Commodity Market – Different Types of Commodity Market in India

 The commodity market in India has seen a sharp increase in the volumes over the past few years. Commodities are just another asset class like the bond and equity market. Commodities come from the earth and act as raw material for all types of manufacturing businesses. There are many types of commodities that can be traded in the market. In this article, you will learn about commodity trading in India, types of commodity market and other aspects of the commodity market in India.

Let us begin by understanding the meaning of commodity.

Meaning of Commodity

A commodity is a group of goods or assets that are used in our day to day lives such as metals, agriculture, energy, etc. A commodity can be categorised as movable good that can be purchased and sold, except for money and actionable claims.

There are various types of commodities that are traded in India. Let us look at the types of commodities.

Types of Commodities Traded In India

• Agriculture: Wheat, Cotton, Rice, Corn, etc.
• Metals: Copper, Zinc, Gold, Silver, etc.
• Energy: Natural Gas, Crude Oil, Heating Oil, etc.
• Meat and Livestock: Cattle, Egg, etc.

Let us now learn how you can invest in the commodity market in India.

How to Invest in Commodity Market in India?

You can commence commodity trading in India in any of the six major commodity trading exchanges as listed below;

• Indian Commodity Exchange – ICEX
• Ace Derivatives Exchange – ACE
• National Multi Commodity Exchange – NMCE
• The Universal Commodity Exchange – UCX
• Multi Commodity Exchange – MCX
• National Commodity and Derivatives Exchange – NCDEX

From the above MCX and NCDEX are the most popular exchanges.

List of Commodities Traded on Multi Commodity Exchange (MCX)

• Metals: Aluminium, Brass, Copper, Zinc, Lead, Nickel.
• Bullion: Gold, Silver.
• Agri Commodities: Rubber, Black Pepper, Mentha Oil, Crude Palm Oil, Palmolien, Cardamom, Cotton, Castor Seed.
• Energy: Natural Gas, Crude Oil.

List of Commodities Traded on National Commodity and Derivatives Exchange (NCDEX)

• Fibres: Cotton, Guar Gum, Guar Seed, Kappa’s
• Oil and Oilseeds: Crude Palm Oil, Cotton Seed Oil Cake, Castor Seed, Mustard Seed, Refined Soy Oil, Soybean
• Soft: Sugar
• Cereals and pulses: Wheat, Barley, Paddy, Chana, Maize Rabi, Maize Kharif / South
• Spices: Jeera, Turmeric, Coriander, Pepper.

Let us now learn about the commodities that are most traded.

Most Traded Commodities

Natural gas, crude oil, gold, silver, cotton, corn, wheat are among the most traded commodities globally. Crude oil and gold are among the most favourite commodities among the traders and investors community. Crude oil is used for producing diesel, petroleum, etc. It is very volatile during global tensions. OPEC is the consortium of oil-producing nations that determine the supply of crude oil. The main oil-producing nations are Russia, US, Saudi Arabia, etc. Just like crude, gold is among the most popular commodity Indian people invest in. The price of gold has an inverse relationship with the US dollar. When the price of the US dollar falls, the prices of gold increase and when the price of the US dollar increases, the prices of gold falls.

Let us now learn about the participants in the commodity market.

Participants of Commodity Market

• Speculators

Speculators are traders that constantly monitor the price of commodities and predict the future price movement. If the speculators expect the prices of the commodity to move higher, they purchase commodity contract and sell them when the price goes up. Similarly, when they expect the price to go low, they sell commodity contracts and purchase back when the price falls. Thus, the intention of speculators is to make a profit in any type of market.

• Hedgers

Hedgers are the producers, manufacturers, etc. who safeguard their risk by using the commodity futures market. Like for example, if a cotton farmer expects price fluctuation during crop harvesting, he can hedge his position. To hedge the risk, the farmer enters into a futures contract. If the price of the crop falls in the local market, the farmer can compensate for the loss by making profits in the future market. Similarly, if there is an increase in the price during crop harvesting, the farmer can book loss in the futures market and compensate it by selling his crop at a higher price in the local market.

Let us now learn about the benefits of trading in the commodity market.

Benefits of Trading in the Commodity Market

• Management of Risk

The Securities and Exchange Board of India (SEBI) ensures that the exchanges have proper risk management procedures in place to protect the investors. Therefore, trading in commodities is regarded as very safe.

• Transparency

Trading on the commodity exchanges is very transparent and the buyers or sellers cannot manipulate the price. The price discovery is done without any manipulation and orders are executed only when there is a match between a buyer’s and seller’s order. The margins in commodity markets are low, therefore traders use this market to hedge their position and for higher leverage.

There are many benefits of trading in the commodity market. However, there are some important things that you must know while trading in such a market.

Things to Know While Trading in Commodity Market

• The demand and supply chain determines the prices of commodity and you must have a clear idea about it.
• The prices of commodities depend on various factors and your strategies must be framed after understanding those factors.
• As a beginner, it is always advisable to take the help of experts before starting commodity trading.
• The risk in commodity trading is higher because you get higher leverage.

The above mentioned are a few things that one must know before indulging in commodity trading in India. As a beginner or seasoned investor, you can contact IndiaNivesh for any assistance relating to the Indian commodity market. Our experts and professionals can help you in finding the best commodity to trade in India according to your risk-taking ability and financial goals. Our aim is to exceed the client’s expectation in all endeavours and we will be glad to serve you.

 

Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

Ref: https://www.indianivesh.in/kb-blog/types-of-commodity-market