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Commodity Trading

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If you already invest in stocks and shares and would like to start investing in commodities to broaden your portfolio of investments I am putting down some basic points of commodities trading.

Wikipedia defines a commodity as,

"In the original and simplified sense, commodities were things of value, of uniform quality, that were produced in large quantities by many different producers; the items from each different producer are considered equivalent. It is the contract and this underlying standard that define the commodity, not any quality inherent in the product"

In common terms items such as gold, silver, agricultural commodities, metals, crude oils etc are the popular commodities that are traded in todays world.

So commodity trading is nothing but trading in commodity derivatives - either futures or options. In the Indian market there are currently 2 major commodity exchanges NCDEX (National Commodity and Derivative Exchange) and MCX (Multi-Commodity Exchange).

Why should you invest in commodities ?
  1. First reason is because you can - in recent years trading in commodities has been made possible at levels where most investors can afford.
  2. Like any other form of investment this is a avenue for diversification
  3. Most stocks and relates derivatives are mostly driven by factors in the local market - company performance, supply demand. But commodities give you an option to make investments where prices vary due to international factors
  4. Trading in commodities derivatives is a far better option than trading in its physical form
    • Simpler to manage - storage, disposal
    • Gains are higher (you pay for only the margins)

If you are interested in investing in commodities proceed to ICICIDirect (my personal suggestion as the best platform for online trading)

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