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Commodity Trading Account

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Commodity Trading Account

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What is a commodity exchange?

Commodities may be classified into agri-commodities such as spices, soyabean, corn, cocoa and so on. Bullion and other metals may also be traded. Crude oil, natural gas, furnace oil as well as vegetable oils are also traded on commodity exchanges.

Commodity exchanges in India, are basically electronic trading and settlement systems, with a nationwide presence. A number of brokers are associated with these commodity exchanges who offer online trading in commodities. Electronic trading enables even retail investors to participate in the markets by purchasing small quantities of precious metals and other commodities and holding them in electronic form.

Why invest in Commodity Account

Easy Transactions

You can buy and sell commodities very fast. All transactions are electronic. There is no need of physical buying and selling of commodities.

Diversification

Traditionally the prices of commodities move in a direction opposite to equity. Commodities are a good alternate investment.

High Liquidity

You can easily buy and sell commodities unlike real estate. There is always a buyer and a seller for the commodity.

 

Margin Finance

Invest only a fraction of the cost of the commodity and take home huge profits, through margin financing.

 

Commodity Exchanges in India

The forward market commission (FMC) functions as a regulatory authority in the commodity market. The National Commodity and Derivative Exchange (NCDEX), Multi-Commodity Exchange (MCX) and National Multi Commodity Exchange (NMCE) are the commodity exchanges present in India.

How to open a commodity trading account in India?

In order to open a commodity account you need to submit an address and an identification proof, such as a copy of the voter's card or the passport, a bank account statement, copy of the PAN card which form a part of the know your customer (KYC) norms. This is similar to the opening of a demat account in the equity market.

A trading account will have to be opened with National Spot Exchange Limited (NSEL) and a demat account with a depository such as National securities depository limited.

A minimum amount of INR 5000 is sufficient to trade in most commodities. The brokerage charges are in the range of 0.1-0.3% of the contract value. Transaction charges are in the range of INR 5-10 per Lakh per contract. The brokerage varies based on the type of commodity.

 

Concepts & FAQ's Commodity Trading Account

What is a Commodity Trading Account?

Commodity markets are markets where raw or primary products are exchanged. Indian commodity market consists of both the retail and the wholesale market in the country. Commodity trading is one facility that investors can explore for investing their money. One can trade these commodities by having commodity trading account.

What are commodities?

A commodity is a physical good which has a demand for itself and the market treats all sources of supply equally without any differentiation. The price for a commodity is determined purely by global demand and supply. Commodities basically include food grains, crude oil, precious metals, spices ,raw materials for industries such as cotton, iron, rubber and so on.

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How can one invest using a Commodity Trading Account?

Investments in commodities are made in the form of contracts between the buyer and the seller. This is basically an agreement to buy and sell a commodity at a specific price and time frame. In the trading of commodities no actual transport and storing of commodities takes place as the process is full of hassles. Only an agreement takes place. Under these kinds of future contracts profits or losses occur based on the price movements of commodities within that time frame. Under a commodity future contract there is an agreement between two parties the buyer and the seller to sell the underlying commodity at a certain fixed price at a certain time in the future .This is an obligatory contract. The contracts are executed on a commodity exchange.

In India there are three National level commodity exchanges such as multi commodity exchange of India ltd (MCX), National Commodity and Derivative Exchange (NCDEX) and National Multi Commodity Exchange of India. Trading charts, technical analysis commodity news are all provided in the trading account. High end integrated trading applications provide instantaneous execution, reliability and efficiency in the execution of trades.

The investor registers with a broker after going through the "Know Your Client" procedure similar to equity (stock) trading. Brokers have membership with the MCX or the NCDEX. The basic requirement includes a bank account and commodities demat account from the National Securities Depository Limited to trade on NCDEX. Investments are made with amounts as low as INR 5,000.The margin amounts are payable upfront through a broker. These margins range from 5-10% of the contract and hence INR 5,000 is sufficient for trades in most commodities.

The choice has to be made between cash and delivery. If a cash settlement is done no delivery of the commodity takes place .If the transaction is delivery based then warehouse receipts are required. Brokerage charges generally range from 0.1- 0.3 per cent of the contract value. Transaction charges are INR 5-10 per lakh / per contract. The brokerage costs cannot exceed the maximum limits set by the commodity exchanges.

Frequently Asked Questions

Who are eligible for opening a commodity trading account?

Any individual, Hindu undivided family (HUF), proprietary firm, partnership firm, or a company can open an account.

What are the prerequisites of trading?

  • PAN Card

  • Operating bank account and commodity trading account

  • Demat account is not mandatory for trading, however commodity Demat account is mandatory for all delivery based transactions

  • Sales Tax number is not mandatory for trading. However, it is mandatory for all delivery based transactions

What are the costs involved in trading of commodities?

While trading in commodities, with any registered broker, client has to pay certain charges (apart from margin requirements for trading) which are as follows:

  • Brokerage

  • Service tax

  • Education Cess

  • Exchange Transaction Charges To learn more about these charges, call us on 080 67974000 and ask for our experts!

What is a lot Size? Do the trading & delivery lot sizes differ from each other?

It is the quantity of a commodity specified in the contract as tradable units. The lot size is different for each commodity. The details about lot sizes / delivery lot can be obtained from the respective exchanges' website. Each contract has a lot size and a delivery size, which are not the same; in the case of gold, the lot size on the NCDEX is 100 gm while the delivery size is 1000 gm. If a person wants to enter into a delivery settlement for gold, he will have to enter into a minimum of 10 contracts or multiples thereof. Market participants are required to negotiate only the quantity and price of the contract, as all other parameters are predetermined by the exchange. To know more about Commodity Markets, call us on 080 67974000

 

Commodity Trading Account Articles

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What is Risk Tolerance?

24 March 2009, Tuesday    

What is Risk Tolerance Generally, the more risk involved with an investment, the higher will be the potential return. As a result, the more risk you are willing to take, the more potential your savings have to grow over a long period. Before choosing an investment, you must make sure that you u ....

Risks Involved in Investments

24 March 2009, Tuesday    

Inflation One of the steadiest risks involved in your investments is inflation. Inflation is the increase in the cost of living or decrease in the value of money, expressed as a percentage increase over last year's prices. Inflation is a simple concept that punishes the people who ignore it. Even small changes in the inflation may make a massive difference in the amount of money you have over time. You will still have the same amount of cash, but it may not buy as much. It's easy to purchase ....

Commodity Trading In India

21 July 2009, Tuesday    

The terms “commodities” and “futures” are often used to depict commodity trading or futures trading. It is similar to the way “stocks” and “equities” are used when investors talk about the stock market. Commodities are the actual physical goods like ....

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Commodity Trading Account News

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Gold rises Rs 75, silver jumps Rs 110 on rise in festive demand

Thursday, October 24, 2019, 4:17 PM

Prices of gold went up by Rs 75 to Rs 38,945 per 10 gram in the national capital helped by a rise in festive demand and a weaker rupee, according to the source. Buying was also witnessed in silver as the prices jumped Rs 110 to Rs 46,520 per kg from Rs 46,410 per kg.

Silver futures decline Rs 44 per kg on tepid demand

Tuesday, October 1, 2019, 3:32 PM

Silver futures traded lower by Rs 44 at Rs 44,075 per kg on October 1 as participants cut down their bets, taking weak cues from overseas markets. On the Multi Commodity Exchange, silver contracts for December delivery dropped by Rs 44, or 0.1 percent, to Rs 44,075 per kg in a business turnover of 3,638 lots.
 

Gold drifts lower by Rs 240 on weak international prices

Monday, September 30, 2019, 6:18 PM

Gold on Monday drifted lower by Rs 240 to Rs 38,530 per 10 gram in the national capital following weak international prices, according to the source. Prices of silver also dropped Rs 775 to Rs 45,705 per kilogram, from Rs 46,480 per kilogram in the previous trade. Gold for 24 Karat on Saturday had closed at Rs 38,770 per 10 gram.

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Commodity Trading Account Videos

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Commodity Trading Account Education

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Investment plans for high risk appetite investors: #4 Commodities

Thursday, May 11, 2017, 6:44 AM

There are a huge number of commodities one can consider trading such as metals which includes aluminum, copper, nickel, precious metals such as gold, silver. To trade in commodities one should have a separate Demat account. This is another risky investment which can provide high returns if invested with proper knowledge and guidance.

Investment plans for high risk appetite investors: Futures and Options

Thursday, May 11, 2017, 6:37 AM

Futures and options represent two of the most common form of "Derivatives". Derivatives are financial instruments that derive their value from an 'underlying'. The underlying can be a stock issued by a company, a currency, Gold etc. The derivative instrument can be traded independently of the underlying asset.

What is a Derivative?

Sunday, April 30, 2017, 7:56 AM

A derivative is a type of financial instrument, whose value is derived from underlying assets. These underlying assets can be equities, interest rates, currencies and commodities. The general practice is to use derivatives as a risk management tool that allows an investor to transfer the risks attached with the underlying asset to the party who is willing to take it.

 

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