Before we understand about commodity trading, let us know what commodity means. A commodity is anything in the market, on which you'll be able to place a value. It can be a market item reminiscent of food grains, metals, oil, which assist in satisfying the needs of the supply and demand. The worth of the commodity is topic to vary based on demand and supply. Now, back to what is commodity trading?
When commodities comparable to 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 achieve, then it is called as commodity trading. These may be traded as spot, or as derivatives. Note: You may as well trade live stocks, equivalent to cattle as commodity.
In a spot market, you purchase and sell the commodities for instant delivery. However, in the derivatives market, commodities are traded on varied monetary rules, reminiscent of futures. These futures are traded in exchanges. So what is an trade?
Alternate is a governing body, which controls all of the commodity trading activities. They guarantee smooth trading activity between a buyer and seller. They help in creating an agreement between purchaser and seller by way of futures contracts. Examples of Exchanges are: MCX, NCDEX, and ECB. Wondering, what a futures contract is?
A futures contract is an agreement between a buyer and seller of the commodity for a future date at right this moment's price. Futures contract is completely different from forward contract, unlike forward contracts; futures are standardized and traded in response to the phrases laid by the Exchange. It means, the parties concerned in the contracts don't resolve the terms of futures contracts; but they just accept the phrases regularized by the Exchange. So, why put money into commodity trading? You make investments because:
1. Commodity trading of futures can convey enormous profit, in short span of time. One of many main reasons for this is low deposit margin. You find yourself paying anywhere between 5, 10 and 20% of the total worth of the contract, which is way lower when compared to different forms of trading.
2. Regardless of performance of the commodity on which you have invested, it is simpler to buy and sell them because of the great regulatory system formed 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 concerned, 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 price, likewise, the opposite way too. (may be based on season for some commodities, for example agricultural produce)
5. With the evolution of on-line trading, there is a drastic growth seen within the commodity trading, when compared to the equity market.
The data involved in commodity trading is complex. In today's commodity market, it is all about managing the data that is accurate, replace, and contains data that enables the buyer or seller in performing trading. There are various firms in the market that provide solutions for commodity data management. You should use software developed by one in all such firms, for environment friendly management and evaluation of data for predicting the futures market.
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