How To Invest In Commodities In India: Trading In Commodity Market

The ban on commodity trading was lifted in India after 40 years in 2003. It has opened a new avenue for traders and retail investors to participate with a minimum amount of Rs 5,000 as margin money (around 5 to 10% of the commodity value under the contract) payable to the exchange through your broker.

Commodity market is huge in India. Out of its total GDP of Rs 13,207.30 billion or Rs 13, 20,730 crore, industries dependent and related to commodities, share about 58% or Rs 7,66,023.40 crore.

Before the ban was lifted in 2003, the investors use to participate in future trading of gold, silver and oil seeds.

As a first step to enter the commodity market as an investor, you will need a bank account to start with. The next step will be to open a Demat Account for Commodity from NSDL or National Security Depository Ltd to trade in commodity with activities similar to stocks at National Commodities and Derivatives Exchange (NCDEX).

There are many well known brokers registered with MCX and NCDEX for you to choose, like, Sharekhan, ISJ Securities, Sunidhi Consultancy, ICICI direct, and ICICI commtrade, etc. The broker who will open your Demat Account will ask for certain informations that you have to submit through the procedure of KYC format.

Trading Strategies In Commodity Market

The brokerage normally varies between 0.10 to 0.25% on the value of the contract. There are separate charges for every transaction that varies between Rs 6 to Rs 10 per contract or per lakh. The brokerage charge varies with commodities and deliveries; different charge for different commodity and different charge for delivery and different for trading.

You have to do your own research work to gather sufficient knowledge on the market and selecting the commodities you are going trade. You can read the newspapers, specialized journals, watch the business channels in television, discuss with your friends, may consult your broker, gradually you will identify the best and reliable sources of your advice and will be able to build your own strategy of investment and trading.

Minimum trading unit for silver and gold is 1 kg and 10 gram respectively. However, trading lot and prices in agricultural commodities varies between different exchanges in terms of tonnes kg, or quintals, but the minimum fund required begins from Rs. 5,000 in all cases.

There are three market places for you to choose and trade in India, National Multi Commodity Exchange, Multi Commodity Exchange, National Commodity and Derivative Exchange.

Anybody ready to earn through the advantages of price movement can trade and invest in commodities. But it is a high risk high gain game, here the swings are highly volatile, an inexperienced price may become a penniless pauper within a day.

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