Commodity Broker
A Commodity Broker is an individual broker or a brokerage firm that handles commodity trading on behalf of its investors. Investors can trade commodities online or over the phone with the help of a commodity broker.
Commodity Broking
Commodity broking means trading on tangible goods like precious and industrial metals (gold, silver, aluminium, copper, lead etc), agricultural products (soyabean, wheat, cotton, coffee, rubber etc) or energy resources (crude oil, natural gas, coal etc). Investors can buy or sell commodities as Futures, Options and other financial derivatives through commodity brokers.
Types Of Commodity Exchanges in India
The two most important national commodity exchanges are:
- Multi Commodity Exchange of India Ltd (MCX)
- National Commodity and Derivative Exchange (NCDEX)
To trade commodities in India, an investor has to understand how to trade in the commodity exchanges. A commodity exchange is a regulated market where commodity trading takes place. Investors can buy Futures to buy or sell a fixed quantity of a commodity within a stipulated time and at a pre-decided price.
Types of Commodity Trading in India
Under MCX, Traders can trade in commodities like:
Precious metals: gold, silver; Industrial metals: Brass, Aluminum, Lead, Copper, Zinc, Nickel;
Agricultural products: Black pepper, castor seed, crude palm oil, cardamom, cotton, mentha oil, rubber; Energy Resources: Natural gas, crude oil, coal.
Under NCDEX, Traders can trade in commodities like:
Agricultural products like Maize, Wheat, Chana, Moong, Paddy (basmati), Cotton, Sugar, Pepper, Jeera, Turmeric, Coriander, Castor seed, Soybean, Mustard seed, Cottonseed oil cake, Refined soy oil and Crude palm oil.
Benefits Of Commodity Trading
- Diversify Your Investment Portfolio
There is a low correlation between returns from other assets to commodity returns. Thus, commodity trading can help to diversify your investment portfolio.
- Inflation Protection
During periods of high inflation, the price of commodities increases. Thus, it is considered a good hedge against inflation.
- Transparency
There is no price manipulation for either buyers or sellers in commodity trading. Only when the prices quoted matched that the exchange occurs between the two parties. So, there is total transparency in trading transactions. Also, there is a lower margin for commodity brokers, so there is more scope for traders to hedge risks and find higher leverage.
- Risk Management
Since commodity trading involves total transparency in trading transactions, there is no risk involved in commodity trading. The exchanges enforce proper risk management protocol for traders.
Points To Remember
While trading in commodities, if you are a beginner, it is advisable to understand the market and market movement from Experts. Investors must have a clear understanding of the demand and supply chain to trade in commodities.
For experienced traders, though there is higher leverage in commodity trading, there is also a chance of higher risk in the same. So, you need to understand the factors affecting commodity prices and develop a trading strategy before investing your money.
To get expert assistance and invest in commodity trading, sign up for a commodity trading account today with Choice Commodity Trading.
