The commodity trading had begun thousands of years ago. Despite many traders find commodity trading a complicated task. In truth, it is a relatively simple process which doesn’t even required you to call a commodity broker to place orders and waiting for a call back to get a filled order price. Instead, one can simply do commodity trading online in India which is more efficient than the traditional method.
But, you make sure to do your homework while beginning online commodity trading otherwise, you might lose your entire capital in the early days of commodity trading. But, if do it properly – great profits can be made. In doing so, the very first thing you need to do is to understand the mechanics of commodity trading online in India.
There are some important factors to keep in mind. Let’s take a look at it!
Choosing a Commodity Broker
In India, commodity trading also referred to as MCX trading. It is because MCX (Multi-Commodity Exchange) is a platform of trading commodities in the Indian commodity market, just like NSE & BSE are platforms of trading in stocks. Commodity trading (MCX trading) allows traders to trade in copper, gold, silver, zinc, crude oil, and numerous energy, metals, and agricultural commodities.
But, in order to trade commodities on MCX, you need an MCX broker aka commodity broker who acts as an intermediary between the trader and exchange. Before signing up any broker, make sure to check for credibility and experience of the commodity broker. Besides, there are other things which you must seriously consider. For instance, the charges quotes to the client vary from place to place. So, an in-depth analysis of fees and waivers are utmost needed while choosing a commodity broker.
In doing commodity trading online in India, it is important to see the platforms through which the investments are going live. To get a better understanding of the platform, you can go for a demonstration of the online application. It is advisable! In fact, most novice investors and traders first take a demonstration of the application and then decide whether to sign up with a particular broker or not.
So, don’t forget to do the proper market research before selecting any commodity broker. Always go for a certified commodities broker who provides excellent services, products, and low commission rates.
Note: – Even to trade commodities online you need to submit account paperwork related to information on income, creditworthiness, and net worth to your commodity broker. It is because the forms require disclosure of financial information of the broker and identify risks involved in commodity trading. Commodities are highly leveraged assets and one can lose more than initially invested.
Fund the Account
Once you decided on the commodity broker and received approval for trading. The very next thing is to fund the commodity account. Although it is up to the individual as to the amount of funding when open the account. You can start with minimum amount needed to do trading the commodity you want to trade in. But, as we said earlier, commodities are highly leveraged assets, there is always a chance that one can lose entire capital and even more than initially invested. So, make sure to fund the account as per your risk tolerance and comfort level especially if you are a beginner in commodity trading.
Make a Trading Plan
Before you commence trading and placing orders, it is important to make a well-researched trading plan. There are many commodity brokers out there who provide simulation facility to traders before putting their capital to work.
This training and simulation will help you in understanding the commodity trading online, placing orders, and avoid critical order entry errors in order to approach the market in the right way. Also, try not doing overtrading! We’ve seen many traders doing overtrading and placing orders back-to-back. In fact, overtrading is one of the greatest downfalls of many commodity traders who are not being selective of trades and keep placing orders.
We would recommend you to not do overtrading especially if you are a beginner in the commodity market. There are a lot of benefits of trading commodities online and overtrading is not one of them.
Factors to Consider
If you were thinking that you are ready to start commodity trading online then you couldn’t be more wrong. There are still some factors to consider while trading commodities online in India. As with any new journey, you must do your homework on commodity trading. For example, futures & options markets are derivatives market of the actual market for the physical delivery of the commodities. In Commodity Futures, we speculate on the futures price of a particular commodity.
So, you need to be thorough on the commodity futures and learn everything you can learn about the demand and supply of the commodity you are planning to trade in. it is because demand and supply are one of the biggest price drivers of almost all commodities.
Understanding commodities will require your attention to supply and demand. Like, in the Options market, there is a huge amount of leverage and one can hugely gain. Unfortunately, there is also a big risk associated with it. With online trading, one can increase the speed and efficiency of execution but making mistakes while placing orders can be very expensive. So, try to trade as minimum as possible.
Don’t forget! Commodity trading can bring fortunes but it can also take away all your capital in seconds. So, approach online commodity trading in a precise way as much as possible. Lastly, make sure you use all the information that is at your disposal.
Hope, this article helped you in a way you expected it to be. If you have any query or would like to add something then doesn’t forget to mention in the comment section below.