How to Trade in Commodities Online

Commodities are primary agricultural products or raw materials that can be bought and sold online. Trading in commodities has gained great popularity because it can possibly diversify your portfolio and provide great returns. Compared to traditional investments, trade in commodities provides investment in physical assets like gold, oil, natural gas, and agricultural products. In this blog we will gain knowledge about how to start commodity trading, where to trade commodities online, its advantages, disadvantages, and a lot more.

How to Start Investing in Commodities?

The commodity is the primary material for producing goods consumed daily. Commodities such as oil, sugar, metals, and so on form the foundation of an economic system worldwide. Some of the most widely traded commodities in the world are gold, corn, crude oil, coffee, wheat, etc. The movements of one commodity affect the world as a whole. Whenever the price of oil goes up, it has an impact worldwide.

To start commodity trading for beginners, you need to follow only two basic steps.

Open Demat Account

Your first step to enter share market

Get Started

1. Register a Demat Account with the Reputed Stockbroker

You need to have a Demat account if you want to trade stocks, and it's necessary for commodities trading. While many broking firms can open your account, choosing a firm that will give you relevant trading suggestions is essential. You must have appropriate input and guidance to navigate the commodity market maze.

It is also essential to choose a broker offering competitive rates. You can lose your gains if you choose a broker with a high commission. Visit the broker's platform to find out about its services. If you have a team of experts who regularly offer in-depth research and recommendations, it is wise to choose a full-service broker.

2. Deposit an Initial Amount

You must make the initial payment when you open an account. The deposit amount depends on the commodity you are dealing in and is generally between 5% and 10% of the contract value. The official web page of the brokerage house provides you with this information. If losses are incurred, you need to maintain an appropriate coverage margin. Creating a commodity trading plan that helps you comprehend the markets and your risk appetite is also significant. Regarding risk preferences and cash flows, each trader has a distinct point of view. You must choose based on your finances.

How to Trade Commodities During Inflation?

Trade in commodities can offer good results during inflation. However, to learn how to start trading commodities, it is important to understand the different types of inflation and their impact on specific commodities. Inflation can affect different sectors differently, so it is important to adjust your trading strategy accordingly. The three primary types of inflation you should be aware of are: 

1. Cost Push Inflation

Cost-Push inflation takes place when the cost of production for goods rises, leading to an increase in their final selling price. Commodities that are closely tied to industrial productions, specifically base metals are affected by this type of inflation. A trading strategy for this type of inflation would be to focus on base metals like copper, aluminium, lead, and zinc.

2. Demand-Pull Inflation

When demand for a commodity overtakes supply, resulting in a price rise the demand pull inflation takes place. This type of inflation can happen across different commodities, but one can notice them in precious metals and agricultural products. A trading strategy for demand-pull inflation would be to 

Focus on commodities experiencing a demand surge, particularly precious metals. 

3. Built-In Inflation

Built-in inflation takes place when wages and prices rise creating a cycle of inflationary pressure. During this time, workers demand high wages because the cost of living rises, resulting in the rise of production costs and leading to inflation. 

Advantages Of Commodity Trading

Now that you know how to start trading commodities, let’s take a look at its benefits. Trade in commodities offers the following advantages: 

1. Portfolio Diversification: If you want to diversify your portfolio and cover losses in stock prices, the commodity markets or investments will provide some protection. You can diversify your assets and manage the risks and rewards with this approach. 
2. Protective Measure Against Inflation:  Stock markets often experience drops during periods of rising inflation because borrowing becomes more expensive for businesses and negatively influences profits. Trading in commodities is at its best when this occurs. This is because commodity prices rise in this situation.
3. Transparent Transactions:  Online trading in commodities is heavily governed by rules. The security precautions are suitable, and there is no possibility of manipulation in your trading operations. 

Disadvantages Of Commodity Trading

There are some disadvantages to commodity trading as well, Have a look below:

1. Price volatility: The price of commodities can be very volatile. It depends mainly on supply and demand and external factors, such as geopolitical events, natural disasters, and political situations. These events could quickly affect the prices of commodities on the market. Consequently, it is difficult for investors to analyze a price in detail, and there is no way of eliminating all risks.
2. Environmental issues: Commodities investors in commodity markets significantly harm the environment. Some suppliers and manufacturers take unethical measures to meet increasing demand and supply, which may damage the environment.
3. Speculation: As commodity trading is a very volatile investment tool, investors are attracted to the possibility of short-term profits with an extremely short time horizon. Therefore, fluctuations in commodity prices are due to the constant mass movement of such speculators.

Conclusion
You can access an entirely new market as an investor through online commodity trading. Commodity trading is more reliable than the stock market, according to several experienced investors and experts. However, investors in the stock market feel that equity stocks are more profitable than commodities, making them easier to understand. The BlinkX online trading app is developed to make trading easy and accessible. With its user-friendly interface and powerful features, invest within a few minutes. You can invest in Indian stocks, mutual funds, and initial public offerings by signing up paperlessly.