In commodity trading, you trade across different commodities. Commodities can be metals, spices, energy, livestock, etc. These types of commodities are affected by the fluctuations in demand and supply. Unlike equity trading, commodity trading is affected by macroeconomic factors. You can do commodity trading in India on the following stock exchanges:
- Multi Commodity Exchange
- National Commodity and Derivatives Exchange
- Universal Commodity Exchange
- National Multi Commodity Exchange
- Indian Commodity Exchange
- ACE Derivatives & Commodity Exchange Limited
As compared to other forms of trading, commodity trading is more prone to market ups and downs. This is because the prices of these commodities are affected at a rapid pace. There is high volatility, which gives traders an ample amount of opportunities to enter and exit the market. In addition, each type of commodity has its own characteristic according to which it is traded. Here we share a few tips on trading in commodities, which traders can use for their advantage.
1. Don’t enter with a stock market trading mindset
The stock market trading is different from commodity trading. Hence your approach to commodity trading will be different from that of trading in the stock market. In both the markets the factors which affect the prices are different. Hence stock trading strategies might not work here.
2. Diversify your capital
As the old saying goes, not all eggs should be in the same basket. It stands true for commodity market as well. The key is to diversify your capital into different commodities to minimize the risks. Balancing trade is an essential skill which a trader should have while trading in commodities.
3. Understand logistics
Commodity trading requires you to understand the logistics of the trade. Entering the commodity market without logistics is not a smart move. The traders need to know how to read the charts effectively, how to time the trade according to the season, etc.
4. Volatility trick in commodity trading
The trick, which we are talking about, is that each commodity has a different type of volatility. This volatility is the range in which the prices usually move for that particular commodity. Here, the traders take positions and determine the lot sizes which is based on the volatility of the commodity.
5. Taking bullish and bearish positions basis market study
This is one tip, which can help every commodity trader. The proper time to buy commodities is when the market changes to bullish. Here the trader needs to hold stop-loss positions, which are below the support level. These positions can be squared off when the market returns to normal. When the market goes bearish, this is the time to sell the commodity.
There are many share market apps, which help you, do commodity trading online. The above tips can help you do commodity trading with ease. You need to make sure that you have a proper understanding of the market, which is different from the stock market.