How to Trade Commodities

The online commodity trading platform lets you invest in precious metals as well as daily necessities and earn profit each time their value increases or decreases. While long-term trades allow you to profit from price increases, short-term trading lets you buy high and sell low. 

Trading online in commodities is an effective method to hedge against geopolitical and inflationary events. Investors can also diversify their portfolios, significantly lowering their risk of squandering capital. The market for commodities generally works in opposition to the capital markets. For instance, if inflation rises or GDP declines, the shares of companies could slide, while commodities may show extraordinary strength.

How to Trade in the Commodity Market 

To start with commodity trading, you need to follow the steps given below:

1. Select a Broker 

There are plenty of brokers, but you need to choose one that suits your trading style and offers technology along with reasonable brokerage charges. You need to find an idle broker that also has good customer support and receives quality feedback from its users. 

There are two sorts of brokers—the full-service broker and the discount broker. The stark contrast between these two broker types is the service and cost. A full-time service broker provides value-added service along with some extra fees. The discount broker offers low brokerage and a platform to do trades, cutting down on the value-added service. Depending upon your trading goal, you can opt for any broker that can work for your investments.

2. Open a Trading Account 

The next step for entering the stock market is opening a Demat and a trading account. You can open a Demat and trading account in a jiffy on Share India’s platform. It offers a hassle-free Demat account opening process along with many features and trading tools to explore and implement in your trade. All that is required as proof is your Aadhar card with your mobile and the number linked to it, along with your PAN Card.

3. Add Initial Deposit 

The commodity trade is all about futures and options contracts. For a starter, you need to add some funds to enter a contract with an initial margin. For example, if an XYZ contract has a value of ₹10,000, you can add ₹100 by adding a minimum margin before you can start your position in the trade. But note that you need to have a maintenance margin, which is essential to compensate for any losses whenever the trade goes sideways.

Factors Influencing Commodity Prices 

• Demand and Supply: Commodity prices are greatly affected by the dynamics of supply and demand. When the demand for a particular commodity is higher than the supply, prices will increase, and when supply is higher than demand, the prices will fall.
• External Factor: War, political instability, and natural disasters could be major influences on commodities markets that focus on the precious metals and energy markets.
• Changes in currency: The prices of commodities are typically accounted for in US dollars and INR values, so fluctuations in the value of dollars and rupees could affect the price of commodities.
• Economic conditions: Commodity prices are also dependent on global economic conditions, such as the rate of economic growth, inflation, and interest rates.
• Technological advances: Technological developments in the fields of agriculture, energy production and mining may affect the demand and supply of diverse products. 
• Policies of the Government: The policies of the government, like regulations for exports and imports, as well as subsidies and tariffs, can affect the demand and supply of commodities.
• Speculation: Speculation made by investors and traders may influence the prices of commodities as they can buy and sell commodities based on anticipated price changes rather than fundamentals of supply and demand.
• Technical analysis: Utilise tools for the analysis of technical data to discover patterns, trends, and levels of support and resistance, which could signal potential price fluctuations. 

In order to make the most of your commodity trading journey, you should:

• Diversify: Your portfolio should be diversified by investing in several commodities that can reduce risks and increase the chance of earning profits.
• Manage risk: You can manage the risk by setting stop-loss orders to limit losses and avoid taking on excessive leverage. It is equally important to be prepared with a proper, definitive plan for risk management.
• Hire a professional: Get professional advice. Take assistance from a professional financial adviser or expert in commodity trading to help you navigate the market and make better trade choices.

How to Achieve Maximum Profit in Commodity Trading 

The trading of commodities can be a complicated and volatile market. However, there are many strategies traders can utilise to maximise their profits.

Keep the following points in mind:

• Conduct a thorough analysis and research: Before making any kind of trade, it’s crucial to conduct an extensive study and analysis to find the factors that affect supply and demand, which could impact the cost of the product. The analysis should take into account global economic indicators, climate patterns, political events, and other elements that can influence demand and supply.
• Stay informed about the latest market news: The price of commodities is subject to rapid change depending on market events and news; therefore, it is crucial to be aware of the latest developments and news within the field. Utilise social media, news sources, and other platforms to keep informed of market trends, the latest government policies, and changes in the industry.
• Utilise technical analysis: Technical analysis involves studying charts as well as other market data in order to discover the patterns or trends that may be a sign of future price changes. Traders can make use of different tools and indicators like trendlines, moving averages, and candlestick charts to identify possible trading opportunities.

Start Your Commodity Trading Account Today

Begin trading on the commodity market today by creating a live account. You can also practice your first trade using a demo account. One method to get familiar with the markets for commodities is to follow their movement over time to experience the kind of events that occur and know the factors that cause prices to change.

When you decide to begin trading, it’s always wise to begin with small amounts and make use of order to manage risk.

Frequently Asked Questions (FAQs)