What are the Types of Commodities?

For the majority of investors, the stock market is a better option. On the other hand, commodity trading is an entirely separate asset class that savvy investors like to trade and gain considerable profits. The price changes of commodities like natural gas, pulses, aluminium, etc., serve as the basis for the trading process. On the market, investors can trade a variety of commodities. This blog explains what commodities are in-depth and how trading in commodities may be profitable.

What are Commodities? 

A commodity is a class of assets or a collection you almost certainly utilise daily, such as oil, metals, spices, pulses, etc. Except for money or actionable claims, they can be broadly categorised as transportable things that anybody can buy or sell.

What Exactly is a Commodities Market?

Investors can purchase or sell various commodities on a commodity market and profit. Typically, an investor makes a buy order for a commodity to sell it later when the market price exceeds the buy price.

How can I invest in commodities?

The Forwards Market Commission established 22 commodities exchanges in India. However, for trading in commodities, investors mostly use the following commodity exchanges:

Multi Commodity Exchange (MCX) 

National Multi Commodity Exchange (NMC) 

National Commodity and Derivatives Exchange (NCDEX)

Indian Commodity Exchange (ICEX) 

Ace Derivatives Exchange (ACE)

The UCX, or the Universal Commodity Exchange

Types of Commodities

Although there are different types of commodities  available for trading at every exchange, the following are the most popular kinds of commodities:

Various Methods of Commodities Trading

There are principally two methods that commodities traders can transact:

Futures Contract

A commodities futures contract is an arrangement between the commodity's buyer and seller. The purchasers pay a set price for a specified amount of a good. This contract is in effect until a profit is made at the time of expiration when the price of the purchased goods has increased.

Optional Contract

In most cases, top commodities are eligible for options trading contracts, in which the trader has the option but not the legal responsibility to purchase or sell the commodity at a set price. With such a contract, investors may profit from price changes without buying or selling commodities.

Participants in the commodity market

The following two categories best describe investors who trade various commodities on the commodity markets:

Hedgers

Hedgers include the commodity's producers, manufacturers, etc. Hedgers often enter into a futures contract to reduce their risk exposure. Simply put, hedgers ensure they will receive a set price for their commodities in the future and won't suffer a loss if prices decline when it comes time to sell.

Speculators

Speculators are active traders that attempt to forecast the future price of commodities using a variety of variables and continuously track those values. These investors purchase the commodity contract and then sell it for a profit if they anticipate an increase in the price of a specific commodity.

Characteristics of the Commodities Market

Inverse Relation: The stocks, bonds, and commodities markets are inversely related. Equities and bond prices are more likely to decline when commodities prices rise.

Market demand for commodities and their available supply significantly impact the pricing of various commodities. Rising demand and a tight supply can drive up prices, whereas a tight supply and a greater demand can drive down commodity prices.

Diversity: Commodities are prominent goods that provide significant portfolio diversification because of their inverse relationship to other asset groups. Investors may maintain a strong portfolio through commodity trading even when other asset classes are consolidating or experiencing a correction.

Inflation Hedge: Commodities trading offers an excellent strategy to navigate growing inflation because the prices of leading commodities like gold, silver, crude oil, and others tend to increase with time. Ensuring the long-term growth of their corpus, it enables investors to double their wealth.

How are Different Types of Commodities Traded?

You must choose a stockbroker to create a commodities trading account to trade in commodities. One of the top brokers in India, blinkX provides brokerage services across a range of asset classes, including stocks, commodities, currencies, and derivatives. Commodity spot prices can be traded using the following procedure:

• Create a trading account for commodities. 
• You may accomplish this using the blinkX website or share market app.
• Select a trading platform and the asset you wish to trade on the commodity market.

Once your account is activated, you may begin trading your selected commodity contracts.

Trading in commodities may be a wonderful strategy to diversify your holdings and reduce overall risk. Whether you are a speculator or a hedger, commodities trading may be used to secure your financial future. 

Conclusion

Commodity trading may be a method to diversify your assets, protect against inflation, and make money, but traders should have a high-risk tolerance if they go down this road. Before adding commodities and their derivatives to your portfolio, know and understand the trading tactics in other high-risk, high-reward trading possibilities.

Investing in commodities requires knowledge & experience. Before trading in commodities it's better to research & trade with a reliable and advanced broker such as blinkX. You can download the blinkX stock trading app on your smartphone and begin your trading in just a few steps.