Let’s first understand Future Trading Market. A commodity is any item on the market that you can assign a value to. It could be food grains, metals or oil that helps satisfy the demand and supply. Prices of commodities can fluctuate depending on supply and demand. Let’s now return to commodity trading.
Commodity trading is when commodities like energy (crude oil and natural gas), metals (gold and silver, platinum), and agricultural produce (corn and wheat, rice and cocoa and coffee, sugar, and cotton) are traded to make a profit. These commodities can be traded spot or as derivatives. Note: Live stocks can be traded as Commodity Market.
Spot markets allow you to buy and sell commodities in an instant delivery. In the derivatives market, commodities can be traded using different financial principles such as futures. These futures can be traded on exchanges. What is an exchange, you ask?
Exchange is the governing body that oversees all commodity trading activities. They facilitate smooth trade between buyer and seller. They facilitate the creation of a contract between buyer and seller for futures contracts. Examples of Exchanges include MCX and NCDEX. What is a futures contract?
A futures contract is a contract between buyer and seller for the future price of the commodity. Futures contracts are different than forward contracts. Futures contracts, unlike forwards, are standardized and traded according the Exchange’s terms. This means that the parties to futures contracts don’t decide their terms, but accept those terms as set by the Exchange. Why invest in Commodity Forward Trading? Invest because:
- Futures trading can make huge profits in a short time. Low deposit margin is one reason. The total contract value is between 5, 10, and 20%. This is a much lower rate than other trading methods.
- The exchange has a good regulatory system that makes it easier to sell and buy commodities regardless of their performance.
- Hedging allows producers to hedge their positions according to their commodity exposure.
- Commodity trading is risk-free, unlike stock market trading. Because Future Trading is all about supply and demand. A higher demand for a commodity means it will be more expensive. The reverse is true. Some commodities can be determined based on the season, such as agricultural produce.
- Online trading has seen a dramatic increase in commodity trading when compared with the equity market.
Complex data is involved in Commodity trading. It is about managing data in today’s commodity market. This includes accurate and current information, as well as information that allows the seller or buyer to trade. Many companies offer solutions to commodity data management. Software developed by these companies can be used to efficiently manage and analyze data in order to predict the futures market.