A commodity market provides trading in various waves of trade goods. Commodity market may be a derivatives market or a spot market. In the derivative market, many financial tools based on commodities are controlled. These financial instruments are ‘futures’ which are traded in exchanges. On the other hand, in spot market, commodities are traded for instant delivery.
What are commodity futures trading?
A commodity futures agreement is a dissimilar kind of contract between two parties to trade the commodity on current future price at a future date. Futures agreements are different to the forward agreement in the various waves that they are consistent and swap traded. We can say in other words, the parties to the agreement do not choose the conditions of future agreement; but they only correspond to the conditions standardized by the Exchange.
There are many important suggestions about trading which are real beneficial for all traders are showing beneath.
1. COMMODITY TRADING IS FOR SPECULATORS
For many years, commodity trading has been a big part and pack of the financial system. Market contestants, especially hedgers, speculators and arbitrageurs facilitate in proficient price detection and price-risk supervision. Speculators are a significant connection in the market. And they can effort only as someone is hedging their risk. Commodity futures traders are not dissimilar from the trading of fund or currency futures. Sometimes speculation does not amount to bet. Speculators are significant market contestant who insert into liquidity and facilitate hedgers move risk. In the case of the absence of speculators will mean a smaller number of participants in the market, making it complex and exclusive for participants to transfer risk. Speculators are set to believe the hazard which hedgers are annoying to transport in the futures market. Market specialists say the speculators insert depth and liquidity to the market.
2. UNDERSTANDING THE MARKET IS TOO DIFFICULT
Various investors believe the commodity market is hard to understand. But many experts don’t agree with they believe if the traders have a sound knowledge and superior Commodity Tips, then they can make huge money in all segments like as Forex Tips for the Forex market and Stock Tips For stock market.
All commodities are worldwide deal and the international demand provides condition is extensively known and obtainable to anyone who reaches out for it. Thus, accepting commodities is not difficult as it is a fundamental economic factor and recurrent cycles that influence prices.”
3. THERE IS NO DECLARATION ON QUALITY OF COMMODITIES DELIVERED
Most of exchanges set quality control actions in place to guarantee that commodities delivered to their storehouse assemble high quality principles. They also make efforts to guarantee that only high quality stocks are driven home to purchasers.
The all exchanges have fine established examination and audit process to ensure adherence to the chief standards in testing, assaying and storage of goods, ensuring the quality of goods delivered. The purchaser also receives the choice of taking the stock examined for quality while taking delivery.
4. COMMODITY MARKETS ARE TOO UNSTABLE
Several investors observe volatility as a large problem; they have to spend 4-10 % charge of the commodity, far less than to the stock futures. Though, many traders have not been familiar with how to get from such high power. An extra problem is that they overrode and utilize the margin to the hilt. Hence, when prices go up, then they can twice their wealth, but when prices move down, they can discharge all their money. Trade goods are no further unstable than stocks if we eliminate the leverage. Yet the particular is that derivatives price is straightly connected to prices in spot markets. Aside from this, unlike stocks, which can go by even 20 % in a special session, metal and energy agreement can proceed up or go down to 6% in a daytime. For Agri commodities, the range is approximately 4 %.
5. COMMODITY EXCHANGES FUEL PRICE RISES
Commodity exchanges encourage price simplicity. Nowadays, a copper wire producer in MP can check the live global price of copper in USA on his trading workstation. Equally, a farmer in UP are able to know the recent market price of wheat in Karnataka. By allow wider payment, exchanges dispirit cartelization by home traders and relations and help fair price find. By applying futures trading in far-month agreement, exchanges give price indication to farmers, policy-makers and other significance chain contributor.
6. DIFFICULT TO MAKE MONEY IN COMMODITY TRADING
It is commonly thought that various investors drop money in commodities futures. This happens only when market applicant do not deal with regulation and fall victim to gluttony and terror. For example, traders hold on to fatalities in probability that prices will become well. In case of income, they square off situation for the fear of dropping the already earned money.
Expert guidance can serve in such circumstance. Expert traders create enormous money for customers. They have exhausted time in accepting market actions and concern the right blend of technical and economic survey. Several finance managers and hedge money deal only in commodities and have a proof of giving 20-30 % a year for more than a decade.”
7. COMMODITY TRADING IN ONLY FOR BIG TRADERS AND HIGH NET WORTH INVESTORS
We do not think that the commodity market is only for traders who receive a bunch of spare money. It is similar to any other derivatives market and any person is able to trade by paying a small investment of the total cost of the agreement. For Indian commodities markets, size of the scores is low and every retail investor can lead by paying a marginal amount of 4-10 %.
Big exchanges such as the MCX (Multi Commodity Exchange), the NCX (National Commodity and Derivatives Exchange), the NMCX (National Multi Commodity Exchange) and the Indian Commodity Exchange have various choices for higher net value investors, companies and minute investors.
For example, the exchanges initially launched gold agreement for 1 kg bars. Afterward, they set up 100 grams, 8 gram and 1 gram agreement attract minute investors. MCX launched a 1 GM gold petal agreement in 2014 with a 4 % margin requisite. So, one is able to invest as little as Rs 112 and get contact of Rs 2,776.
8. DELIVERY OF COMMODITIES IS required
There is a general principle that everyone who purchases commodity derivatives has to obtain delivery as well. Delivery is compulsory only in precise commodities and that too only if one retains the spot open after the delivery notice period.
In that respect is necessary delivery of commodities like as Channa and gold trading. Although an investor can’t make delivery for crude petroleum and metals when trade process in these two commodities are cash developed. Located a future agreement with payment of price dissimilarity rather than the passing of the physical commodity is called as cash settlement. It is not essential to obtain delivery as long as the trader square of his place before the expiry date of contract. Just commercial investors like hedgers and arbitrageurs obtain delivery.