COMMODITY BROKING

Commodities are another option in today’s market.Indian markets are open for retail investors and traders to participate in commodity derivatives. It is an option for people who want to diversify their portfolios beyond shares, bonds and real estates.Till some months ago, this wouldn't have been possible for retail investors they could have done very little to actually invest in commodities such as gold and silver -- or oilseeds in the futures market. This was nearly impossible in commodities except for gold and silver as there was practically no retail avenue for punting in commodities.

Commodities actually offer immense potential to become a separate asset class for market-savvy investors, arbitrageurs and speculators. Commodities are easy to understand as far as fundamentals of demand and supply are concerned. Retail investors should 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 and bonds, thus providing an efficient portfolio diversification option. However, in today’s market there are three multi-commodity exchanges in the country, retail investors can now trade in commodity futures without having physical stocks.

Frequently Asked questions

Where do I need to go to trade in commodity futures?

You have three options - the National Commodity and Derivative Exchange, the Multi Commodity Exchange of India Ltd and the National Multi Commodity Exchange of India Ltd. All three have electronic trading and settlement systems and a national presence.

How do I choose my broker?

Any Broker having a membership with any of the three Commodity exchanges offering services for commodity trading can be used for trading in commodities.

What is the minimum investment needed?

You can have an amount as low as Rs 5,000. All you need is money for margins payable upfront to exchanges through brokers. The margins range from 5-10 per cent of the value of the commodity contract. Even for trading in bullion, that is, gold and silver. The prices and trading lots in agricultural commodities vary from exchange to exchange (in kg, quintals or tones), but again the minimum funds required to begin will be approximately Rs 5,000.

Do I have to give delivery or settle in cash?

You can do both. All the exchanges have both systems - cash and delivery mechanisms. The choice is yours. If you want your contract to be cash settled, you have to indicate at the time of placing the order that you don't intend to deliver the itemIf you plan to take or make delivery, you need to have the required warehouse receipts. The option to settle in cash or through delivery can be changed as many times as one wants till the last day of the expiry of the contract.

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