Commodity trading in India

COMMODITY TRADING IN INDIA WITH MALAYALAM VIDEO

You can find commodity trading Malayalam videos below this post from our YouTube channel "Share Market Malayalam". Link is given in last part of this post.

Commodity trading in India may not be as popular as stock market trading in India. Its gaining popularity in India now and a lot  people started trading in mcx commodities now. Here we discuss some basic things related to commodity trading and commodity market in India.

Forward contracts of commodities are traded in commodity exchanges. Future and options segment is highly leveraged trading instruments and a beginner should first learn and then only trade in commodities. A lot of beginners in trading gamble in commodities like crude oil and lose money. Some go for tips. But that is not a permanent solution. Learning to trade is always better than going behind tips for commodity trading. To be successful in trading, you need to learn technical analysis and develop other skills also which are needed for a trader to be successful in trading. 

Most of the leading brokers like zerodha, upstox, fyers etc provide commodity trading segment in their platform. Some brokers like Alice blue provide high leverage for commodity trading. You can read more about them below.

How to start commodity trading in India

A beginner first need to open a commodity trading account with any SEBI registered broker in India. Most of the leading brokers have mcx license now. MCX have almost all popular products in commodity segment like crude oil, Gold, Silver, Zinc, Natural gas etc.
Opening account with a discount broker with good reliable trading tools and chart is wise option. We will discuss more about broker selection later.

Best trading platforms or broker for commodity trading in India

Every beginner in commodity market asks questions which is best broker for commodity trading in India. We will discuss some features we are looking for in a commodity broker. But remember you learn all basics of trading before starting to trade in commodity market. 

Almost all leading brokers have mcx license now and allow commodity trading in their platform. But only a few provide best charts for commodity trading. Good charts are a must if you take commodity as a trading instrument. Another factor to consider is leverage and brokerage. 

Discount brokers can save some some money as brokerage related trading expense is less there. But along with that a reliable trading platform and good chart also should be there. 

Upstox is a proved, reliable broker and provide best web and mobile platforms to trade at discounted brokerage rates. You can read more about upstox platform here : Upstox pro Review .

Fyers is new in commodity trading. But their highlight is tradingview based web platform. We all know tradingview provide one of the best charts available. By developing a web platform based on tradingview, fyers done a fantastic job. A lot of trader friendly features can be found in its platform. I have written more about fyers platform in this post : Fyers trading platforms

There are some brokers who give high leverage for commodity trading. Alice Blue is an examples.

You can open an account in any of these brokers with link provided below.   

                                                  OPEN UPSTOX ACCOUNT

OPEN FYERS ACCOUNT

                                

Commodity Exchanges in India

There are a few commodity exchanges in India. They are multi commodity exchange (MCX), National commodity and derivative exchange (NCDEX), Indian commodity exchange ( ICEX ). But mcx is most popular commodity exchange in India. Here mainly energy commodities like crude oil, natural gas , base metals like zinc, lead and precious metals like gold, silver etc are traded. Most traded commodity is definitely crude oil. In India agri commodities are mainly traded in NCDEX exchange.

MCX EXCHANGE

MCX (Multi Commodity Exchange) is a leading commodity derivatives exchange in India, facilitating online trading in various commodities such as bullion, energy, base metals and agricultural products.

MCX offers commodity derivatives like futures and options across segments like precious metals, energy, base metals and agri commodities. It allows hedging against price volatility.

Most of the trading in commodity trading happen in MCX.

• MCX commodity exchange have 80% market share of commodity trading in India. 
• MCX was incorporated in April 2002 and commenced operations in November 2003. 
• In june 2016 MCX became largest commodity exchange in India. 
• In 2012 it became first listed exchange in India. 
• In 2012 it became world's 3rd largest commodity futures exchange in terms of number of contracts traded.

Major commodities traded in India or Classification of commodities

Which are major commodities traded in Indian commodity market or in MCX. We can classify  commodities in Commodity market in India into following categories.

Energy commodities : 

This group includes crude oil and natural gas. Crude is now available in only one lot size that is with 100 barrel. Natural gas is only available in one lot size of 1250 MMBTU.

On 19 June 2019 MCX released a circular in which it announced that they decided to stop contracts of Crude Oil Mini Futures contracts. December 2019 contract expiring on December 18, 2019 would be the last contracts available for trading. 
Refer this for more info MCX circular

Precious metals : 

Gold and silver comes in this category. Based on lot size 4 type of contracts are traded in MCX. They are Gold, Gold mini, Gold Guinea, Gold petal. Gold's base value is taken as 10 gram. So with 1 lot gold with 1 Kg gold, 1 point move will give you Rs. 100 profit or loss. Gold mini with 100 gram will give 10 rupee. Guinea with 8 gram will give 1 rupee.

Silver contracts are silver with lot size 30, silver mini with lot size 5 and silver micro without size 1.

Base Metals : 

Other metals like Zinc, Lead, Aluminium, Copper, Nickel etc comes in this category. Detailed lot size will be given in chart below.

Agri commodities : 

Agri cultural products or agri commodities in MCX include cardamom, cotton, CPO, Kapas and Mentha oil.

Forward Contracts of Commodities

As you know future and option contracts of these commodities are traded in mcx and ncdex exchanges. Mainly trades happen in futures here. Volume in options are very low. MCX is introducing more products like they introduced crude oil options last year. 

There is spot market or cash market also for commodities where the price is decided and delivery happens at settlement. Just like stock prices is underlying spot prices in F&O of stocks, here commodity spot price is taken as underlying. 

Eg: Internationally, the price of Gold is fixed in London. Duties and taxes cause prices in India causes a slight difference in price of gold in MCX and international market. 

Future and option contracts helps to protect buyers and sellers from sudden spikes or changes in price as here trade or delivery happens at agreed price in future or option contract. It acts as a hedging tool for both.

Traders or speculators use it for trading by utilizing price volatility in commodity market. They do not take delivery of commodity. They buy and sell on exchanges during price fluctuations and make profit on that.

Lot size of commodities

The contract specifications for all commodities on MCX dictate trading lot sizes, price quotation, tick size and value per lot among other parameters. The minimum quantities enable participation for retail traders by balancing affordable capital requirements with risk management. These contract designs ensure adequate liquidity across commodities.

We have written a detailed blog post on lot size in our blog. For more details of commodity market lot size check this blog post link Commodity Market lot size

Commodity Market in India Timing

MCX revised trading timings from November 04, 2019 to March 06, 2020 is given below.

Commodity market or mcx trading time starts at 09 AM in the morning. Closing time differs as per commodity. Internationally Referenceable Non-Agri Commodities trade time ends at 11.55 PM. Internationally Referenceable Agri Commodities ( Cotton, Kapas, CPO & RBDPMOLEIN) trade ends at 9 PM. All Other Commodities trade ends at 5 PM.

First group includes metals and energy commodities which are actively traded commodities. 

Intraday positions of non agri commodities will be auto squared off at 11.30 PM.

On some holidays others than weekends, commodity market opens evening at 5 P.M.

Is commodity trading profitable?

Commodity trading involves F&O. Future and options are highly leveraged products. So risk is there for beginners.but once you master trading skills, you can focus on a few commodities and trade on that. There are many traders who trade in commodity segment only and make profits. But the thing is you must learn first.

Most of the traders in commodity segment is scalpers. Quick order feature in Fyers can help you to place order for entry and exit in quick time and benefit from that, if you are a scalper trader.

Which commodity is best for trading in India?

You cant say which one is best. But crude oil is one of the popular commodity traded in India. It is one of the most traded commodity. Retailers mainly use crude mini contracts to trade. Gold, Zinc, Natural gas etc are also favorites of many. Beginners should mainly focus on mini lots of any of these commodities and try to master it. 

How much money required for commodity trading in India?

Commodities are highly leveraged f&o contracts. So you need to keep only a fraction of total contract amount in your account. The actual amount changes for each commodity. Brokers normally give more leverage for trading intraday. You can check actual margin amounts with your broker. Brokers like upstox, zerodha and fyers have margin calculators in their website. You can search it in google and use it.

Brokerage for commodity trading?

Discount brokers like zerodha, upstox and fyers provide similar brokerage structure for commodity trading. They charge 0.01 or Rs.20 whichever is lower per order. This discounted brokerage can save you a lot in trading expense.

 Traditional brokers like share khan or geojith may charge based on total transaction size.

Some useful mobile app for commodity trading

Here is list of some useful mobile apps and websites for commodity traders. I will keep updating this part.

Market Pulse - This app will give you most of the details you need. Prices of commodities, news related to commodities, and scanners. This app have a separate segment for mcx commodities.

Upstox and fyers app - You can use you broker app for charts of commodities. Fyers provide tradingview chart in mobile app also. You can get continuous price charts of commodities in fyers for analysing old data also.

Where to learn commodity trading?

For any learning I will first suggest books. There are many technical analysis and trading based books available. You can apply those analysis in commodity market charts also. There are many materials available from reliable sources like zerodha varsity, fyers school of stocks etc also. 

I have made a detailed video about commodity trading in YouTube with following details. Watch it.

Commodity trading strategies like crude oil trading strategy, zinc trading strategy, natural gas trading strategy etc will be discussed in coming posts and videos.      

How commodity market affect stock market and other companies

Commodity markets and prices affect stock markets and companies deeply due to the raw material usage links in supply chains. As inputs for various industries, commodities form a crucial part of overall business costs.

For example, crude oil is used across various industries - airlines, paints, logistics etc. So when crude oil rates rise significantly, it inflates costs for these sectors, thereby impacting profit margins if unable to pass on higher prices. Consequently, stocks of these oil-dependent businesses may decline.

Furthermore, upward commodity price movements signal potential inflation in the economy as producers account for escalated raw material costs. This leads to interest rate hikes by central banks to curb inflation. Higher rates mean increased borrowing costs for companies, depressing business investments and stock prices.

On the flip side, downward trends in commodities like metals, grains etc. make raw materials cheaper. Companies using such inputs extensively can improve profitability from lower costs. This boosts their stock valuations. Also lower commodity rates ease inflation pressures, allowing relaxed monetary policies favorable for stocks.

In summary, commodity price changes tend to inversely impact stock markets in the short run as higher raw material costs hit earnings. However, rational commodity declines benefit industrial stocks through lower input costs and supportive financial conditions.

I have done a video in this topic in our youtube channel. You can check that in our youtube channel. I have give link at bottom m of this post.

Crude oil trading strategy

A lot of crude oil trading strategies are also available online. I have made a video of a popular strategy here. Read it. I have included video also from our channel about crude oil trading strategy. You can check that in this blog post - Crude oil trading strategy

There aren't any commodity trading Malayalam books available. Even if Malayalam book is available , they may not be from a good source. So you may have to depend on YouTube and articles online to study more about commodity trading. I will try to include more posts based on commodity trading.

Check out our share market Malayalam YouTube page for more share market related videos in Malayalam