Commodities are gaining traction as a valuable asset class that may help risk-averse investors diversify their portfolios. Commodity markets have been exploding in recent years. Commodity markets, in addition to bolstering capital markets, play a significant role in the development of a country’s agriculture sector and related ecosystems.
What is a Commodity?
A commodity is a collection of assets/goods used in everyday living, such as food, energy, or metals. By definition, a commodity is identical and replaceable. Except for actionable claims and money, it can be classified as any movable good that may be bought and sold.
Commodity trade began in India much earlier than it did in many other nations. Foreign invasions and rule, natural disasters, and a plethora of government rules and modifications were all key factors in the decline of commodities trading. Despite the fact that there are many different types of stock market/share market trades available today, commodity trading has recovered its prominence.
Since commodity markets have a history of being highly volatile, it’s critical to allow institutional investors to invest in them because they bring tremendous trading experience. Mutual funds invest in commodity markets in a variety of methods around the world. Gold is the only commodity in which ordinary investors can participate in the United States. Furthermore, other investors such as FIIs, banks, and other financial institutions are now prohibited from investing in the commodities markets.
Where you can Invest in Commodities?
There are six major commodity trading exchanges in India are available.
- Multi Commodity Exchange (MCX)
- Indian Commodity Exchange (ICEX)
- National Multi Commodity Exchange (NMCE)
- National Commodity and Derivatives Exchange (NCDEX)
- Ace Derivatives Exchange (ACE)
- The Universal Commodity Exchange (UCX)
In 2015, the Forward Market Commission (FMC) and the Securities and Exchange Board of India amalgamated to form the Securities and Exchange Board of India (SEBI). Commodity trading on these markets necessitates standard agreements that follow the guidelines in order to complete trades without visual scrutiny.
In general, commodities are classified into four types:
- Metals (Silver, Gold, Platinum, and Copper)
- Agriculture (Corn, Beans, Rice, Wheat, etc.)
- Energy (Crude oil, Gasoline, Natural gas, and Heating oil)
- Livestock and Meat (Eggs, Pork, Cattle, etc.)
How to Invest in Commodities?
A futures contract, which is an agreement to Buy or sell a certain quantity of a commodity at a specified price at a future time, is the best way to invest in commodities.
Futures are available for every commodity category. Traders utilise these contracts to protect themselves against the dangers of a futures’ implicit trade product or raw material price movement. Commodity trading carries a high level of risk for inexperienced investors.
What are the Advantages(Pros) and Disadvantages(Cons) of futures?
Advantages (Pros) of futures:
- Futures are highly leveraged investments
- Futures give huge profits if traded carefully and well managed
- Future markets are very liquid in terms of some of the stock
- It can be Affordable minimum-deposit accounts and controlled full-size contracts
- Long or short futures can be set as target easily.
Disadvantages (Cons) of futures:
- Futures markets are very volatile
- Direct investment in the markets is of high-risk, especially for new investors
- Gains and losses are magnified by leverage
- The unpredictable movement of trade
Choosing the Best Commodity Broker?
The presence of a strong regulator is an important factor in the development of commodities markets. The Forward Markets Commission (‘FMC’) is the current regulator.
Even while it may not appear to be a difficult task, if you choose a broker who does not share your values, you will likely end up looking for another broker. That results in a waste of time and money (not to mention a significant loss of opportunity cost!).
Here is a list of the best commodity brokers who provide excellent service to their consumers. In different situations, different brokers have shown to be the most effective.
What do you think is the best in terms of pricing, technology, service, and brand?
A discount broker is popular and widely accepted all over India. Many trader and investors are already using discount broking services. If you are planning to start trading in the stock market or looking for good discount brokers.
Upstox (RKSV) is one of the best discount brokers in India. Upstox is a completely paperless platform for account opening. Apart from stock market Upstox also provides mutual fund trading platform is well.
- Free delivery trades
- Maximum Rs.20 per trade charges in other segments
- Trading platforms such as Pro Web and Pro Mobile
- Multiple online tools and calculators
- Mutual Fund Trading Platform available
- Equity Intraday (Rs.20 flat)
- No charges for delivery
Zerodha is the best discount broking firm in India. Zerodha is one of the Best Discount Brokers in India. Key features of Zerodha are given below
- Offering trade at a flat fee as low as Rs.20.
- Advance Trading platforms such as Zerodha Kite, Kite Mobile and Zerodha Pi
- Mutual Fund trading via Zerodha Coin platform
- Education initiative such as Zerodha Open Trade
- Account Opening Charges (Rs.200)
- Maintenance Charges (Rs.300)
- Equity Delivery (Zero Brokerage)
- Equity Intraday or Future (Rs.20 flat or 0.01% whichever is lower)