What is Commodity Trading?
Commodities exchanges usually trade futures contracts on commodities, such as trading contracts to receive something, say wheat, in a certain month. A farmer raising wheat can sell a future contract on his wheat, which will not be harvested for several months, and guarantee the price he will be paid when he delivers; a wheat producer buys the contract now and guarantees the price will not go up when it is delivered. This protects the farmer from price drops and the buyer from price rises.
Commodity trading is an investing strategy that involves the buying and selling of goods that are classified as commodities. There are many similarities between commodity trading and the trading activity involved with stocks. One key difference has to do with the difference between what is traded. A commodity is normally defined as something that is considered to be of value, has a quality that is more or less consistent, and is produced in large amounts by a number of different producers. When people choose to invest in commodities, they normally think in terms of items that are resources that may be purchased for a wide range of uses. For example, corn is considered a commodity and is traded on the basis of the wide range of goods that can be produced using corn as a base ingredient. In order to trade commodities, it is necessary to participate in transactions conducted on a commodity exchange. Functioning in a manner very similar to a stock exchange, there are exchanges that deal di
It’s an age-old phenomenon. Modern markets came up in the late 18th century, when farming began to be modernised. Though the trade’s mechanisms have changed, the basics are still the same. In common parlance, commodities means all types of products. However, the Foreign Currency Regulation Act (FCRA) defines them as ‘every kind of movable property other than actionable claims, money and securities.’ Commodity trading is nothing but trading in commodity spot and derivatives (futures). If you are keen on taking a buy or sell position based on the future performance of agricultural commodities or commodities like gold, silver, metals, or crude, then you could do so by trading in commodity derivatives. Commodity derivatives are traded on the National Commodity and Derivative Exchange (NCDEX) and the Multi-Commodity Exchange (MCX). Gold, silver, agri-commodities including grains, pulses, spices, oils and oilseeds, mentha oil, metals and crude are some of the commodities that these exchanges
