Commodity Trading: 10 Golden Rules You Should Follow

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A commodity market is a market where the trading of commodities of the primary economic sector takes place. Commodity trading in India happens in two types of commodities. They are hard and soft commodities. Hard commodities are natural resources such as oil, gold, rubber, etc., which need to be extracted or mined. Soft commodities are agricultural products such as sugar, corn, coffee, egg, wheat, soybean, etc.

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In India, there are six major commodity exchanges from which you can trade commodities. They are:

1. Multi Commodity Exchange (MCX)

2. National Commodity and Derivatives Exchange (NCDEX)

3. National Multi Commodity Exchange (NMCE)

4. Indian Commodity Exchange (ICEX)

5. Ace Derivatives Exchange (ACE)

6. The Universal Commodity Exchange (UCX)

Commodity trading happens through Futures Contracts; Exchange Traded Funds (ETF), and Exchange Traded Notes (ETN). If you want to start trading in commodities, then there are some rules you need to follow. These are the 10 golden rules for commodity trading in India.

  1. Trade with Patience

This is one quality that you should definitely cultivate in yourself if you are thinking of trading in commodities. If you feel your trades are moving in the right direction, patiently think of the next step. Devise a plan on improvising the stop-loss level.

2. Invest at the Right Time

The right time is what matters when you invest in commodities. The commodity market does not reach a Bull or Bear level. It fluctuates, and you have to figure out what is the right time to make the trade.

3. Avoid Being Over-Optimistic

When the deal reached the suggested stop-loss level, try and exit the deal. If you are over-optimistic and later on the deal does not go in your favor, then you may incur losses.

4. Keep Yourself Updated

When you keep yourself updated with the ups and downs of your trade, you can exit at the right time if you feel the situation is worsening. This might help you incur fewer losses.

5. Trade with Confidence

If you have done the right amount of research and understand the market well, you should go ahead with your trade confidently.

6. Avoid Guidance from Multiple Advisors

Having a single advisor guiding through the trade process is always helpful than following the suggestions of multiple advisors. Too much information or guidance from multiple sources creates confusion.

7. Only Trade with Your Own Funds

Do not borrow funds to sustain yourself in the trade. Trade only with your own funds and exit when you feel the trade is not going as expected.

8. Avoid Being Over Expressive

Do not openly discuss your trading position. Some might give you the right advice, while some might confuse you. Take your decision based on your own judgment.

9. Do not Enter/Exit Trade-in Panic

Just like any other trading market, commodity market trading also has its highs and lows. The volatility of the market should not make you hesitant, nor should you take decisions in haste. Never Exit/Enter a trade in a panicky situation.

10. Make Unbiased Trades

Make unbiased trades. It would help if you never were biased towards a single commodity. The commodities should only be looked upon as profit-generating opportunities and nothing else.

The above 10 golden rules are your answer to the question, ‘how to trade in commodity markets in India.’ In commodity trading, you need to be open to changes in situations that happen constantly. The market is volatile, but if the trades are handled smartly, you might get good returns.