How To Start Commodity Trading?

How To Start Commodity Trading?

Commodity Trading is a challenging task for several beginners as well as seasoned traders out there. It is because the challenges are unique than Equity trading and other different forms of investment.
Commodity trading is considered one of the most developing forms of Trading, especially in India. As a result, several traders have started to invest in commodities after equity and real estate.
However, the risks in commodity trading are equal to what we all see in Equity trading, but its also a money-making platform that helps the traders to earn a large profit from buying and selling goods.
Traders have to keep one thing in mind before starting is that commodity trading requires a lot of dedication, experience and hard work to achieve success.
This article consists of a step-by-step guide on How to start commodity trading that will help traders to start easily and earn respectable profits.

Before starting to trade in commodities, all the traders must be well-versed with markets, commodities and the economy that causes the price changes in the commodities.
The traders must also practice technical and fundamental analysis to make correct decisions and move in the commodity market.
Apart from the above factors, traders should know all the essential details and requirements before starting their commodity trading.
There are several other things that a trader need to get familiar with in the commodity market. Here are 5 simple and effective steps that will help them to start their commodity trading.

  • Step 1 - Getting Familiar About The Commodity Trading Exchanges
  • The first and primary step for a trader to start commodity trading is to get familiar with all the exchanges that commodities are traded on.

    In India, commodities are traded through three major exchanges such as:
    1) National Multi Commodity Exchange of India (NMCE)
    2) National Commodity and Derivative Exchange (NCDEX)
    3) Multi Commodity Exchange of India (MCX)
    Most of the commodities are traded on these popular exchanges of India.

  • Step 2 – Selecting the Efficient Stockbroker
  • The next important step to start commodity trading is to select a reliable and efficient stockbroker. The broker must be regulated and registered by the Securities and Exchange Board of India (SEBI).
    Selecting an efficient stock broking company is challenging because the account is taken care of by the stockbrokers that execute all the trades.
    The brokers also help the traders inform about commodity trading and make informed decisions through their recommendations.
    Also, while selecting a broker, the trader must know about the brokerage fee they charge and types of fees like clearing fee, platform fee, commission and more.
    The major factor that a trader should consider while selecting a broker is the services they provide on their platform.
    However, several efficient full-service stockbroking companies for commodity trading in India offers excellent service for a trader to start commodity trading.

  • Step 3 – Opening The Commodity Trading Account
  • Once a trader has selected their reliable broking company to start commodity trading, they have to apply the next step by opening a demat account.
    They have to fill an application form and provide all the necessary details like age, income, financial status and more with their broker.
    The broker then checks and analyze the information provided by a trader. Depending on the investor's credit, trading experience, and risk-taking capabilities, the company decides to agree or reject the opening of the Demat account.
    The broker needs to analyze the information, which is an essential part because they need to make sure that the trader can pay off its debts if the market is running down.
    Once the broker approves the application of a trader, the Demat account gets opened instantly.

  • Step 4 - Making An Initial Deposit
  • Once a trader has opened their commodity trading account, they have to make a small investment to start their trading.
    However, they have to deposit the initial margin, which is generally equal to 5 to 10% based on the contract value.
    For example:
    The initial margin money for trading gold is RS 3200, which is 10% of the trading unit of gold. Along with the initial margin, a trader also has to maintain a maintenance margin so that he is able to cover up all his losses in case if the market is adversely affected by other scenarios.

  • Step 5 – Create A Trading Plan
  • Now all the formalities for commodity trading is completed, a trader has to create a trading plan to begin their commodity trading.
    The primary reason to develop a trading plan I to know and understand the market. It is also made to understand his own financial capability, risk appetite and his personal style.
    There might be a possibility that a trading plan developed by one trader may not suit another commodity trader.
    In this case, the broking company helps the trader in obtaining the required knowledge, practice and information.
    They provide them with all the relevant and necessary fundamental and technical analysis tools and platforms to help the traders make an effective trading plan.
    The trader also has to develop some strategies that are suitable as per their trading style and objectives.

Final Thoughts

To start commodity trading in India, a trader must be well versed with all the necessary information. The trader must also practice all the techniques to make sure that he does not end up losing more than he can afford.
One essential thing to become successful at commodity trading is that a trader should put many efforts and dedication to prepare and become successful in commodity trading in India.