Commodities, whether related to metals, energy or food are a significant part of everyone’s life. Likewise, commodities could be a crucial way for investors for diversifying beyond traditional bonds and stocks. The process of the choosing the commodity is dependent on the interest and knowledge of the client with respect to various commodities. It is also dependent on the margin money i.e. the amount which client is looking to Trade in Commodity Market. Selecting the commodity is dependent on the time horizon viz. short, long or medium for which the client is looking for investment in the commodities market. The choice is also determined by the purpose of the customer. For which he wants to go for investment such as speculation, hedging or diversification.
Concepts of Trade in Commodity Market
One of the ways of investing in commodities through the futures contract that is an agreement for buying or selling. In the future, the specific quantity of commodities at a predetermined price. Futures are offered on commodities like gold, crude oil, natural gas, and agricultural products like corn or cattle.
Investing in the futures contract would require you for opening up a brokerage account. In case you don’t have a broker which also trades in futures. The reason for collecting the margin money by the exchange is for avoiding the risk of counterparty. Default by the members or their customers in fulfilling the commitments. It forms part of the risk management process.
To conduct the trading process, the client could contact the dealer for finding the price, details, and movement regarding the amount of money required for the trade. For understanding, a particular commodity one needs to develop an interest in reading all the fundamental reports which come out from research desk.
The profit and loss of the commodity trade based on how accurately you could identify. The trend of future price movement of a particular commodity. The loss from the trade could be controlled by having a stop loss every time you trade.