A Complete Perspective of Trading in Commodities

 

Commodity trading is flourishing in the Indian stock market. Still, many Indians are unaware of what commodities are, how they are traded, and the pros and cons of commodities trading.

We will not only introduce commodities in this blog but also discuss their advantages and disadvantages.



So, what are Commodities?

Commodities are any raw materials, basic goods or manufactured finished goods that have their inherent value and can be exchanged for money or other goods and services.

When it comes to trading, commodities include fuels, agricultural products, and in recent times even financial products like foreign currencies and indexes on specific exchanges.

Traditional examples of commodities can be grains, oil, natural gas, gold and silver.  

Examples of Commodities

  1. Agricultural Commodities-Wheat, Cotton, Mentha Oil, Rubber, etc
  2. Energy-Natural Gas, Crude Oil  
  3. Metals-Gold, Silver, Platinum, Copper, Lead, Aluminum, Zinc, Nickel

How Commodities can be traded

  1. Futures
  2. Options
  3. Forwards
  4. Exchange Traded Funds

Futures

A commodity future is a contract or an agreement to buy or sell a prefixed amount of a commodity at a certain price on a certain date in the future. Futures are essentially meant for hedging the prices at a future date and to minimise the loss if any.

Mostly, commodity futures are used to protect an investment position or to speculate on where the underlying asset is moving.

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