Commodity Trading

Commodity future exchanges serve a very important role in establishing global benchmark prices for crucial commodities such as crude oil, gold, silver, nickel and zinc. The exchanges are crucial for both producers and consumers of commodities. It has a very little or negative correlation with other asset classes. Indian market offers a wide variety of commodities for trading, which are classified as precious metal, base metal, energy and agro-based commodities.

The major benefit of commodity trading is that it is traded in the form of commodity future contracts, in which one can make profit without actual possession of the commodity. The other feature is that it is done on very minimum margin, thus investors get greater leverage and have the opportunity to get higher returns. Also some commodities are fundamentally global commodities and their prices are highly correlated across the markets in several countries, leaving less room for manipulations. The returns generated in commodity market are independent of the price fluctuations of the equity market or debt market and thus creating a good investment diversification. Investment in commodity future is an inflation hedging tool, as it locks the prices and protect against inflation.

Unlike physical commodities, commodity futures are standardized and can be held purely for investment purposes. Commodity futures allow you to participate in commodities without bothering to take physical delivery; making it cheaper and more convenient. Commodities can quickly become risky investment product too because they can be affected by uncertainties that are difficult, if not impossible, to predict; such as unusual weather patterns, epidemics, and disasters both natural and man-made.