Understanding Commodity Market

by Pankhudi Dave Head Finance Manager If you're an investment enthusiast, or someone stepping into the trading market, then there are some phrases you ought to know before you begin any trade. Commodity and commodity market are some of the few sentences that you might hear quite often, but until and unless you're a trader or a commerce student, you might know what a commodity is. 

Let's elaborate your knowledge a bit and make you more aware of the different kinds of commodities and how do you trade them in the market.

What is a commodity?

•    A commodity is any interchangeable good that can be bought or sold in the market; these goods can be gold, bonds, oil, coffee, etc. However, it's not like you can purchase these goods from the ration shops and sell them in the market.
•    Any commodity sold in the commodity market has to maintain a basic standard to be, traded. 

•    These commodities can be exchanged directly or via future and options and can be, traded with other commodities or currencies.

Commodity Future Market

The trade of these commodities is made, via future and options trade that standardizes the quality and quantity of the commodity exchanged. It is because for the commodity producer and the commodity consumer future contract displays an agreed-upon price for buying and selling. 

These commodities are, sold with a margin of 5-10 per cent depending on how high the commodities market value is. However, liquidity is higher for a non-Agri commodity like gold, silver, oil, petrol.

The commodity futures trading ensures that there is no disparity between the quality and the quantity received with a standard price set on each.

Investing in Commodities

There is a total of six commodities in the India stock market where you can invest in commodities. Each commodity has a real-time future. You can check their current price and market rate, along with the percentage increase and decrease in each.
Future commodity Advantages
-    Less manipulation- They are governed, by the global market, and are not majorly impacted due to price fluctuations or drop in shares of the commodity.

-    Diversity- It allows you to invest in different portfolios of commodity, thereby making your investments diverse; this, in return, protects your money from being trapped in only one commodity. So, if tomorrow a commodity is in a loss, you will not be affected that much.    


Final word

Commodity market allows you to invest in goods that can be exchanged, with similar goods. Future commodity maintains a balance between with trade, allowing both the party to get paid for the standardized commodities only.

There is no downside to this investment, instead because they are directly dependent on the global market, the fluctuations are low, giving to a better chance at receiving good returns.

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Created on Apr 15th 2020 07:57. Viewed 234 times.

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