How does MCX market work?

Commodity trading is an investing strategy that has to do with the buying and selling of commodities. The commodities are defined as something that is considered to be of value, has a quality that is standardized, and is produced in large quantities. When people invest in commodities, they usually think in terms of 'commodities' that are resources that may be purchased for a wide range of usage. For example, metals whether precious or non-precious, are considered a commodity and traded on the basis of the wide range of goods that can be produced using them as a key ingredient.


Who invests in Commodity Trading?
1. Commercials: Companies involved in the production, processing or merchandising of commodities. In commodity trading, both the farmer and the company, for example, ITC (a leading FMCG firm), which procures wheat from the farmers, could be termed as entities.
2. Investors: Any group of investors that pool their money together to reduce risk and increase gain.
3. Retail Investors: The individual commodity traders who trade on their own accounts or through a commodity broker so as to take advantage of the price fluctuations.
Why Commodities Trading?
Commodities is the only asset category that is negatively correlated to bonds, thereby making them an essential tool for diversification. Bonds are only minimally correlated with stocks, but commodities have actually been negatively correlated to both stocks and bonds historically. When stocks and bonds increase, commodities tend to decrease.
How does Commodities Trading work?
For instance, if you want to take advantage of rising gold prices, a far better way is to invest in gold via gold futures from the commodities exchange rather than actually going to the market and buying it.
As far as gold future trading is concerned, you undertake three things.
* Buy the quantity of gold specified in the contract.
* Buy at the price specified in the contract.
* Buy it on the expiry of the contract. This could be after one month or more.
Pre-requisites of Commodity Trading
For you to trade in commodities, first of all, you must learn about contract specifications of each and every commodity as mandated by the exchange, and of course, learn about trading strategies. The basics remain the same as any other investment: buy low and sell high.
Just like equity trading, Investors are required to open a trading account with a broker or sub-broker; documents establishing address and identity proof are required. The broker's requirement on proof of documents vary, most insist on a PAN card as proof of photo identification. Your bank account details are also needed for enabling remittance and payment.
You can search the internet for a broker that fits your specific needs, just be careful there are many fakes out there. I have been dealing with this broker Gold Crude Research Gold Crude Research for over 5 years and i believe their services are awesome. They come up with the best commodities strategies and indicators.

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