5 tips for commodity trading

Commodity trading India is like old wine in a new bottle. A variety of assets like gold commodity trading have existed much before the stock or bonds in our economy. One of the major difference both is that the stock market deals with the finished products while the commodity market has unfinished products like gold, agricultural, metals, etc.

The major exchanges where you can easily access derivative trading services in India are MCX(Multi-commodity exchange of India), NCDEX( National Commodities and Derivative Exchange Limited), NSEL( National Spot Exchange).

You can use these 5 tips to start trading in the commodity market cautiously.

Tip No. 1: Understand the difference between stock market trading and commodity trading

It is of utmost importance for you to understand the basic difference when it comes to trading with equity and commodity market. The factor that influences one market varies from that of another. Apart from trading them the different way, the risk management and the profit taking should also be separate.

As an example, statistically, the relationship between stocks and gold is negatively related. 

Tip No. 2: Know the underlying commodity

With the range of asset class, you are required to gain knowledge about the commodity you want to invest in. The information that might be helpful is whether it is cyclical or non-cyclical, whether it is hard or soft etc. Also, you must understand the time frames to trade commodities, how to read and incorporate the news and how to use specific charts pertinent to the derivatives.

Tip No. 3:  Diversify capital in different commodities.

The advantage a commodity trader has on the equity trader is that they can successfully diversify their portfolio among their asset class only. Historically, when the stock market falls, most of the stocks in the basket are on the downside. However, in the commodity market, the fall of one commodity like crude oil has almost zilch correlation with that of another commodity like gold.

Tip No. 4: Volatility is the key

To yield profits in this market, you must understand the volatility trick that plays a key role. The good management of this volatility will lead to huge reaps of profits. It is also important to keep in mind that ignoring the volatility might burn out all your cash. 

Tip No. 5: Check on emotions

This tip is standardized for trading in any market. Humans are filled with emotions like fear, greed, and anxiety which may take away the real profits from you. The success in trading comes with extensive research, execution and sitting back tight without letting the emotions overhaul you.