What is Commodity Market?
A commodity market facilitates trading in various commodities such as spot or a derivatives market. In spot market, commodities are bought and sold for immediate delivery, whereas in derivatives market, various financial instruments based on commodities are traded. These financial instruments such as 'futures' are traded in exchanges.
Why invest in commodities?
- Transparency and fair price discovery.
- Hedge against inflation, stock market and other types of risks.
- Woking is based on simple economics.
- Trade on low margin.
- No counterparty risk.
- Mass participation.
- No manipulation in prices.
What are Commodity Futures
Commodity Futures are contracts to buy/sell specific quantity of a particular commodity at a future date. It is similar to the Index futures and Stock futures but the underlying happens to be commodities instead of Stocks and indices.
Is Commodity market regulated in India?
Just as SEBI regulates the stock market, Forward Markets Commission (FMC) regulates commodity market.
Who invests in commodities?
- Producers / Farmers.
- Importers / Exporters.
- Commodity financiers.
- Agricultural credit providing agencies.
- Hedgers, speculators, arbitrageurs.
- Large scale consumers. For e.g. refiners, jewelers, textile mills.h. Corporate having risk exposure in commodities.
Who cannot trade in commodities futures at present?
Banks, Mutual funds, FIIs, and NRIs are not allowed to trade.
How are futures prices determined?
Futures prices evolve from the interaction of bids and offers emanating from all over the country – which converge in the trading floor or the trading engine. The bid and offer prices are based on the expectations of prices on the maturity date.
What are the market timings for commodity trading in India?
Both MCX and NCDEX provide trading facility from Monday to Friday.
- Monday to Friday 10 am – 5 pm for agro-based commodity
- Monday to Friday 10 am – 11.30 pm for precious/base metals and energy.
Can Options be traded in Indian Commodities market?
Options in goods are presently prohibited under Section 19 of the Forward Contracts (Regulation) Act, 1952. No exchange or person can organize or enter into or make or perform options in goods. However the market expects the government to permit options trading in commodities soon.
What are the commodities that one can trade in?
- Bullion: Gold and Silver
- Metals: Aluminum, Copper, Zinc, Lead, Nickel etc.
- Oil and Oil Seed: Refined Soy Oil, Soy Bean etc.
- Energy: Brent crude oil, Crude oil, Natural Gas etc
- Other commodities: Mentha Oil, Cardamom, Crude Palm Oil etc.
- Bullion: Gold and Silver
- Metals: Aluminum, Copper, Nickel, Sponge iron and Zinc.
- Oil and Oil Seed: Castor oil, Crude Palm oil, Soy Oil, Soy Bean etc.
- Energy: Brent crude oil, and Furnace oil.
- Agro Commodities: Cotton, Cotton Seed Oil Cake (COCCUD), Chana, Turmeric, Guargum, Maize, Sugar, Refined soy oil, Soybean etc.
What is the procedure to start trading in commodities?
One can start trading in commodities by fulfilling the 'know your customer' norms with us. A photo identification, PAN and proof of address are essential for registration. You will also have to sign the necessary agreements with Anmol Commodities.
What is Hedging?
A hedge is just a way of insuring an investment against risk. Hedger eliminates the price risk of physical material he owns by taking an offsetting position in futures market.
What is Speculating?
Speculating is taking a position based on expectations about whether prices will rise or fall in the future hoping to profit from the price change.
What is Arbitrage?
A trading strategy that looks to take advantage of price differences of the same commodity, trading on different exchanges. Arbitrage trading may also refer to trading on price differences between physical commodity and the commodity futures.
What is Margin?
Margin is deposit money which is required in advance to execute trades on the exchanges.
What is Initial Margin?
Initial Margin is the amount of money deposited by both buyers and sellers of futures contract to ensure the performance of trades executed.
What are the risk factors?
Commodity trading is done in the form of futures and that throws up a huge potential for profit and loss as it involves predictions of the future and hence uncertainty and risk. Risk factors in commodity trading are similar to futures trading in equity markets .A major difference is that the information availability on supply and demand cycles in commodity markets is not as robust and controlled as the equity market.
Is there any limit to which, price of a commodity can rise or fall in a day?
Yes, there are circuit limits or daily price range (DPR) to safeguard the interests of general investors from the extreme volatilities in markets for preventing any unexpected fall or rise beyond a limit. When the circuit limit is hit, there is a cooling period of fifteen minutes after which the trading will begin again with fresh circuit limits.