| July 10, 2019
5 tips for commodity trading
Commodity trading India is
like old wine in a new bottle. A variety of assets like gold commodity trading
have existed much before the stock or bonds in our economy. One of the major
difference both is that the stock market deals with the finished products while
the commodity market has unfinished products like gold, agricultural, metals,
The major exchanges where you can easily access derivative trading services
in India are MCX(Multi-commodity exchange of India), NCDEX( National
Commodities and Derivative Exchange Limited), NSEL( National Spot Exchange).
You can use these 5 tips to start trading in the
commodity market cautiously.
Tip No. 1: Understand the
difference between stock market trading and commodity trading
It is of utmost importance for you to understand the basic difference
when it comes to trading with equity and commodity market. The factor that
influences one market varies from that of another. Apart from trading them the
different way, the risk management and the profit taking should also be
As an example, statistically, the relationship between stocks and gold
is negatively related.
Tip No. 2: Know the
With the range of asset class, you are required to gain knowledge about
the commodity you want to invest in. The information that might be helpful is
whether it is cyclical or non-cyclical, whether it is hard or soft etc. Also,
you must understand the time frames to trade commodities, how to read and
incorporate the news and how to use specific charts pertinent to the
Tip No. 3: Diversify
capital in different commodities.
The advantage a commodity trader has on the equity trader is that they
can successfully diversify their portfolio among their asset class only.
Historically, when the stock market falls, most of the stocks in the basket are
on the downside. However, in the commodity market, the fall of one commodity
like crude oil has almost zilch correlation with that of another commodity like
Tip No. 4: Volatility is the
To yield profits in this market, you must understand the volatility
trick that plays a key role. The good management of this volatility will lead
to huge reaps of profits. It is also important to keep in mind that ignoring
the volatility might burn out all your cash.
Tip No. 5: Check on emotions
This tip is standardized for trading in any market. Humans are filled
with emotions like fear, greed, and anxiety which may take away the real
profits from you. The success in trading comes with extensive research,
execution and sitting back tight without letting the emotions overhaul you.