Commodity Trading Market
There are 2 major kinds of markets in India. These markets are the Bond Market and the Commodity Trading market. Here, we will be discussing more about the later one. The Commodity trading market in India deals with all the touchable markets which we come across in our mundane activities.
These Commodity trading markets enable people to exchange goods for money and vice versa. These goods or commodities can be anything and can belong to any sector may it be agricultural, mineral, fossil and many more. The commodity trading market observes the trading of various commodities such as cereals, ginned as well as un- ginned cotton, pulses, oils, jute, sugar, gur, cotton, oilseeds, coffee, tea, jute products, potatoes, onions, petrochemicals, gold , silver, crude, metals and many more commodities.
The regulator for the commodity trading market in India is the Forward Markets Commission. It is similar to SEBI (Securities and Exchange Board of India) which performs the role of protecting the interests of investors in securities. The commodity market in India is mainly influenced by the demand and supply equation. Various external factors such as social changes, weather, policies of the government, global factors drive the commodity market as well.
The commodity trading market in our country is said to have a daily turnover of 120 Billion rupees to about 150 Billion rupees on an average. The total commodities derivatives trade value forms 66% of India’s GDP (Gross Domestic Product). It is also believed by a lot of people that this percentage will only keep rising in the future.
Futures Commodity Trading Market
The futures commodity trading market has been gaining momentum since quite a few years. Two years back, in the year 2007, the total volume of trade in the case of the futures market was Rs 36.54 lakh crore when compared to the Rs 34.84 lakh crore in the year 2006.
The largest and the most reputed regulatory bodies for the futures commodity trading has been considered to be the MCX or the Multi Commodity Exchange of India in the terms of the number of contracts as well as the total turn over volume. Various other commodity exchanges where commodity futures are traded are the National Commodity Derivates Exchange or the much commonly called NCDEX as well as the National Multi Commodity Exchange. Other than these 3 exchanges there are twenty two more commodity exchanges in India.
There are more than 90 commodities which are traded in the futures commodity market. These commodities include various agricultural commodities such as jute, gur, wheat, coffee, rice, etc.; various pulses such as chana, urad etc.; oilseeds such as groundnut and coconut oil, sesame seeds, sunflower oil; spices such as turmeric, chillies, pepper, metals such as aluminum, copper, tin; precious metals such as gold as well as silver; crude oil, natural gas, coal and many more.
Out of all the commodities which are traded in the futures commodity market the four major commodities which have the largest share in terms of trading are Gold, Silver, Guar Seed and Chana.
The commodity futures market are of great use to the producers, the investors as well as the traders since they can sell the futures of the commodity (selling a particular amount of the commodity on a particular date at a pre decided fixed price or a particular price) and make sure that they are protected against any sudden changes in the market price.
Books On Commodity Trading
There are several books on commodity trading which are specified as follows:
1. Futures 101: An Introduction to Commodity Trading by Waldron, Richard E. :
This book is fresher guide on commodity trading .this book explains how profit and losses are made in commodity market and hoe the commodity financially works. There are case studies, briefing, alerts and the book is user friendly and easily understandable
2. Commodity Trading Manual by Chicago Board Of Trade, the Glenlake Publishing, Glenlake Publishing:
This book is 1998 edition mainly for future industry and provides knowledge to new potential professionals of market. The book shows both the past i.e. from Ancient Greece to Old Chicago and futuristic views of many companies.
3. Point & Figure: Commodity & Stock Trading Techniques by Zieg, Kermit:
Veteran P&F analyst Kermit Zief suggests the various steps for developing; inferring and optimizing point and figure chart which is a good briefing of the easiest chart. The book can help in converting a basic user into a trader who can work in big financial institutions.
4. Advanced Commodity Spread Trading by Goldberg, Harold
The author has an excellent knowledge of commodity market trading. The “Twin Line” approach is new term discovered by author who describes 2 extremes i.e. the difference between highest and lowest price of commodity. This helps the trader to give 2 dimensional views to commodity.
5. Advanced Commodity Trading Techniques by Hamon, J.
The book not only covers the commodity trading techniques but also covers the geometrical analysis of trading which covers various concepts like Fibonacci, Ekkiott, Andrew’s meridian lines, etc. The book is most important for a person who doesn’t have much computer knowledge and can do trading using the geometric analysis.
For more commodity trading books online please visit the links given below:
http://www.traderslibrary.com/seo/commodity_trading.html
Commodity Derivatives Trading
The two main and the largest commodity derivatives exchanges are the CBOT and CME commodity derivatives exchanges as far as the entire world is concerned. As far as India is concerned the Commodity Derivative markets was first started in the year 1875 with trading in Cotton as the most important commodity. This was possible because of the initialization of the Cotton Trade Association. This was followed by oilseeds in 1900, raw jute and other jute products, wheat, bullion (Gold and silver) and many other products.
Commodity trading derivatives was initiated in order to protect the farmers of the country from getting low returns for their produced agricultural commodities because of the value of the crop going below the cost price. On a large number of agricultural commodities such as cotton, coffee, pepper, turmeric, rice, wheat and many more, varied Derivative contracts started getting offered.
To look at it, today, there are more than 100 different commodities with derivative contracts which are currently available to the masses for trading. And the trading of these commodities can take place at about 25 different commodity derivative exchanges which are present in India. Of all the commodity derivative exchanges the NCDEX or the National Commodity and Derivatives Exchange is considered to be the largest commodity derivatives exchange.
There was a time where Commodity derivatives were mainly developed for reducing the risk factor or risk management purposes. Although, these days the use of commodity derivatives is not limited to risk management and they are being commonly used by the masses as an investment tool.
Global Commodity Trading
Basically, commodity markets are the one in which raw or the day to day products are exchanged. The main thing is standardization of process of trading i.e. there are contracts for this kind of trading. Global trading is trading between two or more nations i.e. not all nations extract or grow all commodities and hence this kind of system is used.
The history and past experience of professional has always shown that Commodities market and trading had the major impact on the financial status of a country. The history is unknown but China had started with the commodity trading around 6,000 years ago and the commodity was Rice. The observations also shows the main reason for World War II was sue to Japans venture into many alienate countries for commodities like secure oil and rubber just because of shortage of that commodities. Also over growth of certain commodity may result in the reduction of price of that commodity.
Crude oil i.e. energy commodity are kept under surveillance by all countries, corporations and organizations which are related. The high crude oil price may affect the Western countries on the other hand the Middle East countries which are dependent on the petroleum as their daily bread are heavily affected by the decrease in the crude price. The things that can affect the commodities the most are devastations caused by the weather like heavy rain or cyclone and some natural disasters like earthquakes or volcanoes. Some times they also cause region wise food shortages.
The commodity trading is divided into 4 basic categories which are as follows:
- Energy commodity which includes natural gas, gasoline, crude oil, etc.
- Metal commodity which includes silver, gold, platinum, copper, etc.
- Livestock and Meat commodity which includes pork bellies, cattle, feeder cattle, lean hogs, fishes, etc.
- Agricultural commodity which includes all the farming products like cotton, soybeans, wheat, rice, coffee, sugar, etc.
Commodity Trading In India
The Ministry of Consumer Affairs and Public Distribution, Govt. of India supervises the regulatory authority Forward Markets Commission (FMC) which is a statutory authority established in 1953 under Forward Contracts (Regulation) Act. FMC regulates Commodity trading in India.
In India equity trading had always been one of the greatest boosters. But, now a days because of people’s affection towards gold and silver even commodity trading has been increasing. This brings itself to around 3 times the volume of equity traded.
Commodity future is the prediction of a commodity i.e. future supply of a commodity on particular date and price. Contract Expiry date is the predicted future date and the contract size is fixed quantity. Due to the introduction of commodities future the total of retail traders taking part in market has been gradually increasing. In the next 5 years the commodity market is expected to grow by 40%.
The List of exchanges in India are: Bhatinda Om & Oil Exchange Ltd., Batinda., The Bombay Commodity Exchange Ltd.Mumbai, The Rajkot Seeds oil & Bullion Merchants` Association Ltd, The Meerut Agro Commodities Exchange Co. Ltd., Meerut, Ahmedabad Commodity Exchange Ltd., and many more.
The few majors in commodity exchanges are:
MCX(Multi Commodity Exchange of India Ltd.): MCX presents futures trading defined in terms of type of contracts offered in 58 commodities, from various market segments including energy, bullion, iron and non-iron metals, oil seeds, and other agricultural commodities. It is the worlds first and fore most also one and only company acquired ISO 27001:2005 certification
National Multi-Commodity Exchange of India Limited (NMCE): It was declared a National status in November 2002 on permanent basis by Govt. of India. And is considered to be first De-Mutualised Electronic Exchange
National Commodity & Derivatives Exchange Limited (NCDEX): It is a private limited company which has obtained Certificate for Commencement of Business in Mat 2003 and is online commodity exchange based in India.
Commodity Trading Software
As modern day trading is electronic, the exchanges today, are run by computers, and are accessible via the Internet, the traders therefore, can work from almost anywhere in the world using only a few selected tools and services. These tools are things like a computer, a telephone, and, Internet access so most people already have some of the tools that the traders use.
The traders get the market data from the market exchange via their brokerage. Some brokerages provide market data free for active trading accounts, while others charge an additional fee, either for all of their markets or for each exchange. Most traders will use the market data provided by their brokerage, but some traders will use market data from other sources instead of, or in addition to, data provided by brokerage. Some of the software’s used are listed below:
Charting software is the software that day traders use the most. Some trading brokerages provide charting software as part of their trading software, but often they do not offer the variety of features that the charting software offers.- Brokerage provided trading software is to make trades, but some traders prefer to use additional trading software that interfaces with their brokerage provided trading software.
- Additional trading software (sometimes known as a front end) can provide a different display, and different features (such as automatic target and stop loss orders), and is comparatively easier to use than brokerage provided trading software.
Some traders prefer to program their own additional trading software. It allows the traders to program the software in their preferred way of programming and to include exactly the features that they want when they are trading (such as breakout entries, automatic reversals, etc.).
These choices will provide the basics that are needed to start trading, while still allowing more of the experienced traders to expand into multiple markets, advanced trading systems, and even automated trading, without changing their tools, that to at no additional cost.
Online Commodity Trading
With the arrival of the internet trading has become that much easier for people. If you are interested in trading then you can easily do commodity trading online.
The online option for trading has been one of the biggest pluses for traders. Traders can now sit at home and watch live commodity prices instead of taking rounds of the various exchanges.
This is a profitable and favorable option for the traders, as they need not spend time and money on traveling to the various exchanges.
Apart from real time commodity prices, the websites that offer an online option for trading also offer the investors various add-ons and fringes. These include graphs which track the prices of commodities every single second and offer the customers alerts when the prices are decreasing or increasing suddenly. This helps the customers in making decisions as well as allowing them to spend their valuable time for other money making operations
If you are looking to trade in commodities on the internet then there are several options available for you. The major commodity exchanges all have their web sites online and hence you can do online commodity trading there. Also on the internet you will find several web sites which tell you about the basics of commodity trading and tips for commodity trading. You can also find several web sites on the internet where amateur investors or beginners can learn the concept of online commodity trading and also get to practice it online.
Here is a list of websites that deal with online trading of commodities. Some of these are the online forums wherein the amateur investors can take opinions from established investors.
Commodity Prices
To make decisions regarding the trading of commodity futures, it’s a must to have a source of price data. These sources include daily newspapers and dedicated websites for futures trading. The experienced commodity traders prefer looking at the price fluctuations on a graph as compared to trying to interpret tables of numbers. In real-time analysis, graphs are indispensable for quick understanding of the essence of previous and recent price action.
The typical commodity graph depicts daily price action as a thin line which indicates the various price levels at different times of the day. It is possible to include around six months of activity on a single graph.
For example, consider a graph depicting the price of corn for three months. The graph also has tips for buying/selling a particular commodity and can be useful to the part-time investors as a reference. The graph would show the fluctuations in the prices and these can be attributed to the favorable or unfavorable conditions that affect the production as well as the sales of the corn crop.
The development of the commodity futures indexes had led to the evolution of commodities as an asset class. More recently, the introduction of investment vehicles which track commodity indexes has led to an enhanced scope of investment in the commodity markets. Most of the commodity speculators bank on trading on the margin, which results in enhanced risk to the invested principal amount. The odds are stacked heavily against anyone who hopes to build a permanent fortune or a guaranteed source of income in the commodity markets. There are various advantages of incorporating commodity futures as an investment option over other alternatives like savings accounts, stocks, gilts, mutual funds, etc.
Commodity Trading Basics
Investors should always learn the basics of trading before they put their money into it. Commodity trading like any other form of trading is similar in concept only thing here we are trading in certain commodities instead of shares or foreign currencies as in other forms of trading.
Commodity trading gives you options to hedge against inflation while also promising you good return. Commodities market also helps you in diversifying your portfolio hence if another form of investment of yours runs bad then you can always rely on the commodities market in order to maintain profits. Commodity trading is not just for the institutional investors but also for the retail investors though investors should always invest after having done research and having the knowledge of the market so that if there is a sudden slump in the market they are not adversely affected by it in a huge way.
Trading in commodity derivatives is also easily possible. Hence if you want to buy or sell a particular commodity like gold, silver, crude oil, metals or other then you can easily trade in commodity derivatives. There are several exchanges on which you can trade in commodities with the most popular commodity trading exchanges being The National commodity and the derivative exchange or the multi commodity exchange. Every thing ranging from hold to metals to agricultural commodities like grains pulses oils etc can be traded by any one who wants to do commodity trading.