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What is Grey Market, and How Are IPO Shares Traded?
The grey market is a marketplace where the shares are traded before their official listing on the recognized stock exchanges. It operates outside formal channels, and it allows investors to buy and sell IPO shares before their public debut.

In the grey market, the two primary types of transactions occur: buying and selling shares allotted to an investor and transfer of IPO applications. Grey Market Premium (GMP) represents the premium at which IPO shares are traded. GMP can be positive or negative, indicating the shares are trading either above or below their issue price, respectively. GMP acts as an indicator of demand for IPO shares and investor sentiment.

Application trading involves buying and selling IPO applications. However, this practice carries inherent risks due to its informal nature. In this blog, we will discuss the grey market, GMP, and how it works. Moreover, we will provide information about the types of trading in the grey market and the calculation of GMP.

What is Grey Market?

The grey market is an informal trading market where shares related to upcoming IPOs are bought and sold before their official listing on regulated stock exchanges. This market operates outside standard trading frameworks and it is not regulated by authorities, which means transactions in the grey market are not subject to the same legal oversight as legal exchanges.

Grey market trading is popular among investors who seek early exposure to stocks, particularly in cases where the demand for an IPO is high and there is the anticipation of a price rise post-listing. In the grey market, transactions primarily are of two types: trading of allotted shares and IPO application trading.

Though lucrative, grey market trading carries risks as it operates in an unregulated environment where price volatility can be high. For investors, understanding grey market helps gauge pre-IPO demand but requires careful consideration due to the lack of regulations.

What is the Grey Market Premium?

The grey market premium (GMP) is an unofficial difference between the grey market price of the company’s shares and the IPO price. In the context of the grey market, GMP reflects the demand and sentiment around an IPO, as the investors speculate on the stock’s listing day performance. While the grey market operates outside the regulated stock exchanges, it gives an indication of how a stock might perform when it officially debuts.

For example, if a stock’s IPO issue price is set at INR 100 and the grey market price is INR 120, then the grey market premium is INR 20, indicating that investors expect the stock to open around INR 120 on the listing day. This premium fluctuates based on various factors like market sentiment, demand for the IPO, and broader market conditions. A high GMP often indicates strong demand, while a lower or negative GMP could signal lower enthusiasm among investors.

The grey market is particularly popular in IPO markets as it provides a way for investors to gauge the potential success of an offering before its formal listing. However, since the grey market is unregulated, there are no legal protections, and the trades are speculative in nature, making it highly risky for investors.

How to Calculate Grey Market Premium?

To calculate the grey market premium (GMP), you can compare the price at which IPO shares are trading in the unofficial grey market to their official issue price. The GMP indicates an IPO share’s expected listing gain or loss when it goes public.

Here’s how to calculate it:
- Determine the Issue Price: It is the official price of the share set by the company.
- Identify the Grey Market Price: Check the current grey market price from reliable sources or dealers.
GMP = Grey Market Price − Issue Price

A higher GMP generally signals positive market sentiment, but remember, since the grey market is unregulated and GMP can fluctuate significantly based on speculation.

Grey Market Premium example

Suppose, an IPO is announced with an issue price of INR 100 per share. In the grey market, the shares begin trading unofficially, and investor interest is high. As a result, the grey market price rises to INR 130 per share. Here’s how the GMP is calculated:

Grey Market Price = INR 130

IPO Issue Price = INR 100

GMP = Grey Market Price − Issue Price

= INR 130 − INR 100

= INR 30

In this example, the GMP is INR 30, which indicates that investors expect the stock to list at approximately INR 130 on the official stock exchange. This INR 30 premium reflects a 30% anticipated gain and signaling strong demand.

Alternatively,

Grey Market Price = INR 90

IPO Issue Price = INR 100

GMP = Grey Market Price − Issue Price

= INR 90 − INR 100

= – INR 10

Here, the GMP is negative, which suggests low demand and potential listing of shares at a discount.

How Does the Grey Market Work?

The grey market operates as an informal marketplace where the shares of upcoming IPOs are bought and sold before their official listing on stock exchanges. This market functions outside of regulatory oversight, meaning the transactions occur privately between individuals and the dealers without formal records. It offers investors a glimpse into the anticipated demand for IPO shares and allows them to gauge interest and speculate on the potential opening price.

One of the main activities in the grey market is the trading of IPO shares before they are officially listed on the exchange. These transactions are based on grey market premiums (GMP), which reflects the price difference between the IPO issue price and what investors are willing to pay before the stock’s listing. Additionally, some investors engage in IPO application trading.

While the grey market offers insights into investor sentiment, it is unregulated and poses high risks for participants. Since transactions are not governed by legal frameworks, prices can be volatile and unpredictable. Investors should approach trading in the grey market with caution due to its informal nature.

Types of Trading in Grey Market

In the grey market, there are two primary types of trading: IPO shares trading and IPO application trading. These unofficial trading practices allow the investors to buy and sell IPO shares or applications before the stock is officially listed.

1. IPO Shares Trading

In this type of trading, the seller has been allotted shares of the IPO but doesn’t wish to wait till the listing day and wants to sell the shares. On the other hand, the buyer either doesn’t get allotment or wishes to increase position size and contacts the grey market dealer to arrange IPO shares. The dealer facilitates a deal between the buyer and seller, and a transaction price is set.

When the share gets listed, the shares are credited to the seller’s demat account, who can then either transfer the shares to the buyer’s demat account and accept the transaction price or sell the shares and settle the transaction with the buyer in cash.

For example: If an IPO share’s issue price is INR 100 and the GMP is INR 20, it signals that the market expects the stock to list around INR 120. Suppose Trader A wants to buy shares before listing and contacts a grey market dealer. Dealer tracks down Trader B, who has the shares and wishes to sell them before the listing date at a GMP of INR 30, i.e., a premium of INR 10 above the current GMP. The transaction price was set at INR 130. On the listing day, the share was trading at INR 140. Now, Trader B can transfer the securities to the demat account of Trader A and accept INR 130 in return. Alternatively, Trader B can sell the shares at INR 140 and pay INR 10 to Trader A.

2. Application Trading

In IPO application trading, the seller of the application has not yet received an allotment of IPO shares but wishes to exit the position based on the current GMP. The buyer believes the GMP will increase, and the shares will get listed at a much higher rate than the current GMP. The buyer and seller of the IPO application approach a dealer, and a deal is structured. It should be noted that in IPO application trading, no shares have been allocated yet, and only the IPO application is being traded.

The buyer can sell the IPO application if the GMP increases or wait till the listing day. If the seller gets allotted shares, then the seller must either transfer shares to the buyer’s demat account or settle the deal in cash with the buyer. The deal doesn’t go through if the seller doesn’t get an allotment.

For example: Suppose Trader A has applied for a maximum number of lots in an IPO and wants to increase his chances of getting an IPO allotment. Trader A gets in touch with a dealer who arranges an IPO application of Trader B. Suppose the current GMP is INR 25 and the issue price is INR 100. Trader B wishes to sell the IPO application at a GMP of INR 30, i.e., at a premium of INR 5. On the listing day, suppose the shares are trading at INR 150. If Trader B gets an allotment, then the shares must either be transferred to the Demat account of Trader A and accept INR 130 in return. Alternatively, Trader B can continue to hold onto shares and settle the deal with Trader A by paying INR 20 in cash. However, the deal doesn’t go through if Trader B doesn’t get allotment.

The difference between the two types of trading is that in IPO shares trading, the seller is already allotted shares, and a transaction occurs between the buyer and seller. On the other hand, in IPO application trading, the seller may not get the allotment, and there will be no transaction between the buyer and seller. However, counterparty risk exists.

Steps to Trade IPO Shares in the Grey Market

Trading the IPO shares in the grey market involves several steps as mentioned below:
- Identify a Trusted Dealer: The grey market operates informally, so it is essential to find a reliable dealer who facilitates grey market transactions. Dealers act as intermediaries and match the buyers and sellers for IPO shares or applications.
- Check the Grey Market Premium (GMP): Before trading, review the grey market premium (GMP) to assess demand for the IPO shares. GMP reflects how much investors are willing to pay above or below the issue price and gives an estimate of the anticipated listing price.
- Understand IPO Application Trading: In an oversubscribed IPO, the investors can buy the IPO application through a grey market dealer, set the transaction price in advance and hope to earn profits if the seller is allotted shares.
- Agree on Price and Payment Terms: Since grey market transactions are unregulated, both parties should agree on the price, quantity and payment method beforehand.
- Proceed with Caution: Remember, grey market trading is highly risky. Without legal protections or transparency, it is essential to trade only with trusted intermediaries and carefully consider the potential risks involved.
Conclusion

In conclusion, the grey market premium (GMP) offers insights into investor demand and expectations for an IPO share before it is officially listed. A positive GMP suggests strong demand, while a negative GMP indicates weaker interest.

Though it is a useful indicator, transactions in the grey market are highly speculative in nature and operate outside regulated markets. GMP provides a snapshot of pre-listing enthusiasm but should not be relied upon as the sole reason behind investment decisions. Due to the grey market’s unofficial nature, all the information mentioned above is for educational purposes only and should not be considered investment or trading advice. Consult a financial advisor before trading in the grey market.

Frequently Asked Questions (FAQs)
1. What is the grey market in stocks?
  The grey market in stocks is an unofficial market when IPO shares are traded before their official listing on the stock exchange. This market operates outside of regulatory oversight and allows the investors to buy or sell IPO shares based on anticipated demand and listing performance.
2. What types of trading occur in the grey market?
  The main types of trading in the grey market include IPO shares trading and IPO applications trading.
3. How does the grey market premium (GMP) work?
  The GMP reflects the difference between the IPO issue price and the price at which shares are traded in the grey market. A positive GMP indicates high demand, while a negative GMP shows low investor interest, which helps investors gauge expected listing performance.
4. Is trading in the grey market safe?
  Grey market trading is unregulated, which means it carries higher risks. Prices are speculative and volatile with no legal protection for buyers or sellers.
5. Why do investors trade IPO shares in the grey market?
  Investors trade shares or applications for an IPO to earn profits based on market sentiment.

February 26, 2025

What is IPO: Full Form, Definition, Types, and Benefits

An Initial Public Offering (IPO) is the process by which a private company offers its shares to the public for the first time and transition into a publicly traded entity. This significant milestone helps the company raise capital by selling a portion of ownership to individual and institutional investors on stock exchanges. IPOs are popular among investors as they have the potential to offer high returns, especially when investing in established and high-growth companies.

In this blog, we will give you information about the IPO process, its types, timeline, advantages and how to invest in an IPO. Understanding the IPOs, their types and their benefits can aid investors in making better investment decisions.

What is an IPO?

An Initial Public Offering (IPO) is an event in which a company offers its shares to the public for the first time, which are then publicly traded on a stock exchange. This process allows companies to raise capital for growth, expansion, and innovation by offering ownership stakes to a wide range of investors.

Investors view IPOs as an opportunity to invest in the early stages of companies with a promising future, though they carry certain risks. IPOs are crucial for both businesses and investors in the financial market.

Types of IPO

IPOs can be of two types, each serving different purposes in the financial market and attracting diverse investor interests. Understanding these types helps with strategic IPO investment. The two primary types of IPOs are:

Fixed Price IPO: In a Fixed Price IPO, the company determines a fixed price, and investors agree to buy shares at this price. However, the demand is only known after the IPO closes.

Book-Building IPO: In a Book-Building IPO, the company sets a price range rather than a fixed price and allows the investors to bid within that range. The final price is then determined based on demand. This method provides flexibility as prices can adjust based on demand.

Terms Associated with IPOs

Investors must understand several key terms associated with an IPO and understand the process better. Here’s a look at some important terms associated with IPOs:

IPO Price: The IPO price is the initial price set for the shares offered to the public. In a Fixed-price IPO, the price is determined beforehand, while in book-building IPOs, investors bid within a range, and the final price is set based on demand.

Prospectus: It is a vital document issued by the company, which provides the potential investors with the objective of issuing an IPO and the company’s financials, business model, and associated risks. It is a comprehensive guide that helps investors make better investment decisions.

Underwriter: Underwriters are investment banks or financial institutions that assist the company in preparing for the IPO. They help in the preparation of the documents, pricing, marketing, and handling the regulatory aspects of the IPO.

Lock-Up Period: After an IPO, there’s often a lock-up period during which company insiders like executives, and early investors cannot sell their shares. This period helps stabilize the stock price post-listing.

Oversubscription: When demand for an IPO exceeds the shares offered, it is termed an oversubscription. Oversubscribed IPOs indicate high interest from investors, potentially leading to a price surge on the listing day.

Online IPO Application: With the rise of digital platforms, online IPO applications allow investors to participate in IPOs easily. This accessibility has popularized IPO investment among retail investors, allowing them to participate in the initial public offering directly from trading accounts.

Listing Day: This is the first trading day of the newly issued shares on a stock exchange. Prices often fluctuate significantly due to high demand, especially for popular IPOs.

Understanding these IPO-related terms enables investors to navigate the IPO process confidently, helping them make strategic investments in the share market.

How does an Initial Public Offering (IPO) work?

An Initial Public Offering (IPO) is an event when a private company offers its shares to the public for the first time to raise capital. IPO stands for Initial Public Offering and marks the company’s entry into public trading on stock exchanges. To initiate an IPO, a company must follow the following steps:

Hire an Underwriter: The first step in launching an IPO is to hire a Merchant Banker (Lead Manager) for underwriting services. These banks help determine the pricing, offer structure, etc., and ensure that the company complies with regulatory requirements.

Submit Documents: The company and the merchant banker work together to prepare a draft prospectus (DRHP), which is submitted to SEBI for review. The prospectus contains financials, risks and other important details regarding the offer and the company.
SEBI Approval and IPO Application: SEBI verifies the details mentioned in the DRHP and approves it. After regulatory approval, an IPO application is submitted to the stock exchange.
Price Determination: A pricing method is determined by the issuer and merchant banker. They can select either fixed-price issues or book-building issues. In a Book Building, IPO and investors bid within a specified price range, while in a Fixed-price IPO, shares are offered at a set price.
RHP Submission: An RHP is an updated version of DRHP, which contains the latest information about the company. RHP is submitted to the exchange.
Marketing: Merchant bankers appoint PR & advertising agencies to make the IPO popular. The main objective of marketing campaigns is to generate interest among the general public.
IPO opens to Anchor Investors: An anchor investor is a qualified institutional buyer (QIB) and submits a bid of at least INR 10 crore.
IPO opens to the Public: Investors apply for IPO through their brokers or banks.
IPO shares Allotment: Shares are allotted to investors through a lottery in most cases. Exchange coordinates with banks to confirm the bank accounts and demat accounts of IPO applicants. Upon successful verification, the investment amount is deducted from the investor’s bank account and shares are credited to the investor’s demat account.
Listing Date: Shares offered in an IPO are traded on this day. Before trading, a pre-open session is organized in which investors can place orders. The orders can be entered, modified or canceled from 9:00 am to 9:45 am. From 9:45 am to 9:55 am, the orders are matched, and normal trading begins at 10:00 am on the listing date.

What is the IPO Timeline?

The IPO timeline is the stages a private company undergoes to go public and list its shares on a stock exchange. It typically begins with planning and due diligence, during which the company assesses its readiness, hires underwriters, and conducts financial audits. This is followed by filing the regulatory documents, such as the prospectus with the regulatory bodies and exchange, providing details of the IPO, including the risks, financial statement,s and objectives of issuing an IPO.

Next, through IPO roadshow and marketing, the issuer and merchant bankers introduce the IPO to potential investors, which helps them analyze the demand for the IPO and set an appropriate price range. Once the price is finalized, the shares are offered to institutional and retail investors.

Finally, on the IPO listing day, the shares are publicly traded on the stock exchange, which marks the completion of the IPO process. This entire timeline can take several months, depending on the company’s preparedness, regulatory requirements, and market conditions.

Benefits of Investing in an IPO

Investing in an IPO or Initial Public Offering presents a unique opportunity for investors to become part of a company’s growth journey. Some of the key benefits are:

Popular IPOs generally perform well on the listing day, and investors can sell their shares to realize significant returns in a short span of time.

As the company expands and grows using the capital raised through IPO, its stock gains value over time. Investors can participate in the IPO and hold onto shares for capital appreciation.
IPO investments also provide portfolio diversification and offering exposure to new industries or innovative companies that can balance other investment risks.
Companies launching an IPO are required to disclose their financials and growth plans in their prospectus, which gives the investors valuable insights.

Read Also: What is the IPO Allotment Process?

Advantages and Disadvantages of IPOs

The advantages and disadvantages of IPOs for companies and investors are mentioned below.

Advantages

For companies, IPOs provide access to substantial capital for growth, expansion or debt reduction. Public listing also enhances credibility and visibility, which improves the company’s profile in the market. For investors, IPOs provide an opportunity to invest early in a company with growth potential and often leads to high returns if the stock performs well. Liquidity improves as shares can be easily traded on public exchanges.

Disadvantages

However, IPOs also come with challenges. Companies going public are subject to increased regulatory scrutiny as they are required to disclose financial, operational details, which can reduce privacy. Additionally, market fluctuations may lead to volatility in stock prices, impacting both the company’s valuation and investor confidence. For investors, IPOs carry risks as some companies may struggle post-IPO and potentially resulting in losses.

Types of Investors in IPO

There are three main types of investors in an IPO (Initial Public Offering): Retail Investors, Qualified Institutional Buyers (QIBs), and High Net Worth Individuals (HNIs). Each plays a unique role in the IPO process.

Retail Investors: These are individual investors applying for smaller lots, usually through online IPO applications. They make up a significant portion of IPO participants and are often allotted a reserved quota in IPOs to encourage public participation.

Qualified Institutional Buyers (QIBs): QIBs include entities like mutual funds, banks, and insurance companies. They have vast resources and expertise, making them crucial in determining the demand and pricing of an IPO. QIBs usually receive a reserved portion of shares in large IPOs.

Non-Institutional Investors: Non-institutional investors or HNIs invest larger sums than retail investors but are not institutions.

How to check for upcoming IPOs?

To check for upcoming IPOs, investors can explore various reliable sources. Stock exchange websites like the NSE and BSE in India provide updated IPO calendars and announcements.

Additionally, brokerage platforms often list upcoming IPOs and offering the detailed information and online IPO application options. Some financial applications and investment portals include IPO tracking tools with notifications for new listings.

How to Invest in an IPO?

Investing in an IPO involves several straightforward steps. First, upcoming IPOs should be identified through stock exchange websites or financial news platforms to identify investment opportunities. Next, ensure you have a Demat account set up with a depository participant (DP) to apply for an IPO.

Once you have identified an IPO, submit your IPO application through your DP platform. Track the allotment status as not all applicants may be allotted shares due to high demand. If the shares are allotted, monitor the stock performance post-listing.

Read Also: What is the IPO Allotment Process?

Conclusion

In conclusion, investing in an IPO can be a rewarding opportunity for both individual and institutional investors. By researching upcoming IPOs and using online platforms, investors can own shares of companies at their early stages of growth. Understanding the mechanics of the IPO process is crucial for making informed investment decisions. While the potential for high returns exists, it is important to consider the associated risks and market volatility.

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5	What is NII in IPO?

Frequently Asked Questions (FAQs)

What are the different types of IPOs?
The main types of IPOs are Fixed Price IPOs, where shares are sold at a predetermined price and Book Building IPOs, where the investors place bids within a price range and allow the company to determine the final offer price based on demand.
How do I invest in an IPO?
To invest in an IPO, research upcoming IPOs and submit an IPO application through the DP platforms.
What are the benefits of investing in an IPO?
Investing in an IPO offers several benefits, including early access to potentially high growth companies, the opportunity for significant capital appreciation, portfolio diversification and increased liquidity as shares are publicly traded.
What risks are associated with investing in IPOs?
While IPOs can be lucrative, they also come with risks such as market volatility, lack of historical performance data, and the possibility that the company may not perform as expected after going public. Investors should conduct thorough research and consider their risk tolerance before investing.

February 25, 2025

What is the Difference Between IPO and Share?

The terms IPO (Initial Public Offering) and shares are fundamental concepts in the world of finance and understanding the difference between the two is crucial. An IPO is the process by which a private company goes public by offering its shares for the first time to the general public. It’s a way for the company to raise capital. Shares, on the other hand, represent ownership units in a company, and they can be bought and sold on the stock market after the IPO. Understanding the difference helps investors make informed decisions about participation in public offerings or buying shares on the open market.

In this blog, we will explain IPO and shares, their types, and the differences between them.

What is an IPO?

An IPO, or Initial Public Offering, is a process through which a private company offers its shares to the public for the first time. This transition from a private to a public entity allows the company to raise capital, expand, and gain market visibility. Investors need a Demat Account to hold shares electronically, and a trading account is required to trade these shares easily. After the IPO, shares are listed on the stock exchange allowing buying and selling of shares at market driven prices. The difference between IPO and stock is that IPO is an event, while stocks are the actual assets offered in the IPO. Understanding IPO vs. stock is key for anyone interested in the financial market.

Types of IPO

The two main types of IPOs are mentioned below:

Fixed Price Issues: In a Fixed Price Issue, the company sets a specific price for its shares and allows the investors to know the exact purchase price before going public. The company hires underwriters who determine the share price at which the securities will be allotted if the IPO application is successful. However, the price is set without considering the investor’s demand for shares, which can affect investment returns.
Book Building Issues: In contrast, a Book Building Issue involves a price range within which the investors can place bids, and the final price is set based on the demand for shares within that range. This method captures the market demand for shares and results in better price discovery.

A share, commonly known as common stock or an ordinary share, represents a unit of ownership in a company. It entitles shareholders to a portion of its profits and voting rights. Shareholders have the right to vote on key issues such as election of board members or the approval of major company policies. They may also receive dividends, although these are not guaranteed and depend on the company’s profitability.

However, in the event of liquidation, common shareholders are paid after bondholders and preferred shareholders. Common shares are what investors trade in the stock market, making them a popular choice for individual investors looking to participate in a company’s growth. However, ordinary shares often carry more risk and may offer higher potential for returns if the company’s profitability increases.

Types of Shares

The two types of shares are mentioned below:

Common Shares: A common share represents an ownership unit in a company and gives shareholders voting rights and dividends. However, in the event of liquidation, common shareholders are last to receive payouts after creditors and preferred shareholders.
Preferred Shares: On the other hand, preferred shares have priority over common shares when dividends and assets are distributed during liquidation. However, these shares generally lack voting rights.

The main difference between an IPO (Initial Public Offering) and a share lies in their definitions and roles in the financial market. An IPO is the process through which a private company offers its shares to the public for the first time, enabling it to raise capital. It’s simply a debut event for a company’s stock on the stock market.

On the other hand, a share represents a unit of ownership in a company. After the IPO, shares are available for trading on stock exchanges, and they are what investors buy and sell in the secondary market. In short, an IPO is the event, while shares are the tradable assets. To invest in an IPO, individuals need a Demat Account to hold shares electronically and can use a trading account to easily buy and sell shares.

Conclusion

In summary, an IPO is an event in which a company offers its shares to the public for the first time, marking its transition from private to public ownership. This process allows the company to raise capital and expand its operations, while shares represent the actual units of ownership in a company that investors buy and sell on the stock exchange. Investors need a Demat Account to hold these shares electronically and can use depository participant’s (DP) platforms to access their trading accounts for trading shares.

FAQs

What is the main difference between an IPO and a share?
An IPO is the process through which a private company offers its shares to the public for the first time, allowing it to raise capital and become publicly traded. A share, however, is an individual unit of ownership in a company that investors buy or sell on the stock market.
Can I buy shares without participating in an IPO?
After an IPO, the company’s shares are listed on the stock exchange, where the investors can buy and sell them freely in the secondary market regardless of whether they participated in the IPO.
What are the different types of shares?
Common shares and preferred shares are the two types of shares.
What are the risks involved in buying shares through an IPO vs. buying them in the open market?
IPO investments carry risks as the company is newly listed and may have a limited track record. Volatility and other market factors can cause the share price to be overvalued, making it risky to purchase shares in the open market.
Do I need a Demat Account to buy shares through an IPO?
A Demat account is essential for holding shares electronically, whether purchased through an IPO or the secondary market.

February 25, 2025

The Pros and Cons of Commodity Trading

Commodity trading is the process of buying and selling of commodities such as gold, crude oil, copper, etc., in spot markets or derivative markets. Commodity trading has numerous advantages as it helps market participants diversify their portfolios, speculate on future price movements, etc.

However, commodity trading can result in significant losses as prices can change suddenly due to certain factors such as weather, global demand, political events, etc. This makes it difficult to predict how much profit or loss a trader might make.

In this blog, we will discuss the pros and cons of commodity trading, which will help you make smarter trading decisions.

Pros of Commodity Trading

The pros of commodity trading are:

1. Protection Against Inflation

Commodity trading provides a powerful hedge against inflation. Market participants can use derivative contracts to protect their portfolios against inflation. Furthermore, futures contracts allow traders to lock in the price of a commodity for a transaction at a future date. This helps them fix the cost of raw materials and mitigate the impact of rising inflation.

When inflation rises, the price of raw goods rises, and these can specifically include goods like oil, metals, and agricultural items. For example, for a business reliant on raw materials for its manufacturing activities, it is essential to control the input costs. If inflation is expected to rise, the company can buy the futures contracts of the specific raw material and basically fix their buying price for a transaction at a future date.

2. Portfolio Diversification

Commodities are usually traded through futures and options on platforms like MCX. These contracts are not strongly correlated with traditional assets, such as equities and bonds. For example, commodities like gold or oil often perform well when stock markets are underperforming, thus decreasing your portfolio’s overall risk.

3. Opportunity During Global Events

Global events can cause significant price movements in commodities. Trading on exchanges like MCX provides the opportunity to profit from such volatility, as global crises frequently impact commodities prices.

4. Higher Returns

Commodity trading offers margin trading, which means traders can hold a large position with a small capital. If prices move favorably, the profits are significant. However, leverage is also associated with increased risk, as if prices move in the opposite direction, losses can be significant.

5. Transparent and Fair Pricing

Commodity trading often occurs on regulated exchanges such as MCX, ensuring transparent pricing and no price manipulation. All trading takes place on electronic commodity trading platforms, which helps prevent price manipulation. This increases the market participant’s confidence and makes the market more transparent and trustworthy.

Gold Rate in Top Cities of India	Silver Rate in Top Cities of India
Gold rate in Ahmedabad	Silver rate in Ahmedabad
Gold rate in Ayodhya	Silver rate in Ayodhya
Gold rate in Bangalore	Silver rate in Bangalore
Gold rate in Bhubaneswar	Silver rate in Bhubaneswar
Gold rate in Chandigarh	Silver rate in Chandigarh
Gold rate in Chennai	Silver rate in Chennai
Gold rate in Coimbatore	Silver rate in Coimbatore
Gold rate in Delhi	Silver rate in Delhi
Gold rate in Hyderabad	Silver rate in Hyderabad
Gold rate in Jaipur	Silver rate in Jaipur

Check Out – Free Commodities Screener

Cons of Commodity Trading

The cons of commodity trading are:

1. High Risk of Loss

Commodity trading involving futures and options can be risky. This is primarily because of the leverage involved, which is why even small price movements can result in big losses.

2. Price Volatility

Commodity prices can fluctuate rapidly. This can be due to a variety of factors, such as weather, regulatory changes and world events. Just for instance, a natural calamity can harm crops or halt oil production, which can increase prices.

Similarly, a reduced demand for a specific commodity can cause price declines. These unexpected price swings are difficult to forecast. Even experienced traders sometimes struggle with these unpredictable price changes, making commodity trading dangerous and complex to manage.

3. Requires Deep Knowledge

Successful commodity trading requires a thorough grasp of market trends, supply and demand dynamics, etc. This helps you make wise trading decisions, particularly when trading in futures and options.

For example, price swings can be induced by political upheaval in OPEC nations. Because of the turmoil, oil prices may rise or fall significantly, making wise trading decisions extremely tough.

Things to Keep in Mind Before Trading in Commodities

You should remember the following points before trading in commodities:

A higher trading volume in a specific commodity means more market participants are actively buying and selling, which can lead to bigger price changes. It also results in more trading opportunities.
Know how much risk you’re willing to take. High-risk trades can give you more profit, but they also carry a higher chance of losing money.
Keep a close watch on the price trends of commodities. Prices of some commodities can go up fast and drop just as quickly, which makes them risky.
Don’t put all your money into one commodity. Spreading your trading positions across commodities reduces risk and increases your chances for profit.

Conclusion

Commodity trading on platforms such as MCX can provide lucrative trading opportunities. However, trading in commodities also involves risks as commodity prices can be extremely volatile. This is due to variables such as weather, politics, and global demand, which make these markets unpredictable.

Understanding how prices change is critical for success in commodities trading helps you stay on top of market trends. Knowing your financial objectives and the amount of risk you’re prepared to accept is critical.

Choose which commodities to trade and look for strategies on how to take advantage of price fluctuations effectively. Understanding your risk tolerance is crucial. Diversifying your trading positions across many commodities reduces risk.

Stay updated, monitor market movements, and alter your trading plan when necessary. With the appropriate strategy, you can make well-informed trading decisions, helping you achieve your financial goals.

S.NO.	Check Out These Interesting Posts You Might Enjoy!
1	Understanding Commodity Market Analysis
2	What is the Timing for Commodity Market Trading?
3	Risks in Commodity Trading and How to Manage Them
4	5 Tips for Successful Commodity Trading
5	Stock Market vs Commodity Market

Frequently Asked Questions (FAQs)

What is commodity trading?
Commodity trading is the buying and selling of raw materials like gold, oil, and agricultural products in spot or derivative markets to profit from price fluctuations and hedge against risk.
What are the key advantages of commodity trading?
Commodity trading offers protection from inflation, portfolio diversification, and potential high returns. Futures contracts can be used to lock in prices, and market volatility during global events creates additional trading opportunities.
What risks are involved in commodity trading?
Commodity trading carries high risk due to leverage and unpredictable price volatility. Market price changes due to weather, global demand shifts, or political events can result in significant financial losses.
How does commodity trading act as a hedge against inflation?
Commodity trading, particularly through futures contracts, enables traders to lock in prices. This strategy protects against rising raw material costs during inflationary periods.
What should traders consider before engaging in commodity trading?
Traders should assess risk tolerance, monitor market trends, diversify positions, and gain deep market knowledge. Understanding supply and demand dynamics is crucial for making informed trading decisions.

February 25, 2025

What is the Commodity Index?

A commodity Index tracks the price movements of a basket consisting of different kinds of underlying commodities. Commodity indices help traders and investors create benchmarks that reflect the overall performance of the commodity market.

In this blog, we will give information about the commodity index, its types, and major commodity indices in India.

Commodity Index: An Overview

A commodity index represents essentially a weighted index that gauges the price performance of a certain group of commodities. Commodity Indices are meant to expose traders to the wide world of commodities. Some of the most frequently traded commodities in the portfolio might include crude oil, natural gas, gold and silver.

Commodity indexes are different from other indexes. This is because their returns usually depend only on the price changes of the commodities in the index. Unlike stocks or bonds, commodities don’t pay dividends or interest. As commodities don’t offer these payouts, the commodity index returns are solely based on the price performance of underlying commodities.

Types of Commodity Indices

Here are some common types of commodity indices:

1. Broad Commodity Indices

These indices cover a broad commodity universe across different sectors. In India, the MCX iCOMDEX Composite index tracks the performance of crude oil, zinc, gold, etc., thereby covering energy, base metal, and precious metal sectors. The most prominent global broad commodity index is the S&P GSCI (Goldman Sachs Commodity Index). It encompasses 24 commodities, ranging from energy to agriculture to metals.

2. Sector-Specific Commodity Indices

These indices focus specifically on commodities of certain sectors such as energy, agriculture, and other products. In India, the MCX iCOMDEX Base Metal index tracks the performance of Aluminium, Copper, Lead and Zinc. Globally, the S&P GSCI Electric Vehicle Metals Index is a well-known index that tracks the performance of cobalt, copper, aluminium, nickel, and iron ore.

3. Single Commodity Indices

These indices show the price performance of a specific commodity, such as gold, crude oil, etc. For example, MCX iCOMDEX Gold tracks the performance of gold. Other examples of single commodity indices in India are MCX iCOMDEX Silver, MCX iCOMDEX Zinc, etc.

Benefits of Commodity Indices

Some of the most common benefits of commodity indices include:

1. Diversification

Trading in commodity indices is an excellent way for portfolio diversification. By trading in a commodity index, a trader gains exposure to multiple commodities, reducing the risk of relying on the performance of a single asset class. For instance, the MCX iCOMDEX Base Metal index has futures contracts with a ticker symbol named MCX METLDEX, which consists of futures contracts of aluminum, copper, lead, nickel and zinc as its underlying.

2. Inflation Hedge

Commodities, particularly precious metals like gold and silver, have long been considered a hedge against inflation. When inflation rises, the price of commodities like gold and oil often increases. Trading in futures contracts of Indian commodity indices such as MCX iCOMDEX Bullion and MCX iCODMEX Base Metal can help traders safeguard their portfolios during inflationary periods.

3. Economic Indicator

Commodity indices also serve as indicators of economic health. Since commodities are essential for industries like manufacturing, construction, etc., their prices are often tied to the overall economic conditions. By monitoring commodity indices, traders can gain insights into global demand and supply trends.

4. Access to Commodity Markets

While commodity trading can be capital-intensive, access to ETFs provides cost-effective options. By investing in ETFs of specific commodities such as gold and silver, you can gain exposure to commodity price movements without having to deal with the complexities of trading individual commodities or managing physical assets.

Gold Rate in Top Cities of India	Silver Rate in Top Cities of India
Gold rate in Ahmedabad	Silver rate in Ahmedabad
Gold rate in Ayodhya	Silver rate in Ayodhya
Gold rate in Bangalore	Silver rate in Bangalore
Gold rate in Bhubaneswar	Silver rate in Bhubaneswar
Gold rate in Chandigarh	Silver rate in Chandigarh
Gold rate in Chennai	Silver rate in Chennai
Gold rate in Coimbatore	Silver rate in Coimbatore
Gold rate in Delhi	Silver rate in Delhi
Gold rate in Hyderabad	Silver rate in Hyderabad
Gold rate in Jaipur	Silver rate in Jaipur

Check Out – Search and Filter Commodities

Major Commodity Indexes: An Overview

Multi Commodity Exchange (MCX) offers 12 commodity indices in total, consisting of composite indices, sectoral indices, and single commodity indices. Indices are given below:

Composite indices: MCX iCOMDEX Composite index
Sectoral Indices: MCX iCOMDEX Bullion index, MCX iCOMDEX Energy index and MCX iCOMDEX Base Metal index.
Single Commodity Indices: MCX iCOMDEX Gold index, MCX iCOMDEX Copper index, MCX iCOMDEX Crude Oil index, etc.

Trading indexes allow you to avoid focusing on specific commodities. It’s an easy method to track the market while minimizing risk. Commodity indices, whether in metals, energy, or agriculture, are an excellent starting place for inexperienced traders.

How to Invest in a Commodity Market Index?

You can invest in the commodity market index in the following ways:

Mutual funds and ETFs can be used to invest or trade in commodities, such as gold and silver.
Another way of trading in commodity indices is through futures contracts. Futures contracts of MCX iCOMDEX Bullion and MCX iCODMEX Base Metal index are available for trading.
Futures and options contracts of specific commodities, such as gold, silver, crude oil, copper, etc., are also available for trading.

Conclusion

Commodity indices help market participants track the performance of the underlying commodities Trading Platform and also provide a way to diversify their portfolio through investing and trading in ETFs, mutual funds, futures and options. In India, MCX provides 12 commodity indices, which consist of composite indices, sectoral indices, and single commodity indices. However, it is advised to consult a financial advisor before investing or trading in commodities.

S.NO.	Check Out These Interesting Posts You Might Enjoy!
1	Best Commodity Trading Platforms in India: Top 10 Picks for Traders
2	What is the Timing for Commodity Market Trading?
3	Risks in Commodity Trading and How to Manage Them
4	5 Tips for Successful Commodity Trading
5	Types of Commodity Market in India

Frequently Asked Questions(FAQs)

What is a commodity index?
A commodity index tracks the price movements of a basket of commodities, helping traders and investors measure the overall performance of the commodity market.
What are the types of commodity indices?
Commodity indices are categorized into broad indices, sector-specific indices, and single commodity indices.
How do commodity indices help in portfolio diversification?
Commodity indices provide exposure to multiple commodities, reducing dependence on a single asset class and thereby enhancing risk management and diversification.
Why are commodities considered an inflation hedge?
Commodities like gold and oil tend to increase in value during inflationary periods, making them effective in preserving purchasing power.
How can one invest in commodity indices?
Investors can trade through mutual funds, ETFs, or futures and options contracts of sectoral indices like MCX iCOMDEX Bullion and MCX iCOMDEX Base Metal.

February 24, 2025

Types of Commodity Market in India

The commodity market plays a crucial role in the global economy. Here, derivative contracts of commodities are traded. It provides a platform for producers and consumers to manage risks and, at the same time, allows traders to take advantage of price movements.

Commodities are bulk-produced raw materials. These can be wheat, soybean, or precious metals. They must meet certain quality and quantity standards to be eligible as an underlying asset of the derivative contracts. These derivative contracts are traded widely among multiple buyers and sellers.

In this blog, we will discuss the types of commodity markets in India.

What is a Commodity Market?

A commodity market is a platform where commodities such as gold, silver, crude oil, agricultural products, etc., are bought and sold. These transactions can happen either via spot transactions or through derivative contracts.

These markets act as bridges between the sellers and buyers of commodities. This way, producers can sell their goods and also hedge against the volatility in the prices while consumers can get the commodities needed at the cheapest price possible.

Check Out – Free Commodities Screener

Types of Commodity Market in India

The commodity market in India can be broadly classified into different types. Some of the common types of commodity markets include:

1. Spot Market

The spot market, or cash market, is a marketplace where commodities are bought and sold for immediate delivery. This market is characterized by physical transactions. Here, buyers and sellers negotiate prices based on the prevailing market conditions. The buyers often take possession of the commodity immediately after the payment has been made.

2. Derivatives Market

Futures

Futures contracts allow you to trade, buy or sell commodities for delivery in the future. The market allows buyers and sellers to enter contracts to purchase or sell a particular commodity at a specified price at a predetermined date.

Options

An option is a type of financial instrument that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price, known as the strike price, on or before a set expiration date.

Options are of two forms:

Call Options: Give the holder the right but not the obligation to buy the asset.
Put Options: Give the holder the right but not the obligation to sell the asset.

Options can be traded before expiration. However, the actual transfer of the asset occurs only after the option is exercised.

Forwards

Forwards contracts are similar to futures contracts but differ in one key aspect. Futures contracts are traded on organized exchanges and have a standardized contract size. On the other hand, forward contracts are over-the-counter (OTC) financial instruments, due to which these contracts are negotiated directly between buyers and sellers.

Gold Rate in Top Cities of India	Silver Rate in Top Cities of India
Gold rate in Ahmedabad	Silver rate in Ahmedabad
Gold rate in Ayodhya	Silver rate in Ayodhya
Gold rate in Bangalore	Silver rate in Bangalore
Gold rate in Bhubaneswar	Silver rate in Bhubaneswar
Gold rate in Chandigarh	Silver rate in Chandigarh
Gold rate in Chennai	Silver rate in Chennai
Gold rate in Coimbatore	Silver rate in Coimbatore
Gold rate in Delhi	Silver rate in Delhi
Gold rate in Hyderabad	Silver rate in Hyderabad
Gold rate in Jaipur	Silver rate in Jaipur

Types of Commodities in the Commodity Market

The commodity market in India offers a wide range of commodities for trading. Here are the types of commodities in the commodity market:

Agricultural commodities: These include grains (e.g., wheat, chana), oil and oilseeds (e.g., soybeans, mustard seeds), spices (e.g., coriander, turmeric), etc.
Energy commodities: These comprise crude oil and natural gas.
Metal commodities: These are commodities made of metal, such as precious metals (gold, silver), base metals (copper, aluminium), etc.

Commodity Trading Platforms

In India, commodity trading is facilitated by various exchanges and platforms. Some of the commodity trading platforms include:

National Commodity & Derivatives Exchange (NCDEX)
Multi Commodity Exchange of India (MCX)

Benefits of Commodity Trading

Commodity trading offers several benefits, including:

1. Diversification

Commodity trading provides access to numerous commodities, which allows traders to spread risks more effectively. They can trade commodities like metals, energy, and agriculture and reduce their reliance on a single sector as these commodities serve as raw materials for multiple sectors of the economy. Commodities are traded all over the globe, which makes them less susceptible to market manipulation. Commodities enable traders to pursue trading opportunities in multiple financial assets and thus limit exposure to a specific financial instrument or sector.

2. Hedging

In commodity trading, hedging guards against unexpected price volatility. Through forward contracts, businesses can fix the cost of their raw materials, helping them maintain consistent financial performance.

Hedging helps traders lessen their exposure to unfavorable market movements. This tactic reduces the risk of adverse price fluctuations causing significant losses.

3. Liquidity

Commodity markets are extremely liquid. This allows traders to execute transactions quickly with minimum price impact. High trading volumes ensure that trades are completed without delay. This liquidity makes it simple to buy and sell assets, which is of extreme importance when trading in large quantities.

4. Transparency

The transparency of commodity markets is excellent. The commodity exchanges in India provide an easy-to-use platform and effective trading environment. Real-time price updates guarantee precision and reliability.

Everybody has access to market data, thereby promoting well-informed decision-making. Transparency reduces the possibility of unfair practices and manipulation. It enables traders to confidently assess conditions and take decisive action.

Strategies for Successful Commodity Trading

To succeed in commodity trading, it’s essential to develop a well-defined trading strategy. Here are some strategies to consider:

Fundamental analysis: This involves examining the core elements that influence commodity prices, i.e., the supply and demand dynamics, weather conditions, and international events.
Technical analysis: Charts and technical indicators can be utilized to recognize patterns and trends in commodity prices and get an idea of future price trends.
Risk management: Employ stop-loss orders and position sizing to manage risk and reduce possible losses.
Diversification: Engage in trading different commodities and apply a range of trading strategies to avoid concentration risk.

Conclusion

Commodities trading through spot transactions and derivative contracts offer a large number of businesses and traders an opportunity to buy, sell and trade commodities. Staying informed about the various types of commodity markets, types of commodities trading platforms opens up a lot of trading opportunities.

A well-defined trading strategy used with proper risk management can help you capitalize on trading opportunities offered by the commodity market in India. Consult a financial advisor before trading in commodities.

S.NO.	Check Out These Interesting Posts You Might Enjoy!
1	Understanding Commodity Market Analysis
2	What is the Timing for Commodity Market Trading?
3	Risks in Commodity Trading and How to Manage Them
4	5 Tips for Successful Commodity Trading
5	Stock Market vs Commodity Market

Frequently Asked Questions (FAQs)

What are the main types of commodity markets in India?
India has spot markets for immediate delivery and derivatives markets, including futures, options, and forwards, where commodities are traded as underlying assets of derivative instruments for future delivery.
What types of commodities are traded in India?
Commodities in India are classified into agricultural (wheat, soybeans, spices), energy (crude oil, natural gas), and metals (gold, silver, copper, aluminium), traded across different commodity exchanges.
How do futures and forward contracts differ in commodity trading?
Futures contracts are standardized and traded on regulated exchanges, while forward contracts are private, over-the-counter (OTC) agreements with customizable terms between buyers and sellers.
What are the key benefits of commodity trading?
Commodity trading offers diversification, hedging against price fluctuations, high liquidity, and market transparency, enabling traders to reduce risk and take advantage of price movements.
What strategies can improve success in commodity trading?
Successful traders use fundamental analysis (supply-demand, weather, global events), technical analysis (charts, indicators), risk management (stop-loss, position sizing), and diversification across multiple commodities and strategies to minimize losses.

February 21, 2025

Understanding Intraday Trading Timings

Understanding how to use the intraday trading time effectively can completely change your trading performance. India’s stock markets operate for a fixed time period, and having the knowledge of the timings is crucial for a profitable trading journey.

Market operating hours in India have been established to enable traders to plan their trades effectively. Certain time periods during the trading hours have enough liquidity to enable fast-paced execution.

Key Trading Hours in India

The Indian stock market features a pre-opening session and a main trading session. The pre-opening session begins at 9:00 AM and continues briefly till 9:15 AM. This early period prepares the conditions for the entire market day. Most intraday trading occurs during the period following 9:15 AM.

Let’s discuss the main trading session and the intraday opening and closing times.

Main Trading Session and Intraday Opening and Closing Time

The Indian stock market is open for trading for a specific time period. Intraday Trading operations commence sharply at 9:15 AM and proceed without interruption till 3:30 PM. Most traders schedule their trading activities during these particular times.

During the first session, from 9:15 AM until 11:30 AM, trading volumes tend to be high. The market demonstrates elevated volume together with powerful price changes during this period.
The trading volume increases further during the post-lunch period. Trading volume remains high throughout the span of 1:00 PM until 3:30 PM.
You need to stay attentive throughout the trading day. Each trading segment has distinct characteristics and risks that present unique trading opportunities.

The official intraday closing time occurs at 3:30 PM. However, based on your broker’s risk management policies, your intraday positions can be squared off five to ten minutes before 3:30 PM. Trading operations cease for the day at 3:30 PM. The majority of traders hurry to close their positions just before the market closing time.

Tips to Locate the Best Time for Intraday Trading

Many traders ask, How can we know the best time for intraday trading? Your trading strategy determines the best time for intraday trading.

1. Markets are Highly Volatile during the Early Hours

The market features volatile price fluctuations within the first hour after 9:15 AM. During this time window, traders try to earn substantial profits by capitalizing on substantial price changes. Quick trading decisions in these situations can yield substantial trading profits.

The mid-session period presents several trading opportunities for traders who base their trading strategy on patterns and technical indicators. The market usually displays noticeable trends within the time frame between 11:30 AM to 1:00 PM. This period is less hectic. This situation allows traders to patiently hold on to profitable trading positions and doesn’t require frequent trading.

2. Watch the Clock for End of Day Moves

Before intraday closing time, the market becomes particularly active. Activity in the market rises significantly between 2:30 PM and 3:30 PM, i.e., during the last trading hour. The market conditions during this period offer high liquidity alongside high momentum, which makes it the best time for intraday trading.

3. Follow the News Trends

Market news requires your constant observation. Price movements of indices and financial assets are affected when economic reports and corporate financial disclosures are released. News events can cause significant price fluctuations in a short span of time, so you should always stay updated and ready to take advantage of these news events.

4. Monitor technical indicators

Technical analysis using volume, indicators and other tools can help traders identify future market trends.
Accurate analysis can provide trading signals for entering or exiting positions in the market.

Every trader is unique, and it is essential to identify the trading segments that best suit your trading strategy. Experiment with various time slots to identify the best time for intraday trading. Start with small capital to analyze the market conditions. You will start to discover regular trends that match your trading approach through continuous observation.

The essential aspect of intraday trading involves maintaining discipline throughout the trading session. You should stick to your trading plan after identifying the most suitable intraday session for consistent profitability. A well-defined trading strategy and risk management systems help you prevent making decisions based on emotions.

Practical Examples and Strategies

1. Real-Life Trading Scenarios

While monitoring stock prices, you notice that the market is particularly volatile during the morning session. A trader with a trading strategy focussing on long straddle positions in the options with a 1:3 risk-reward ratio has the potential to earn decent profits during this session.
On the other hand, if someone relies on trading patterns, they can wait for the mid-session period as the volatility is lower during this period. Lower volatility reduces the possibility of a false breakout, enabling traders to earn consistent profits.

2. Simple Strategies for Success

The first part of the trading day might bring peaceful conditions. The late session occasionally presents unexpected market conditions. Develop multiple trading strategies for different trading sessions and conditions. Shift from one strategy to another according to what the market currently indicates.
The majority of trading platforms deliver real-time market data to their users. Technical indicators and volume data are displayed on these platforms, which helps you decide the best time for intraday trading for your customized trading strategy.

Conclusion

To succeed in intraday trading, you need to understand the characteristics of specific hours during the trading session. The blog includes instructions about intraday trading hours along with information about important trading sessions and strategies to determine the best time for intraday trading. Pay constant attention to the intraday closing time to avoid auto-square-off. It is advised to consult a financial advisor before trading.

Frequently Asked Questions (FAQs)

What are the official trading hours for intraday trading in India?
The Indian stock market operates from 9:15 AM to 3:30 PM for intraday trading. However, brokers may square off intraday positions before 3:30 PM, depending on their risk policies.
When is the best time for intraday trading?
The best time depends on your trading strategy. The first hour after 9:15 AM is highly volatile, making it ideal for quick trades. Mid-session (11:30 AM – 1:00 PM) is calmer and suited for pattern-based trading. The last hour (2:30 PM – 3:30 PM) offers high liquidity and momentum.
Why is the market so volatile in the morning?
The market is highly volatile during the opening hour due to overnight global market trends, economic news, and corporate announcements. This period experiences large price movements, making it ideal for traders who can react swiftly to price changes.
How does news impact intraday trading?
News reports, such as economic data releases, corporate earnings, and government policies, can cause sudden price fluctuations. Traders must stay updated to capitalize on market movements triggered by financial disclosures or unexpected global events.
How can technical indicators help in intraday trading?
Technical indicators like moving averages, RSI, Bollinger Bands, and volume analysis help identify trends and entry/exit points. Traders use these tools to confirm market direction and avoid emotional trading decisions, improving overall profitability.

February 20, 2025

How to Choose Stocks for Intraday the Right Way?

Stock market enthusiasts throughout India seek to understand how to choose stocks for intraday trading as part of their elaborate trading strategy. Stock market participants do intraday trading to obtain quick profits by making numerous transactions throughout the day.

The correct stock selection stands as the key determinant for trading outcomes. The following article provides essential guidelines together with proven methods to determine optimal stocks for intraday trading.

Stock Selection for Intraday: What to Look For?

The objective when picking stocks for intraday trading is to find those with high price volatility. Stocks that display substantial daily price fluctuations make the best choices because they present numerous chances to earn profits. The essential factors mentioned below will help us better understand the process of intraday stock selection.

1. Liquidity Matters

A high trading volume generally indicates stocks will have better liquidity. Stocks experience high trading activity due to numerous market participants engaging in frequent transactions. Quick execution of trades combined with the expected execution price is the main benefit of doing intraday trading in liquid stocks.

Intraday trading heavily depends on liquidity as an essential element.
Stock liquidity describes the ease of trading stock without triggering substantial price alterations.
The optimal solution to how to select stock for intraday one day before is to choose stocks with a high average trading volume for the past several days.
The quick execution of trades without price slippage becomes possible because of this strategy.

2. Price Range and Volatility

It is vital to choose stocks that exhibit a wide price movement. A stock showing substantial daily price movement creates substantial trading opportunities for traders.
The best choice for intraday trading consists of stocks that exhibit high volatility because they demonstrate frequent substantial price movements.
Stocks that experience daily price movements exceeding 1% or 2% usually make suitable choices for intraday trading.

3. Market Sentiment and News

Stock prices undergo significant changes due to news events that occur within the market hours. Intraday traders can take advantage of the short-term price movements due to stock-specific news.
The right way to choose stocks for intraday trading is to stay on top of corporate announcements and earnings reports, as well as government policy changes and economic news announcements.

How to Select Stock for Intraday One Day Before?

Stock selection for intraday trading should not be delayed until the market opens. The process of stock selection the day before provides you with an advantage and eliminates morning preparation time.

1. Study the Previous Day’s Performance

Identify the most liquid stocks from the previous session that showed significant movement. The stock that demonstrates price movement along with high trading volume normally maintains this pattern the following day.

You should review stocks that experienced substantial price changes, paying special attention to those stocks that ended near their daily peaks or valleys.
The stocks that showed price movement in the previous session, backed by strong trading volumes, usually maintain that same trend into the next trading day.

When trying to figure out how to pick stocks for intraday, stocks with high trading volume from the previous session should also be examined. Higher stock liquidity allows smooth execution in intraday trades.

2. Identify Pre-Open Trends

To prepare for intraday trading, it is essential to monitor trends before the market opens. The pre-open session in the Indian financial markets enables investors to get an idea of future stock price movements before the start of regular market hours. The degree of movement in pre-open trading indicates the market momentum that will prevail throughout the day and presents the best answer for how to select stocks for intraday.

3. Use Stock Screeners

Stock screeners operate as efficient tools that let you choose the stocks for intraday trading according to their volume, price movement, and volatility levels.
A stock screener lets you quickly filter out stocks suitable for your intraday strategy before the market opens.
Your time efficiency improves significantly while you maintain a ready selection of intraday stocks.

Choosing Stocks for Intraday: Tools and Techniques

The process of stock selection for intraday trading needs proper tools combined with analysis techniques to discover optimal trading opportunities. The following list provides proven approaches to stock selection.

1. Technical Analysis

Stocks showing defined upward or downward trends make the best targets for intraday trading because their current momentum indicates they will likely continue to follow the trend during the day.

The technique requires analysis of charts, which requires traders to use several indicators to forecast future price trends.
The most commonly used technical indicators for analysis are moving averages, Relative Strength Index (RSI), and Bollinger Bands.

2. Sector Performance

Factors within specific sectors can cause collective movement among stocks that belong to that sector. For example, positive news regarding the banking sector can create favorable market conditions for other banking stocks and cause them to perform better.

Sector performance monitoring allows investors to identify stocks suitable for intraday trading.
Traders should read plenty of industry-specific news and economic reports to identify stocks suitable for intraday trading.

Conclusion

The selection of suitable stocks for intraday trading demands traders to focus on market liquidity and volatility together with market sentiment. Pre-open session study, technical analysis, and analyzing stock’s previous day’s performance allow traders to effectively achieve stock selection for intraday trading.

The selection process for intraday stocks requires both attention to specific details and time spent practicing these skills. The methods presented in this article will boost your chances of success in the demanding intraday trading environment.

Frequently Asked Questions (FAQs)

How do I choose the best stocks for intraday trading?
Select stocks with high liquidity and significant daily price movements. Monitor market trends, news events, and sector performance to identify the best trading opportunities.
How do I choose the best stocks for intraday trading?
Liquidity ensures quick trade execution without major price fluctuations. High trading volume stocks allow traders to enter and exit positions efficiently, minimizing slippage and maximizing profits.
How can I pick stocks for intraday trading one day before?
Analyze the previous day’s performance, identify high-volume stocks, check pre-open market trends, and use stock screeners to shortlist potential stocks for the next trading session.
What tools are useful for intraday stock selection?
Technical indicators like Moving Averages, RSI, and Bollinger Bands, along with stock screeners and sector performance analysis, help traders identify the best stocks for intraday trading.
How does news impact intraday stock selection?
Market news, corporate announcements, and government policies trigger price volatility. Tracking financial updates helps traders capitalize on short-term price movements for better intraday stock selection.

February 19, 2025

Tax on Commodity Trading in India

With the introduction of commodity transaction tax (CTT), commodity trading in India slowly turned a new page, altering how investors speculate in the market. Not only has this tax made trading more expensive, but the nature of the markets has also shifted as well.

So, let’s have a look at the effects taxation on commodity trading has on your trading strategy and financial planning.

Effects of Trading Costs and Market Behavior

The Commodity Transaction Tax (CTT) in India was introduced on 1 July 2013. This tax on commodity trading was announced during the Budget 2013 by the former Finance Minister P. Chidambaram. This levy is a carbon copy of the Securities Transaction Tax on equities and is created to ensure that there is equality in taxation across different financial securities. You have to pay these charges as a seller of the non-agricultural commodity derivatives.

Currently, the CTT rate is 0.01%, a seemingly tiny amount. But when trading in high volumes, these small percentages can account for huge amounts. The result of this increase in trading costs has been a tangible impact on the behavior of market participants. Volumes have been dipping noticeably among high-frequency traders and speculators who trade on small profit margins and rely on sheer trading volume.

Now, each trade costs more, and traders are carrying out fewer but more incisive trades. If this shift continues, it could lead to a less liquid market, which may, in turn, reduce the popularity of commodities trading.

Different opinions have emerged about the impact of the CTT on the efficiency of the market. Critics say it may keep small investors and hedgers away from the market, thus upsetting the proper functioning of the market.
A few traders have shifted to agricultural commodities that are outside the ambit of CTT. This shift is in line with other emerging trends in trading patterns and calls for a better analysis of the effects of taxes on the trading behavior of market participants.

Taxation Strategy for Profits

The CTT is not the only commodity trading income tax. You also need to know how your profits and losses are taxed. Profits from buying and selling derivative contracts of a particular commodity are classified as business income in India, not as capital gains under the Income Tax Act. The classification carries strategic implications. If your commodity trading profits are speculative (i.e., cash-settled derivatives) in nature, then these profits can only be offset against speculative losses. You can’t offset these losses against income from non-speculative trading activities, which involve the delivery of physical commodities at the expiration of the derivatives contract.

However, non-speculative trading involving the actual delivery of commodities is more flexible. In this case, you can offset speculative and non-speculative profits with losses, offering greater scope for tax planning while trading commodities. Speculative business losses can be carried forward for 4 years, while other non-speculative losses can be carried forward to set off future speculative and non-speculative gains for 8 years.

Traders playing the long game can use these rules to minimize their commodity trading income tax liability over time. In the event of a year with more losses than gains, this strategy can save you a lot of tax. This only works if traders keep detailed records of their transactions and keep them separate from speculative and non-speculative activities. Beyond aiding tax planning, this also ensures compliance with tax regulations, avoiding penalties for misrepresentation or oversight.

Check Out – Commodities Screener

Regulatory and Fiscal Policy Implications

The use of CTT was done in line with a fiscal approach concerning taxation of commodity transactions. The tax was launched in 2013 with the view to reduce speculation and, at the same time, increase government revenues.

However, the policy has attracted criticism. Critics argue that it hurts the competitiveness of Indian commodity exchanges against global counterparts.

This is particularly important given that, unlike many other markets around the world, India levies a higher transactional cost. The trading volumes have been significantly affected by the commodity trading income tax.

Market research indicates that India’s commodity trading volume lowered after 2013, which could be a result of CTT. There is still controversy over the issue of reconsidering or eliminating the CTT.
Advocates of CTT see it as contributing both to market stability and revenue, while opponents look at its detrimental effect on efficient market functioning. To investors and brokers, it is vital to keep up with regulatory changes.
This means that to adapt to current policies, it is not only necessary to respond to change but, more importantly, to anticipate how fiscal change might impact existing trading strategies and the market.

Market regulations compel market players to consider various techniques and strategies in the management of risk and taxation to break even and avoid violation of the law.

Read Also: What is Commodity Market in India?

Conclusion

The Indian commodity trading landscape witnessed a significant reduction in trading volumes due to the implementation of CTT in 2013. Moreover, the classification of gains and losses as speculative and non-speculative further complicates the taxation procedure.

Understanding the taxation treatment of trading profits and losses enables traders to better handle capital gain tax on commodity trading Plateform by updating their trading strategies for managing profits and losses. However, it is necessary to consult a financial advisor before trading in commodities.

Gold Rate in Top Cities of India	Silver Rate in Top Cities of India
Gold rate in Ahmedabad	Silver rate in Ahmedabad
Gold rate in Ayodhya	Silver rate in Ayodhya
Gold rate in Bangalore	Silver rate in Bangalore
Gold rate in Bhubaneswar	Silver rate in Bhubaneswar
Gold rate in Chandigarh	Silver rate in Chandigarh
Gold rate in Chennai	Silver rate in Chennai
Gold rate in Coimbatore	Silver rate in Coimbatore
Gold rate in Delhi	Silver rate in Delhi
Gold rate in Hyderabad	Silver rate in Hyderabad
Gold rate in Jaipur	Silver rate in Jaipur

Frequently Asked Questions (FAQs)

What is the Commodity Transaction Tax (CTT) in India?
The Commodity Transaction Tax (CTT) is a tax on non-agricultural commodity derivatives, introduced on July 1, 2013, at 0.01% per transaction.
How are profits from commodity trading taxed in India?
Profits from commodity trading are classified as business income under the Income Tax Act. Speculative profits (cash-settled trades) are taxed differently from non-speculative profits (delivery-based trades), affecting tax planning strategies.
Can speculative and non-speculative losses be carried forward?
Yes, speculative losses can be carried forward for 4 years, while non-speculative losses can be carried forward for 8 years. Non-speculative losses can be offset against both types of profits.
How has the introduction of CTT affected commodity trading in India?
CTT has increased trading costs, leading to lower market liquidity. Many traders shifted to agricultural commodities, which are exempt from CTT, making Indian commodity exchanges less competitive globally.
What should traders consider for better tax planning in commodity trading?
Traders should maintain records, use loss carryforward rules, and stay updated on tax policies. Consulting a financial advisor helps optimize tax strategies while ensuring compliance with regulations.

February 18, 2025

What is Non-Tax Revenue – Sources and Components

To finance its activities, the government depends on a variety of revenue streams. One of these significant revenue streams is non-tax revenue. This covers fines, public service fees, and other penalties. The government uses these funds to pay for services and numerous development projects.

Non tax revenue is smaller than tax revenue. However, it is still significant. Profits from public sector companies are another source of non tax revenue for the government. These revenues fund the government’s operations without relying solely on taxes.

What is Non-Tax Revenue?

Non tax revenue is a type of cash inflow the government gets and uses to fund the development of the nation. This is done without collecting taxes. It includes service fees, dividends from public investments, etc. Payments for public services also help generate non-tax revenue. These mainly include things such as electricity, gas, and water. This revenue decreases the reliance on tax collections.

For example, when people pay for government services, it is considered non-tax revenue. Dividends from public-sector undertakings and loan interest contribute to this income. Non-tax revenue helps fund government programs and infrastructure.

Examples of Non Tax Revenue

In India, non tax revenue examples include a variety of fees and penalties. For example, paying for services such as a driver’s license or a passport contributes to non-tax revenue. Similarly, payments for public utilities fall into this category. These could be water, electricity, and gas.

Fines for late tax payments or traffic violations are another type of non-tax revenue. Income from public-sector companies, such as IRCTC, PNB, SBI, etc., also contributes to this total. Non-tax revenue also includes fees collected for exams such as the UPSC or SSC.

These resources help the government raise money to fund public initiatives and services. Non-tax revenue is critical for sustaining public services and infrastructure without relying solely on tax revenue.

Sources of Non-Tax Revenue

Here are some of the non tax sources of revenue:

1. Service Fees – Services, including civil registrations, passport issuing, visa processing, and municipal services like waste collection and water supply, are all paid for with fees.

2. Interest on Loans – Interest on loans made to states and organizations for infrastructure and other development projects generates revenue.

3. Petroleum Licensing and Exploration – Royalties, license fees, and profit-sharing from oil and gas exploration are the sources of revenue.

4. Dividends and Profits – The government receives dividends from its investments in public sector undertakings (PSUs) and financial institutions, as well as having an ownership stake in earnings.

5. Police and Security Services – By offering security services to businesses and state governments through police units like the CISF, the government generates income.

6. Communication Services – Telecom operators pay fees for using the spectrum, which helps fund communication infrastructure.

7. Road Usage and Tolls – Highway tolls provide revenue that is utilized for the upkeep and enhancement of transportation infrastructure.

8. Broadcasting Fees – The government receives money from license fees paid by Direct-To-Home (DTH) providers and commercial TV channels.

9. Sale of Commodities – The sale of printed products, such as stationery and official publications, generates revenue for the government.

10. Defence Services – Revenue is derived from services provided to defense personnel, including sales from the Canteen Stores Department (CSD).

Components of Non-Tax Revenue

1. Fines and Penalties – Funds collected from individuals or organizations that violate laws or regulations.

2. Sale of Government Assets – Income derived from the sale of government properties or shares in state-owned firms.

3. Interest on Loans – Revenue earned from loans extended to states, union territories, and various entities.

4. Petroleum License Fees – Charges for obtaining rights to explore oil and gas in designated areas.

5. Dividends and Profits – Income from state-owned enterprises and surplus transfers from the Reserve Bank of India.

6. Communication Services Fees – Fees paid by telecom operators for using spectrum or other related services.

7. Power Supply Fees – Bill payments received by the central electricity generation authority for providing power supply.

8. Broadcasting Fees – Income from radio and television operators as well as other broadcasting services.

9. Road and Bridge Usage Fees – Revenue from tolls for using national highways, roads, and bridges.

8. Administrative Service Fees – Income from services like passport and visa issuance, auditing, and more.

9. Sale of Stationery and Publications – Revenue is generated by the selling of official publications, stationery, and government gazettes.

Difference Between Tax Revenue and Non-Tax Revenue

There is a big difference between tax and non tax revenue. Here’s a table for the same:

Tax Revenue	Non-Tax Revenue
Source: Collected through compulsory payments. E.g., income tax, corporate tax, and sales tax.	Source: Collected through voluntary transactions or government-owned entities.
Stability: Typically a more stable and predictable source of income. This is mainly because taxes are systematically collected.	Stability: Can fluctuate significantly. This is because it is based on government policies, economic cycles, or other actions.
Volume: Forms the largest portion of government income. This makes up a significant part of the national budget.	Volume: Represents a smaller, but still important, portion of total revenue.
Impact: Often leads to a direct burden on businesses and individuals.	Impact: Less reliant on public participation. Due to this, it can be more flexible.

Role of Non-Tax Revenue in Economy

Non-tax revenue constitutes an important share of a country’s economic system. This is especially true in countries with large public sectors or state-owned enterprises.

Such revenue provides flexibility to governments when reducing the tax burden. This is done while raising funds for some of the important infrastructure projects. Here are the ways non-tax revenue contributes to the economy:

1. Reducing Dependence on Taxes

Non-tax revenue helps reduce dependence on taxes. These can be burdensome for businesses and individuals. With this, non-tax revenue thereby encourages economic growth.

2. Funding Public Infrastructure and Services

Non-tax revenues are often used to fund significant infrastructure projects. The main examples include roads, schools, and hospitals.

3. Supporting Fiscal Stability

Non-tax revenue supports the stability of government finances. This is specifically for economic uncertainty or recession. For example, during a downturn, a sale of a state-owned enterprise can fill the budget deficits.

Conclusion

Now, you must have understood that when non tax revenue is used to finance government initiatives and services, the need for taxes becomes less important. During difficult times, non-tax revenue maintains economic stability and supports public endeavors.

S.NO.	Check Out These Interesting Posts You Might Enjoy!
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3	Tax Implications of Holding Securities in a Demat Account
4	Budget 2024-25: How Will New Tax Slabs Benefit The Middle Class?
5	What is Profit After Tax & How to Calculate It?

Frequently Asked Questions (FAQs)

What is non-tax revenue?
Non-tax revenue is the income that the government earns from sources other than taxes, such as service fees, fines, dividends from public-sector companies, and interest on loans. It helps fund public services and infrastructure projects without increasing the tax burden.
How does non-tax revenue differ from tax revenue?
Tax revenue is collected through mandatory payments like income tax, sales tax, and corporate tax, while non-tax revenue comes from voluntary payments from tolls, service charges, and profits from public enterprises.
What are some examples of non-tax revenue in India?
Examples include fees for passports and driver’s licenses, tolls on highways, dividends from state-owned companies like SBI and IRCTC, fines for traffic violations, and payments for utilities such as electricity and water.
Why is non-tax revenue important for the economy?
Non-tax revenue reduces dependence on taxation, provides additional funds for infrastructure and public services, and ensures financial stability, especially during economic downturns.
What are the key sources of non-tax revenue?
Major sources include service fees, interest on government loans, petroleum licensing fees, dividends from public enterprises, toll charges, broadcasting fees, and administrative charges for government services.

February 15, 2025

Blog

What is Grey Market?

What is the Grey Market Premium?

How to Calculate Grey Market Premium?

Grey Market Premium example

How Does the Grey Market Work?

Types of Trading in Grey Market

1. IPO Shares Trading

2. Application Trading

Steps to Trade IPO Shares in the Grey Market

Conclusion

Frequently Asked Questions (FAQs)

What is the grey market in stocks?

What types of trading occur in the grey market?

How does the grey market premium (GMP) work?

Is trading in the grey market safe?

Why do investors trade IPO shares in the grey market?

What is an IPO?

Types of IPO

Terms Associated with IPOs

How does an Initial Public Offering (IPO) work?

What is the IPO Timeline?

Benefits of Investing in an IPO

Advantages and Disadvantages of IPOs

Advantages

Disadvantages

Types of Investors in IPO

How to check for upcoming IPOs?

How to Invest in an IPO?

Conclusion

Frequently Asked Questions (FAQs)

What are the different types of IPOs?

How do I invest in an IPO?

What are the benefits of investing in an IPO?

What risks are associated with investing in IPOs?

What is an IPO?

Types of IPO

What is a Share?

Types of Shares

Difference Between IPO and Share

Conclusion

FAQs

What is the main difference between an IPO and a share?

Can I buy shares without participating in an IPO?

What are the different types of shares?

What are the risks involved in buying shares through an IPO vs. buying them in the open market?

Do I need a Demat Account to buy shares through an IPO?

Pros of Commodity Trading

1. Protection Against Inflation

2. Portfolio Diversification

3. Opportunity During Global Events

4. Higher Returns

5. Transparent and Fair Pricing

Cons of Commodity Trading

1. High Risk of Loss

2. Price Volatility

3. Requires Deep Knowledge

Things to Keep in Mind Before Trading in Commodities

Conclusion

Frequently Asked Questions (FAQs)

What is commodity trading?

What are the key advantages of commodity trading?

What risks are involved in commodity trading?

How does commodity trading act as a hedge against inflation?

What should traders consider before engaging in commodity trading?

Commodity Index: An Overview

Types of Commodity Indices

1. Broad Commodity Indices

2. Sector-Specific Commodity Indices

3. Single Commodity Indices

Benefits of Commodity Indices

1. Diversification

2. Inflation Hedge

3. Economic Indicator

4. Access to Commodity Markets

Major Commodity Indexes: An Overview

How to Invest in a Commodity Market Index?

Conclusion

Frequently Asked Questions(FAQs)

What is a commodity index?