Commodities, whether they are related to energy, metals or agri, are an essential
part of everyday life. They also form an important component of running a business.
Commodities are also used to diversify a portfolio against market risk. In volatile
or bearish stock markets, investors transfer money to precious metals such as gold
and silver that have been historically viewed as precious metals. Commodities can
also be used as a hedge against high inflation or during periods of currency devaluation.
Today, tradeable commodities fall into four categories. These are:
- Bullions (gold and silver)
- Agricultural (guarseed, soybeans, jeera, cotton and sugar)
- Metals (copper, lead, zinc, nickel, aluminium)
- Energy (crude oil, heating oil, natural gas and gasoline)
Benefits of trading in Commodity Market:
Commodities market is mainly driven by demand and supply. It is easy to understand
and easy to trade. Margin requirements to trade the future contract are very low
i.e. 5-8%. Trading hours are longer in commodity market; it starts from 10 am and
is open till 11.30 pm, and extended till 11.50 pm, in accordance with the daylight
saving timings schedule. Further, trading in the commodity market is beneficial
as it is difficult to manipulate prices in a commodities contract as it is derived
from global markets.
Commodity exchanges in India:
- Multi-Commodity Exchange of India Limited (MCX)
- National Multi-Commodity & Derivatives Exchange of India Limited (NCDEX)