Commodity Trading

What is Commodity Trading?

Trading commodities means buying and selling commodities like gold, crude oil, natural gas, silver, etc., using derivative contracts. In essence, you are trading the raw materials companies use to manufacture their products. Commodities trading is usually done through futures and options, which help companies and traders hedge or speculate on the future price movement of the commodities. Commodity trading is similar to how people trade stocks.

How Commodities Market Trading Works?

People trade commodities like crude oil, gold, copper, lead, etc. on exchanges such as MCX, which is also known as Multi Commodity Exchange. These derivative contracts are agreements between buyers and sellers regarding how much of a commodity will be bought or sold at the specified price at a future date.

There are two main types of traders:

1. Hedgers – Hedgers are market participants that use derivative instruments such as futures and options to protect themselves from adverse price changes of commodities they have considerable exposure to. Most common examples are the companies that use commodities as raw materials. 

For example, a manufacturing company that uses copper as a raw material may be concerned that the prices of copper will rise in future. To avoid losses from increased copper prices, the company can buy futures contracts of copper. If the price of copper increases in future, the company can exercise the futures contract to buy the copper at a pre-determined price specified in the contract.

2. Speculators –  These market participants try to realize profits from price changes of a particular commodity based on technical analysis, economic events, etc.

For example, a trader observes a formation of head and shoulders pattern on the price chart of gold and decides to buy the put options of gold, speculating that the price of the gold may decline in the short term. Within a few days, the price of the gold declines and the trader realizes a quick profit.

Most of the time, traders don’t take physical delivery of the underlying assets or commodities. It is more about predicting where prices will go and trying to make money from those moves. Just like the stock market, prices here change based on supply, demand, news, weather, and even global events. So in simple terms, it’s a marketplace where people trade real-world commodities to manage risk or seek profits.

Why Choose Pocketful for Commodity Trading?

If you’re thinking about trading commodities, then Pocketful is the best broker for you. Here’s why it is the best choice for you:

1. Simple, User-Friendly Platform: Pocketful’s easy-to-use interface makes trading easy and allows you to focus all your attention on trading strategy.

2. Low Starting Point: You don’t need significant capital to get started. Pocketful lets you invest in commodities with small amounts, so you can learn trading without risking too much money.

3. Smart Tools and Insights: From market updates to advanced technical tools, Pocketful helps you make informed trading decisions.

4. Safe and Transparent: Your investments and trading positions are protected with the best security features, helping you trade without delays even during periods of high market volatility.

5. Zero AMC: Pocketful does not charge any annual maintenance fees. If you are looking for a demat and trading account to trade in commodities without the hassle of annual maintenance charges, then Pocketful can be a good fit for you. 

5 Reasons to Trade in Commodity with Pocketful

Here are the top 5 reasons to trade in commodities with Pocketful:

1. Diversify Your Portfolio: Commodities do not always move in the same direction as stocks or bonds. So adding them to your portfolio can help lower your overall risk.

2. Hedge Against Inflation: When inflation rises, the price of commodities such as gold or crude oil often go up too, which makes trading in commodities beneficial.

3. Easy and Accessible: With Pocketful, you do not need to be an expert or have a significant amount of capital to start. Investing in commodities is simple and just a few taps away.

4. Real-World Value: Commodities are the raw materials used to manufacture products that people use, such as fuel and metals. Their value isn’t just based on trends, but on real global demand.

5. Tap Into Global Trends: From discovery of new reserves to changing government export policies, global events often drive commodity prices. With Pocketful, you can easily ride these trends and potentially benefit from market moves.

Frequently Asked Questions (FAQs)