Basic Commodity Jargons That You Should Know Before Trading the Commodity Market
The commodity market in India can only be traded in futures. It is a much more liquid market than the equity market and tends to follow the technical charts better. This is because commodity is internationally traded .MCX and NCDEX are the two commodity exchange in India.
When you do an online commodity trading, you get to trade the agricultural as well as the non agricultural commodities. Agricultural commodities include cotton, cardamom etc and non agricultural commodities include gold, silver, crude, copper, natural gas etc.There are a few basic commodity jargons that you need to know in order to trade the commodity market.Arbitrage
: This is the term used for simultaneously purchasing and selling the same commodity in different exchanges or in different contracts in order to take advantage of any price difference.Carry forward position
: If a trader does not square of his position on the same day buy carries the position to the next day then it is called a carry forward position.Cash settlement .This is a method where the futures contract is sold and the seller pays the buyer the cash value of the commodity traded. This is as per some pre defined contract.Hedging
: Hedging is the term used to protect an open position by taking a counter position. Like buying one month's contract ad simultaneously selling another month's contract. This limits the profit but also limits the loss. Hedging is especially useful in the case of an adverse price movement.Mark to Market
: This figure is calculated at the close of the trading session each day. Your margin account is debited or credited as per your holding and the profit /loss made by the futures contract on that particular day.Before you open a commodity trading account, check with the brokerage firm about any zero brokerage option that they may have. If not, you can use the commodity brokerage calculator to know the amount of brokerage that is being charged as well as your break-even price on each trade. Most brokerage firms offer you an online brokerage calculator which lets you check the brokerage charged by just keying the buy and the sell price of the futures contract.
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