For full text go to : https://www.educorporatebridge.com/commodities/commodity-trading Have you wondered how commodity trading works, its prerequisites, the various commodity exchanges and if commodity trading is beneficial? This article answers all these questions, read through and get yourself educated on the same.

1. Commodity
Trading
~ By edu CBA

2. What is Commodity Trading?
• Commodity trading is an investment strategy that includes the buying
and selling of goods called commodities.
• A commodities derivative is where people just speculate on the trend of
the price of commodities to generate profit if the price moves in their
favor.
• For instance if you buy a futures contract, you are basically agreeing to
buy something that a seller has not yet produced for a set price and it
also does not necessarily mean that you would buy the huge bulk of
physical commodity because the contract would end before its expiry
date.

3. Commodity Exchanges
• Commodities are traded primarily on the exchange such as the Chicago
Board of Trading (CBOT), London Metal Exchange (LME), Multi
Commodity Exchange of India Limited (MCX) and many such where
several commodities and derivatives products are traded.
• These exchanges are standardized in nature and decently regulated.
• An exchange plays role of an intermediary to all commodity dealings,
and takes initial margin from both sides of the trade to act as a
guarantee.

4. The Good side and the Bad
side of trading commodities
• Over the years commodity
trading is gaining popularity
because of the various benefits it
offers.
• Commodity futures are
universally accepted to be a
part of every successful and
diversified investment portfolio.
• Apart from that commodity
provides liquidity; require small
investment, gives quick profits
and hedging options which
make it attractive to investors.
• Commodity trading has been
considered as something just for
the experts as it is a risky venture.
• The risk factors such as variability
in the prices, the volatile nature of
quantity of output that can be
obtained after the production
process, and various other factors
such as weather, foreign exchange
rates, national monetary policies,
inflation etc. related with the
commodity trading may affect the
returns.

5. How Commodity trading works?
• It all starts when you buy a futures contract of any of the commodity being
traded on the exchange. Here you do not pay the entire amount of the
commodity but only the fixed percent of the cost, which is known as the
margin.
• You could sell this contract any time before expiry of it. The expiry could be
after one month, two months and so on. Only if you sell the of course contract
before it expires, you don't have to worry about really buying the gold.
• As stock prices are quoted on a daily basis in the stock markets in the same
manner the commodity futures prices are quoted on the commodity
exchanges

6. Pre-requisites of Commodity trading
• Familiarity with various order types and how to properly place each of
them is crucial to being a successful trader. Irrespective of whether you trade
online or through a broker, knowing the type of order and placing it
accurately is vital.
• Commodities have been allotted respective lot sizes to avoid any confusion
in trading .The profit or loss you make is ascertained on the number of lots
you have. You can buy or sell any number of lots depending upon your risk
appetite and margin you have with your broker.
• You will have to find a commodities broker but that is not big problem.
There are many brokers that offer commodity trading these days. Brokerage
fee is also low for commodity futures.

7. Trading tips
• Define your limits and do
not overtrade.
• Decide on your profit goal
and only then take a
position.
• Don't try to trade many
markets with small capital.
• Use discipline to remove impulse
trading.
• Train your mind to accept many small
losses and for large gains.
• Don't trade on rumors.
• Always use stop orders.
• Traders and brokers are highly distinctive when it comes
to trading strategies. They should follow and trade with
the trends, rather than attempting to pick tops and
bottoms.
• Money management techniques need to be applied to
trading.

8. Knowledge is like a line
with no ends…
To know more on this topic click on the
link below
https://www.educorporatebridge.com/commoditie
s/commodity-trading/

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