Earlier than we understand about commodity trading, allow us to know what commodity means. A commodity is anything within the market, on which you’ll be able to place a value. It may be a market item corresponding to meals grains, metals, oil, which assist in satisfying the needs of the supply and demand. The price of the commodity is topic to vary based on demand and supply. Now, back to what is commodity trading?
When commodities reminiscent of energy (crude oil, natural gas, gasoline), metals (gold, silver, platinum) and agricultural produce (corn, wheat, rice, cocoa, coffee, cotton and sugar) are traded for a financial acquire, then it is called as commodity trading. These can be traded as spot, or as derivatives. Note: You may as well trade live stocks, similar to cattle as commodity.
In a spot market, you buy and sell the commodities for immediate delivery. However, within the derivatives market, commodities are traded on numerous financial ideas, resembling futures. These futures are traded in exchanges. So what’s an change?
Change is a governing body, which controls all the commodity trading activities. They guarantee smooth trading activity between a purchaser and seller. They assist in creating an agreement between buyer and seller when it comes to futures contracts. Examples of Exchanges are: MCX, NCDEX, and ECB. Wondering, what a futures contract is?
A futures contract is an agreement between a purchaser and seller of the commodity for a future date at immediately’s price. Futures contract is completely different from forward contract, unlike forward contracts; futures are standardized and traded in accordance with the phrases laid by the Exchange. It means, the events involved within the contracts do not determine the phrases of futures contracts; however they just accept the terms regularized by the Exchange. So, why spend money on commodity trading? You invest because:
1. Commodity trading of futures can deliver large profit, in short span of time. One of many essential reasons for this is low deposit margin. You end up paying anyplace between 5, 10 and 20% of the total worth of the contract, which is far lower when compared to other forms of trading.
2. Regardless of performance of the commodity on which you may have invested, it is less complicated to buy and sell them because of the nice regulatory system shaped by the exchange.
3. Hedging creates a platform for the producers to hedge their positions based on their publicity to the commodity.
4. There isn’t a company risk involved, when it comes to commodity trading as opposed to stock market trading. Because, commodity trading is all about demand and supply. When there is a increase in demand for a selected commodity, it gets a higher value, likewise, the other way too. (can be based mostly on season for some commodities, for example agricultural produce)
5. With the evolution of on-line trading, there is a drastic progress seen within the commodity trading, when compared to the equity market.
The data concerned in commodity trading is complex. In at this time’s commodity market, it is all about managing the data that’s accurate, update, and contains information that enables the buyer or seller in performing trading. There are many companies within the market that provide solutions for commodity data management. You can use software developed by one among such corporations, for efficient management and evaluation of data for predicting the futures market.