such as weather, epidemics, and natural and human-made disasters.

The most traded commodity is crude oil. Crude oil is used in many products, from petrochemicals to petroleum to lubricants to diesel.

What is the best timeframe to trade commodity? ›

Agricultural commodities, sensitive to seasonal and climatic factors, are traded from 09:00 AM to 09:00 PM, offering a daytime trading window. Non-agricultural commodities like metals and energy trade from 9:00 AM to 11:30 PM, allowing real-time response to global market influences.

Crude oil ranks as one of the most traded commodities in the world. Commodity traders who had taken long positions on crude oil last year made a lot of money. Crude oil prices decreased in 2020 as a result of COVID-19 and the consequent global lockdowns. However, the rate of immunisations increased in 2021.

It often takes about three years of trading before someone can become consistently profitable. Traders must internalize lots of fundamental and technical knowledge before achieving this level of competency. It helps to learn the craft as an apprentice, from a commodities trader who is already successful.

Brent Crude oil is the most traded global commodity. Brent Crude is extracted from the North Sea and accounts for two-thirds of global oil pricing. Like the other crude oil benchmark WTI, Brent Crude is mainly refined into diesel fuel and gasoline. Brent Crude is generally slightly more expensive than WTI crude oil.

Unlike stock trading or investing in mutual funds or ETFs, commodity trading offers tremendous leverage. In trading commodity futures, you typically only have to put up about 10% of the total contract value. This enables you to make much higher percentage gains with your trading capital.

Commodities trading works in the same way as speculating on any other market, in that buyers and sellers come together to exchange goods. The only difference is that commodities can be bought and sold at a current and future price.

Commodity traders often act as speculators and attempt to make profits on small movements in commodity prices, gaining exposure through futures contracts.

Generally speaking, commodities trade either in spot markets or financial commodity or derivatives markets. Spot markets can be physical or “cash markets” where people and companies buy and sell physical commodities for immediate delivery.