Commodity Trading
What is Commodity Trading in India?
India has six national commodity exchanges. The commodity exchange is listed in the economic sector. You can also trade commodity-related investments on the stock market. There are several ways to trade in the commodity market. The commodity exchange operates on the simple principle of supply and demand. When supply is lower, demand increases and prices rise. If there is an oversupply, prices are lowered to clear the market. As prices drop, so does the purchase. Best trading company In commodity trading in India, you trade commodities by buying stocks of companies whose price is dependent on commodities, and by buying mutual funds, index funds, or exchange-traded funds that focus on commodity-related companies.
Benefits of Trading Raw Materials.
Low margins and high leverage returns
A hedge against inflation
It is linked to the international market scenario
An important instrument for portfolio diversification
Disadvantages of Commodity Trading.
Leverage - It can be a double-edged sword. Low margin requirements can encourage money mismanagement, leading to excessive risk taking. Not only the profits increase, but also the losses!
Trading speed: Traditionally, commodities are traded at the well, and to trade, a speculator would need to call in a broker to place the order, who then forwards that order to the well for execution. As soon as the transaction is complete, the pit operator informs the broker, who then informs his client. It can take time and the risk of slipping can be high. When trading futures online, NCDEX can help reduce this time by providing the client with a direct connection to an electronic exchange.
Advantages of Commodity Trading.
Leverage - Commodity futures work on margin, which means that only a fraction of the total cash value needs to be available in the trading account to take a position.
Commission: It is much cheaper to buy / sell a futures contract than to buy / sell the underlying asset. For example, a full-size S & P500 contract is currently worth more than $ 250,000 and could be bought / sold for as little as $ 20. The cost to buy / sell of $ 250,000 could be more than $ 2,500.
Liquidity: The participation of speculators means that futures contracts are reasonably liquid. However, liquidity depends on the contract actually traded. Electronically traded contracts like e-minis are typically the most liquid, while pit-traded products like corn, orange juice, etc.
Short Selling Opportunity - Futures can be sold as easily as they are bought, so a speculator can profit from both falling and rising markets. For example, there is no bullish rule like there is with stocks Read More …
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