Trading in commodities in India has a very long past. The first milestone was in the year 1875 when the Bombay Cotton Trade was constituted. Then came the liberation policy in 1991, which gave an impetus to commodity trading. In the year 1994, futures were re-introduced after its discontinuation due to war and food shortages. The re-introduction led to the inclusion of agricultural commodities.
You can trade commodities on 6 exchanges in India. They are listed below:
- Multi Commodity Exchange – MCX.
- National Commodity and Derivatives Exchange – NCDEX.
- National Multi Commodity Exchange – NMCE.
- Indian Commodity Exchange – ICEX.
- Ace Derivatives Exchange – ACE.
- The Universal Commodity Exchange – UCX
When it comes to market share, MCX has a market share of 70%, NCDEX has a share of 25%, and NMCE has a share of 5%.
The commodities which you can trade on the exchange are showcased in the table below:
|METAL||Aluminium, Copper, Lead, Nickel, Sponge Iron, Steel Long (Bhavnagar), Steel Long (Govindgarh), Steel Flat, Tin, Zinc|
|BULLION||Gold, Gold HNI, Gold M, i-gold, Silver, Silver HNI, Silver M|
|FIBER||Cotton L Staple, Cotton M Staple, Cotton S Staple, Cotton Yarn, Kapas|
|ENERGY||Brent Crude Oil, Crude Oil, Furnace Oil, Natural Gas, M. E. Sour Crude Oil|
|SPICES||Cardamom, Jeera, Pepper, Red Chilli, Turmeric|
|PLANTATIONS||Arecanut, Cashew Kernel, Coffee (Robusta), Rubber|
|PULSES||Chana, Masur, Yellow Peas|
|PETROCHEMICALS||HDPE, Polypropylene(PP), PVC|
|OIL & OIL SEEDS||Castor Oil, Castor Seeds, Coconut Cake, Coconut Oil, Cotton Seed, Crude Palm Oil, Groundnut Oil, Kapasia Khalli, Mustard Oil, Mustard Seed (Jaipur), Mustard Seed (Sirsa), RBD Palmolein, Refined Soy Oil, Refined Sunflower Oil, Rice Bran DOC, Rice Bran Refined Oil, Sesame Seed, Soymeal, Soy Bean, Soy Seeds|
Here are a few advantages of trading in commodities in India –
1. A Safe Bet during Crisis
There are not many takers who want to trade in the commodity market. However, a trader can consider investing in metals such as Gold, Silver, Platinum, etc. These offer security in times of inflation and economic uncertainty.
2. Portfolio Diversification
If as an investor, you are investing in stocks and bonds, then you can consider investing in commodities as well. This way, you can diversify your portfolio and have a risk-adjusted strategy.
Online commodity trading in India has made the process of trading in commodities a transparent one. There is a fair discovery of price, and it is controlled by large scale participation. When there is such a high scale of participation, it also helps gauge the perception and outlook of traders who are dealing in the commodities.
4. Chance of High Returns
When it comes to commodity trading, there are chances a trader might hit the jackpot and earn huge profits. But, this can only be possible if there is a proper trading strategy.
Hedging is where you manage price risks by taking an equal and opposite position in the futures market. In commodity trading, certain factors such as natural disasters, economic crisis, or war can lead to an increase in the price of commodities. Such commodities can act as a hedge again some risks.
6. Protection against Inflation
During inflation, the prices of commodities usually shoot up. Here a few commodities in your portfolio that can help you earn profits and give protection against inflation.
7. Trading on Lower Margin
In Commodity trading, you can trade on a lower margin of 5%-10%. A lower margin allows you to take more significant positions with less capital.
8. No cut-offs
When you trade Options, you are bound by time decay. As the expiry nears, there is less time to realize the option monetarily. However, in commodity futures, one does not have to worry about time decay as there is no expectation of a strike price at expiry.
Commodity trading in India is a seamless experience all thanks to stock market apps. You can open an online trading account and trade in commodities from the comfort of your house.