Ever thought of buying bajra and pepper in the electronic form and holding it? Of course, you can.
To first and foremost buy a commodity in India, one needs to understand what a commodity is? Commodity trading involves trading in a host of items from crude oil to barley to gold and silver.
For example, on the National Commodities and Derivatives Exchange (NCDX) you can trade in agri based products like chana, bajra, barley, guar, pepper and a host of other agri-based products, including spices.
The exchange also offers facilities to trade in gold, silver and crude oil. This does not mean you should buy and hold pepper in the physical form. These are all bought and sold in the electronic form.
Apart from the NCDX, you can trade in commodities in Multi-Commodity Exchange of India Ltd, Mumbai (MCX), one of the most popular exchanges for trading in commodities.
The Indian Commodity Exchange (ICEX), ACE Derivatives & Commodity Exchange Ltd are the other options for those desiring to trade in commodities. There are other regional commodity markets where volumes and products traded are limited.
How trading in commodities works?
Essentially, in the commodities market you buy a Futures contract which has a expiry. For example, on the MCX you can buy Crude Oil which has contracts expiry on a particular date in July, Aug, Sept, Oct, Nov and Dec.
So, if you buy a Crude Oil contract today, June 24, which expires in December, you must square the contract by December.
Say, you buy 100 December Crude Oil Contract at 6300 today and sell the same on Sept 25, 2014 at 6500 you make a profit of Rs 200 on the contract. If you sell it at lower price you make a loss.
Similarly, you can sell a contract at a higher rate and buy the same at lower rate. In fact, the beauty of the futures market is that you can sell without owning anything and then buyback the same.
However, if you sell low and the price climb you have to buyback the same at a higher rate, which means you could end up making losses.
You should have fairly good knowledge of commodities before trading in them. For example, you should know the problems in Iraq, which could result in Crude Oil price flaring.
As far as other things are concerned, it's simply about knowing addition, multiplication and subtraction well.
Where to open an account?
Most of the share broking firms like Sharekhan, India Infoline, Motilal Oswal and others can help you open a commodities trading account. Also read Types of Margins in commodity futures trading