How to Start Commodity Trading in 5 Easy Steps?

Last Updated on December 28, 2022 by Andrew

It is a great idea to start your trading journey in commodities as it can diversify your portfolio (if you are trading stocks) and hedge against inflation and geopolitical risks. 

Commodity trading facilitates you to expose your portfolio to a different asset class. Moreover, it allows your portfolio to achieve a balance against market volatility and other asset classes such as stocks, real estate, etc.  

How to Start Commodity Trading?

There are many types of commodities you can choose to trade in. Major commodities include gold, silver, wheat, corn, cotton, coal, zinc, copper, chana, pepper, castor seeds & oil, and many others. 

If you want to learn commodity trading, this article will brief you about five easy-to-follow steps to make your commodity trading journey straightforward. So, let’s get started!

1. Gain Insights Into the Commodity Trading Exchanges

The first step before you open free Demat account and start trading in commodities is to get familiar with all commodity trading exchanges. To get started, you should know about 3 major exchanges that serve as the physical center where trading occurs. 

  • Multi-Commodity Exchange of India (MCX)
  • National Commodity and Derivative Exchange (NCDEX)
  • National Multi Commodity Exchange of India (NMCE)

 All these exchanges determine trading procedures and rules for standardized commodity contracts and related investment products.

2. Choose an Authoritative Stockbroker

The next vital step to make commodity trading seamless is to select a trustworthy and efficient stockbroker. While choosing a stockbroker for commodity trading, ensure that it is regulated and registered by the SEBI (Securities and Exchange Board of India). Choosing powerful and reliable stockbrokers will help you make informed decisions through their recommendations. 

Another essential thing to check is the brokerage fee and other charges incurred by the stockbroker, such as clearing fees, commissions, platform fees, etc.  

3. Open the Commodity Trading Account

Once you have selected your stockbroker, your stockbroker will open free demat account or pay depending on the platform you choose. You must submit supporting documents such as Aadhar & PAN and verify your KYC.,

Usually, you get a response from the stockbroker within 24 to 48 hours once they assess your application. However, the time may vary depending on your chosen stock trading platform. After getting a confirmation email, you are all set to begin commodity trading. 

4. Add Funds

To initiate trading, make an initial deposit. You must have a margin balance of 5% to 10% of the contract value. Once you ensure that, you can start trading the assets you want. 

5. Build a Trading Strategy

Building a trading strategy will help you understand your own risk-taking ability and financial capability to invest your funds.

After choosing the stockbroker and understanding the different types of commodities and commodity exchanges, creating a robust trading plan is imperative. Using fundamental and technical analysis tools and platforms will aid you in creating a trading plan to make you reap massive profits. 

One of the best commodity trading strategies is trend-following strategies that help you follow the trend. This strategy also enables you to determine the price of the commodities by the law of demand and supply. 

How to Place Orders to Trade Commodities?

There are 2 ways to buy and sell commodities of your choice, including

  • Market Order- When you want to purchase or sell the asset at the current market price, you place the Market Order. 
  • Limit Order- When you think the asset price will increase or decrease- fall (for buying) or rise (for selling), traders place a Limit Order. 

 As a trader, you should know when to hit Market Order or Limit Order. It will help you amplify your profits while minimizing your investments. 

Conclusion

Now, you know how to start commodity trading with these 5 simple steps, jump into the colossal commodity market and start reaping profits. 

Remember, commodity trading is ideal for all types of traders and investors. It does not target any specific group. However, you should have a high-risk appetite and be ready to bear the short-term losses if you seek long-term gains in commodity trading.

Andrew is a passionate blogger who loves to write about fashion, health business etc. I shares insights, ideas, and stories to inspire our readers.