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What are the Best Commodities to Trade?

Friday, April 28, 2017 | Category : Commodities | 1 Comments
Best Commodities to Trade?
Indian markets have recently thrown open a new avenue for retail investors and traders to participate: commodity derivatives. For those who want to diversify their portfolios beyond shares, bonds and real estate, commodities are a good option.

However, it is necessary to understand the risks involved in trading commodities derivate, before one plan to commit some serious funds. Unlike equities, commodities are linked to global, micro and macro-economic factors which directly and or indirectly impact demand and supply for the said commodity.

Commodity derivative markets are broadly divided into Agricultural commodities and Non Agricultural Commodities. Agri products would include Pulses, Oilseeds, Spices etc. which non agri would constitute Energy, Bullions and Base metals. Commodities actually offer immense potential for hedgers, arbitrageurs and speculators. Retail investors, who claim to understand the equity markets, may find commodities an unfathomable market, but commodities are easy to understand as far as fundamentals of demand and supply are concerned. Retail participants should however understand the risks and advantages of trading in commodities futures before taking a leap. Historically, pricing in commodities futures has been less volatile compared with equity, thus providing an efficient portfolio diversification option.

Depending on the knowledge and the preference of the trader the commodities should be short listed for trading as each segment of commodities will need specialized skills and knowledge of both the fundamentals as well as technical research. While for agri commodities one needs to be closely connected with the spot (mandi) markets as well and government announcements and weather updates vis-à-vis the harvest calendar for all such commodities. It may at times be difficult to get first hand quality primary research on agricultural products and being sensitive in nature It would not be easy to understand by someone who is new to the commodities markets. Seasoned players who, know the major producers, harvest calendar, global and Indian demand and supply scenario can easily take calculated risks and bets in agri cultural trading as one dealing with agricultural trading, would find it more convincing to trade is he has got a good primary firsthand information of the actual physical markets as detailed updated information on secondary sources is difficult to get on real time basis. Suggested commodities for agri trading should be those which have a good liquidity, volumes, open interest and constitute amongst top volume contributors on the exchange. Suggested Agri commodities to trade could be: Soybean, Refined Soy oil, Kapas, Guar seed, Guar gum – However one must constantly keep tracking the volatility and liquidity and identify the highly liquid commodities traded on the exchange.

As far as Non – Agri commodities are concerned; there is far higher liquidity (Volumes) and higher volatility compared to agri commodities, indicating more market participants prefer this segment to trade on. Due a universal common understanding of the commodity, large number of factors affecting prices, and with easy access to the most updated global economic indicators, news and data it becomes far more easy to understand the impact and movement of prices on these commodities there by making these commodities a trader choice. Due to a higher liquidity entry and exit for short term traders becomes easy with less impact cost. However ever the most preferred commodities to trade on the non-agri side would be Copper, Crude oil and Gold, however there are many more commodities which also have high liquidity and volatility but one needs to know the deeper fundamentals of these commodities and understand the correlations of these commodities v/s the Dollar Index v/s the global economic indicators. 
 
To know more about Commodity investment click here
  


Ashish Shah | AVP - Commodities

He is a certified NSE (NCFM/NISM Certification) For: Derivatives Market, Capital Market, Currency Market & Commodities Market & he has also done MCCP (Mcx Certified Commodity Professional) & DICM – Diploma in Commodities Market (Wellingkar Institute, Mumbai). He is regularly featured on Chat Shows on moneycontrol.com, live interaction on CNBC TV18 & BTVi.

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