Commodity Market and Its Strategies

Commodity Market and Its Strategies

The commodity market is the place where deal happens between all forms of commodities. An extensive range of commodities will be traded between buyers and sellers according to the standard contract rules and trading guideline. The commodity exchanges allow you to purchase and sell of raw commodities such as crude oil, copper, wheat, cotton, platinum, gold and food products like orange juice. Some items like perishable, non-perishable, finished goods, semi-finished goods, and raw materials are traded in this market at global level. However, this market works on some fixed values which include that trading has to be done only for standard products. Second thing is transaction must take place by a future contract which says that commodities will be sold as well as bought on a future date.

This type of trading process is an exciting alternate for those who would like to diversify from the long-established portfolios of stocks, bonds, debentures, etc. and this can be easily done with the help of online trading account. In India, this market consists of both retail and wholesale markets. So, this becomes a great option to make investment in the country. The Indian government has made nearly all commodities eligible for futures trading. Almost all national exchanges have been set up to make possible this for retail investors.

However, almost all the investors want to sell or purchase their contracts at the eleventh hour of the market. They hope that the profit will be maximized considerably by that but it is a myth. This happens just because of lack of knowledge about the market.

In the same way, commodity marketing also uses one more kind of contract called spot contract which includes the goods must be transferred immediately the contract is made. When we talk about the commodity market of India, the Multi Commodity Exchange (MCX) and National Commodity Derivatives Exchange (NCDEX), National Multi-commodity Exchange (NMCE) are the main exchanges. This market works with four segments and it would be indubitably money-making if traded with strategies. Some trading strategies are:

 

  • In this market the investors have to follow a strategy after checking their risk acceptance, comfort level as well as understanding of the market. These strategies will clear your mentality in case of risk acceptance that depends on the amount of loss you can bear.
  • While this kind of trading you can follow a trend following strategy that most of the qualified traders use and suggest. The strategy says that the prices that are in a trade have a top possibility of continuing in that direction. Thus, the probability should be in your support through taking trades in the direction of the trend.
  • You can also follow range trading while market is not in the trend. Range trading strategy allows you to sell the commodity to market when it obtains its range to the top as well as purchase it when market gets its range to the bottom. This strategy goes well for a long phase of time but you have to be alert about the flexibility of the market.

Hence, these are some strategies that should follow by the investors with the aim of making more productive decision. Although, this sort of trading is too advantageous for the traders as it reduces the risk level as well as it helps to fix prices easily.