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How Does Commodity Trading Work

Commodity trading : How does commodity trading work ?

Trading in the commodity market is similar to trading in the stock market. The main difference is that commodities take the place of stocks. There are three national commodity exchanges in India—the Multi Commodity Exchange (MCX), National Commodities and Derivatives Exchange (NCDEX), and the National Multi Commodity Exchange (NMCE). Buyers and sellers can connect on these exchanges to make their deals.Metals like gold, silver and copper, agricultural products like sugar and grains, as well as crude oil and natural gas are the commonly traded commodities. Here’s what you need to do in order to start commodity trading.Choosing a brokerThere are quite a few commodity brokers out there. Do some research and ask around for references of experienced brokers. Independent individuals, brokerage firms, and financial institutions can all be considered for the purpose.

The broker has to be registered with the commodity exchanges before he can place trades for you. Check the kind of brokerage rates that are charged.Minimum investmentYour minimum investment can be as low as Rs 5,000 because margins are all that you will need to pay. The margin will be around 5 to 10 percent of the commodity contract. Brokerage transaction charges can be anywhere between 0.10 to 0.25 percent of the contract value.Miscellaneous chargesStamp duty is payable in case of delivery. Instances of delivery will incur extra charges imposed by the broker.

Squared off trades will not incur any sales tax but sales turning into delivery will have to pay up. This will be applicable as per the location of delivery.Study the marketsGet to know as much as possible on all aspects of commodity trading. The financial dailies and magazines are a great source of the newest information. Surfing the web and analysing available data is another option. This will help you to understand trends and make the right decisions when required.All the three national exchanges offer electronic trading and settlement systems. You might also need to open a demat account before you start trading.

Doing this will also make it easier for you to carry out online commodity trading.
Alice Blue commodities trading account helps you trade in the indian mcx at zero-brokerage on all your trades.

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