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Commodity Trading Account

Though a thing of ancient past, commodity trading has been on a decline in India. However, its popularity is on a rise ever since exchanges like MCX (Multi Commodity Exchange of India Ltd) and NCDEX (National Commodity & Derivates Exchange Limited) were established. Speaking about word meaning, commodity is any agricultural product or a raw material which is part of our daily lives. It could be crude oil, wheat, gold, eggs or cattle. Commodity trading means purchasing and selling of these commodities. So, if you are someone who is into commodity trading, the first step forward should be opening a commodity trading online account with a commodity broker. Here, let us discuss about commodity trading account, its benefits and the procedures to open one.

Commodity Futures and Benefits

The Indian commodities futures market has grown steadily in recent years, owing primarily to a transparent pricing mechanism, risk management, a low margin, and a systematic market. Few of the advantages of commodity trading include lower volatility when compared to equity and a more diverse investment avenue. Furthermore, as a liquid asset class, traders benefit greatly from price movements.

Transparency

Trading through a commodity trading account with the assistance of a commodity broker allows transparent price mechanism and a market with moderate seller and buyer interference. The market is driven by market fundamentals, with less risk of manipulation.

Liquid Market

In commodity futures, trading happens in enormous numbers thus increasing liquidity. The constant presence of buyers and sellers enable quick orders. This negates drastic price fluctuations. As a result, a large position may be quickly cleared out without adversely affecting the price.

Diversification

Commodities are a separate asset class. Most of the traders opt for commodity investment to diversify their portfolio.

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How to Open a Commodity Trading Account

To trade in commodity market, you must open a commodity trading account with a reputed broker. This is possible both offline and online. The documents needed to open a commodity trading account are listed below.

A filled application form

KYC documents for account verification

Proof of Identity (Aadhar card, Voter’s ID, PAN card, driving license, passport)

Proof of Address (Aadhar card, Voter’s ID, driving license, passport, electricity bill, telephone bill, home rental agreement, home loan agreement, ownership agreement)

An agreement will have to be prepared between the trader and the broker. Here are few tips regarding it:

The contract is written on non-judicial stamp paper.

It should outline the roles and responsibilities, charges and fees of the broker. Make yourself clear about the available services and the costs it incurs.

The agreement must be stamped by a legal authority and should have a revenue stamp affixed to designate its validity

In order to complete the process, a trader should also submit:

Business account statement

A copy of income tax returns verification or Form 16

Net worth certificate

Certificate of demat holdings

Bank statement for the last six months

Details of demat account to link it with the trading account. This enable the credit or debit of derivatives from this account

How to do Commodity Trading Online

Online commodity trading has recently become popular among investors due to its convenience and ease of use. It enables dependable and efficient trade execution via high-end integrated trading applications. The moment you log into your commodity trading account, you have everything at your fingertips. Traders get access to updates, live quotes, research and even online assistance.

After you've found a commodity trading broker and been approved to trade, the next step is to fund the account. Despite the fact that many traders have minimum funding requirements, it is up to the investor to determine the funding amount. When selecting a fund, one's level of comfort and risk tolerance should be taken into account. However, before engaging in actual trading, traders should present a well-researched strategy. Some brokers provide simulations to help traders become acquainted with placing orders. This prevents critical errors from occurring during the trading process.

Points to remember in Commodity Trading

Begin Small

It is always advisable to begin with small amounts. This avoids huge disappointments during losses during the initial stages and provides more freedom to learn from mistakes.

Understand the basics

Know the basics such as the type of commodities that are on sale. It is better to use simulation to get familiarised with the trading practises and the commonly used strategies.

Diversify

Diversifying is one of the tips that is given to a commodity trader. Investing the money in different commodities helps you understand the risky ones and non-risky ones. However, ensure not to invest in too many commodities which may negate the potential returns.

Use Online Tools

Make use of    online trading tools such as price alerts, charting tools, watchlists, portfolio management tools and so on. These tools keep you informed and helps to take wise decisions rather than acting on instincts.

Ask Help

Several analysts and advisors are available whose job is to assist those who are lost in trade. In emergency situations, seeking the help of an expert is the right thing to move forward.

Invest slowly

Investors may get carried away by fast approaching money. However, it is always wise to start slow and progress eventually as and when you understand the way the market functions.

Why Invest in Commodity Broking with Enrich Broking

Trading with Enrich provides the investor with an online trading platform that satisfies all the requirements. Being one of the best commodity brokers in India, Enrich provides rich trading experience with excellent internet connectivity and an online trading platform where traders can develop strategies and implement it faster. With enrich, the traders can access user friendly   trading software which includes market watch, extensive charts and live market updates. The moment you become part of Enrich Broking, you have access to live market updates,    brokerage calculator , expert’s analysis and reports, live market scenario through SMS and get to learn technical aspects of trading. The SMS alert system is designed specifically for enrich customers which includes trade status, transaction summary and morning ledger balance reports.

Regarding fee and other charges, Enrich Broking is the best among India’s commodity brokers . Enrich dealing desk works efficiently through phone calls and is free of cost. For example, a trader can speak to the team on phone and place an order with zero cost

Frequently Asked Questions

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Commodity online or trading commodities online is opening a commodity online trading account to trade commodities like crude oil, metals and agricultural products instead of financial securities like stocks and bonds.

Commodities are a separate asset class which is always an alternate option for traders to diversify their portfolio.

Commodity trading is done with a help of a broker in commodity exchanges regulated in India by Securities and Exchange Board of India (SEBI).

The commodity brokers will be registered in these commodity exchanges

Commodity trading accounts will be entirely different from the one which is used to trade stocks and bonds

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Bullion: Gold, Silver

Base Metals: Brass, Aluminium, zinc, Copper, Lead, Nickel, Zinc

Energy: Crude oil, Natural gas

Agricultural commodities: Black pepper, Cardamom, Castor seed, Cotton, Crude palm oil, Mentha oil, Palm olein, Rubber

Cereals and pulses: Barley, Chana, Maize kharif/south, Maize rabi, Wheat, Moong, Paddy (basmati)

Fibres: Kappa’s, Cotton, Guar seed, Guar gum

Oil and Oil seeds: Castor seed, Cotton seed oil cake, Soybean, Refined soy oil, Mustard seed, Crude palm oil

Soft: Sugar

Spices: Pepper, Turmeric, Jeera, Coriander

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The trading commodities are mainly classified into four categories. They are

Metals

Energy

Livestock

Agriculture

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The most important steps in buying commodities online

Get familiar with the major commodity trading exchanges in India such as National Multi Commodity Exchange of India and Multi Commodity Exchange of India (MCX)

Choose a reliable and efficient broker who is registered with Securities and Exchange Board of India (SEBI)

Once a reliable broker is chosen, you can open a trading account.

Once the trading account is open, the trader has to make a small investment as the funding amount to start trading. Mostly, this amount will be equal to 5 to 10% of the contract value.

Once the procedures to start trading, propose a plan for trading.

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Commodity margin is the amount of money that is available with the trader or investor before he or she can invest in any commodity.

It can be regarded as a collateral that enable an investor to do commodity trading.

There is initial margin and maintenance where initial margin is the amount of money trader should have in their account prior to trading in futures contracts. Maintenance margin refers to the capital that should be contributed to the account so that minimum margin requirement is maintained.

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Enrich brokers is one of India's best brokers. It provides a rich trading experience to its members by providing unrivalled services. Investors have access to current market trends, expert analysis and reports, as well as the option to learn technical aspects of learning. Traders are provided with user-friendly trading software, real-time trading experience, cost-free dealing services, and simple office processes. In addition, enrich sends weekly research calls, transaction summaries, trade status, and ledger balance reports via SMS.

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