Trading in commodities has become extremely popular in India in recent years. It has developed as a desirable investment choice for people wishing to diversify their portfolio due to the plethora of options available in the commodity market.
In this article, we’ll look more closely at why, when, and how to trade commodities in India.
Why should one engage in commodities trading?
In India, trading in commodities has several advantages. It is a great approach for diversifying investment portfolios. Due to their low connection with other asset classes like stocks and bonds, commodities like gold, silver, crude oil, and agricultural products can act as a hedge against market volatility.
Furthermore, since supply and demand dominate the market for commodities, these prices are less influenced by broader economic and political developments. As a result, commodity prices are a solid investment choice for people seeking long-term stability as they may hold steady even during periods of macroeconomic upheaval.
When to trade commodities in India?
Due to India’s huge consumption, the best time to trade in commodities exists when there lies a large gap between supply and demand. This typically happens when the economy is expanding or when the supply chain is disturbed by unplanned occurrences like natural catastrophes. For instance, during the COVID-19 pandemic, after hitting rock bottom, the price of crude oil rose as a result of a decline in supply and a rise in demand for goods containing oil, such as hand sanitisers.
Timing is also an aspect to take into account while trading commodities. When supply and demand are at their peak, for instance, during the planting and harvesting seasons, agricultural commodities like wheat and rice are often traded heavily.
How to do commodity trading in India?
India has two main routes for trading commodities: commodity exchanges and physical marketplaces.
Electronic marketplaces called commodity exchanges let traders purchase and sell commodities. These exchanges are a great option for people wishing to trade commodities since they provide several advantages such as transparency, liquidity, and price discovery in this rapidly growing market.
Since the establishment of commodity exchanges, dealing in commodities has never been simpler in India. Traders can purchase and sell commodities including gold, silver, crude oil, natural gas and agricultural items.
To start commodity trading, an individual must first create a trading account with a commodity broker. After this traders can begin posting orders on the exchange, depending on the state of the market, to purchase or sell commodities.
Contrarily, physical marketplaces entail the purchasing and selling of goods in their actual physical forms. This includes buying directly from farmers or via regional markets. Physical marketplaces might be more time-consuming and demand more specialized expertise, but they also provide more control over the quality and amount of the product being exchanged.
Conclusion: For individuals wishing to diversify their investment portfolio, commodity trading in India presents a lucrative opportunity. Investors may profit from this asset class and perhaps increase returns by knowing why, when, and how to trade commodities.
But before you start, it’s crucial to conduct your homework and speak with a financial advisor, just like with any investment.