Commodity
Trading

Commodity Trading involves the trading of certain commodities including their derivative products. Commodities are traded through commodity exchanges. Traders can choose to take physical delivery of the commodities or deal in the Futures contract. This is an agreement wherein a fixed quantity of the commodity can be bought or sold within the mentioned expiry date, at an ascertained price. In India, Commodity Trading is possible at exchanges like the Multi Commodity Exchange of India, the National Stock Exchange, the Indian Commodity Exchange, the Bombay Stock Exchange, and the National Commodity and Derivative Exchange.

What is Commodity Trading?

Commodity Trading in India revolves around the trading of commodities and their derivatives like agriculture, metals, energy, etc. Agricultural products involve wheat, rice, soya bean, rubber, etc.; metals include copper, aluminium, precious metals, etc.; and energy involves crude oil, natural gas, etc. A commodity is a raw material basically and trading in these commodities helps traders and investors diversify their asset portfolio. Since it is a type of trading, Commodity Trading involves the buying and selling of these commodities. For beginners, a Contract for Difference or CFD is the best option.

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Benefits

1
Hedge against inflation
Commodity Trading is considered a good option to safeguard from inflation risks. This is because prices of commodities usually rise with inflation. Thus, the purchasing power parity is maintained.
2
Hedge against the crisis
During crisis situations like natural disasters, the supply chain is disrupted. This invariably can lead to higher prices of commodities. Commodity Trading helps in safeguarding the trader from losses due to price changes.
3
Portfolio diversification
Commodity Trading belongs to an individual asset class. Therefore, they have a lower correlation in the context of returns generated from other assets. Thus, it is a good diversification option.
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4
Good Chances of Getting Higher Returns

Global infrastructure projects lead to increased demands for commodities, thus impacting their prices, which in turn, has a positive influence on earning higher returns.
5
Lower Margin Trading
Traders have the choice of depositing between 5% and 10% of the contract value with the broker as a margin. This is comparatively lesser than other asset classes.
6
Transparency
Due to large-scale participation, commodity futures provide fair prices to traders making Commodity Trading a transparent process for all.

Commodity Trading offers investors the leverage to earn significant profits. It is imperative, however, to seek professional advice, especially for beginners.

Commodity Trading offers investors the leverage to earn significant profits. It is imperative, however, to seek professional advice, especially for beginners.

Commodity Trading offers investors the leverage to earn significant profits. It is imperative, however, to seek professional advice, especially for beginners.

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