Commodity Trading: 10 Golden Rules You Should Follow


A commodity market is 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 must be extracted or mined. Soft commodities are agricultural products such as sugar, corn, coffee, eggs, wheat, soybeans, etc.

How to Trade Commodities | Commodity Trading

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 ten golden rules for commodity trading in India.

1. Trade with Patience

This is one quality you should cultivate in yourself if you think of trading in commodities. If you feel your trades are moving in the right direction, think of the next step patiently. 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 must figure out the right time to make the trade.

3. Avoid Being Over-Optimistic

When the deal reaches the suggested stop-loss level, exit the contract. You may incur losses later if you are over-optimistic and the sale does not go in your favor.

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 the trade process is always more helpful than following multiple advisors’ suggestions. Too much information or guidance from various sources creates confusion.

7. Only Trade with Your Funds

Do not borrow funds to sustain yourself in the trade. Trade only with your funds and exit when you feel the work 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 judgment.

9. Do not Enter/Exit Trade-in Panic

Like any other trading market, commodity market trading also has highs and lows. The market’s volatility should not make you hesitant, nor should you make 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 ten 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 constantly changing situations. The market is volatile, but you might get good returns if the trades are handled smartly.