What is Commodity Trading

Commodity trading in India involves the purchase and sale of raw materials such as gold, crude oil, wheat, or natural gas. The traders take positions based on the price movement expectations, and they profit from the increase or decrease in prices. In India, commodity trading is done through commodity exchanges in a standardised form. Commodities are widely used in daily life and in industries. That is why their prices keep changing based on demand, supply, weather, global events, and currency movement. Commodity trading can be done through physical delivery contracts or through contracts that are settled without delivery. This article explains what is commodity trading in India. 

How Commodity Trading Works 

After understanding the commodity trading meaning, here is how it works: 

Commodity trading in India works through an organised exchange system where contracts are traded under fixed rules. The process usually follows these steps: 

1. Select the Commodity to Trade  
   Traders choose metals, energy products, or agricultural commodities based on market understanding. 
2. Decide the Market Type for Trading  
   Trading can take place in spot markets for immediate buying and selling or in derivatives markets like futures. 
3. Understand Contract Specifications before Trading  
   Each contract includes a fixed quantity, expiry date, tick size, and margin requirement. 
4. Open a Trading Position based on Market View  
   If the price is expected to rise, a buy position is taken. If a fall is expected, a sell position is taken. 
5. Maintain the Required Margin Amount  
   Commodity trading in India generally requires margin, which acts as a security deposit for the position. 
6. Track Price Movement and Market Triggers  
   Prices may change due to global demand, production reports, weather patterns, or geopolitical events. 
7. Exit the Trade before or on Expiry  
   Many traders close positions before expiry. If not closed, settlement happens based on exchange rules. 
8. Settlement Happens Through Cash or Delivery (based on contract rules)  
   Some contracts allow delivery, while others follow cash settlement, depending on the exchange structure. 

What Commodities can you Trade in India? 

More than 100 commodities are traded on 50 major commodity markets worldwide. Traders can trade commodities in four categories: 

1. Metal  
   Various metals, such as iron, copper, aluminium, nickel, and gold, as well as precious metals like silver, platinum, and gold, are traded in the market. 
2. Energy goods  
   Household and industrial energy goods are traded in bulk. They're natural gas and oil. In addition to uranium, ethanol, coal, and electricity, other energy commodities are traded. 
3. Agricultural goods  
   The commodity market trades a lot of agricultural stuff. Things like sugar, cocoa, cotton, spices, grains, oilseeds, pulses, eggs, and feeder cattle. 
4. Environmental goods  
   In this group, you'll find renewable energy, carbon emissions, and white certificates. 

A few of the most traded commodities around the world are gold, silver, crude oil, Brent oil, natural gas, soybeans, cotton, wheat, corn, and coffee.  

Advantages and Disadvantages of Commodities Trading 

The following table covers the advantages and disadvantages of commodities trading: 

Tips for Successful Commodity Trading 

The tips for successful commodity trading in India are as follows: 

1. Learn how global events affect commodity prices 
2. Start with commodities that have higher trading volumes 
3. Keep track of demand and supply updates 
4. Use risk limits to manage losses 
5. Avoid trading based on assumptions or rumours 
6. Review price charts and basic market data regularly 
7. Focus on discipline rather than frequent trading 

Conclusion 

Commodity trading in India involves buying and selling raw materials such as metals, energy products, and agricultural goods through exchange-based contracts. It requires awareness of market triggers, contract terms, and risk control methods. Traders should focus on learning price drivers and managing position size. Using a reliable stock market trading app, traders can open an online trading account that supports easy market access, order placement, and real-time contract tracking for commodity trades.