Like stock trading, where the traders buy and sell equities, commodity trading is a way different as the trader invests in buying and selling the commodities. The traders book their positions that are either based on forecasted economic trends or the opportunities to earn the profits in commodity trade marketplace. The most common commodities that are traded in the market are gold and oil. The traders also book their position by selling or buying other commodities like cotton, wheat, sugar, silver, aluminum, pork bellies, cattle, etc. But, it is not that easy to trade in the market as it sounds. A trader needs some basic commodity trading tips to book the profit. Commodity traders generally do not have a necessity for the particular asset they are trading for but increase exposure from forward and future agreements. Therefore, the commodities traded are often goods of value, reliable in quality, and are produced in large volumes by several commodity suppliers. The commodity’s value can fluctuate with the supply and demand, for example, low commodity supply and increase in demand results in raised price. Since September 2015 the commodity derivative market is regulated by SEBI.
Types of Commodity Traders:
Buyer and producer – These traders use commodity future agreements for getting around the market. This category of traders utilizes the commodity trading tips in a way that the actual profit is earned before the commodity future gets expired. For example, a wheat farmer utilizes the tips for producing the best quality grains and selling the commodity at the current commodity value. The farmer can trade wheat futures contracts when the yield is ingrained and assure a predetermined value for the commodity (wheat) at the time it was harvested.
Commodities speculators – Traders under this category enter the commodity trading market with the only purpose to earn the profit from the fluctuating price movements. Speculator traders never anticipate taking the delivery of the physical commodity once the futures contract expires. Various commodity trading tips are used by brokerages and portfolio managers to balance the risk factor.