Avoiding the Drawbacks of Commodity Futures

A commodity future is an agreement to buy a specified quantity of a particular commodity at a predetermined price and date. Before, Commodity Trading was done through recognized exchanges around the world, but today, commodity trading can be carried out in the comfort of your home through connected computers.

In India, the Forward market commission regulates trading in commodity futures (FMC). They do this by promoting contest and effectiveness and also protecting market participants against fraud, manipulation, abusive trading practices, and ensuring the integrity of the clearing process. This function enables the futures market to serve as a significant vehicle for price discovery and offsetting risks.

Commodity futures market participants fall into two categories: Hedgers and Speculators. To hedge means to mitigate the risk of price change by fixing a price today for a commodity to be supplied at a future date, while speculators predict price movement and make a profit when they accurately speculate price movement and place their orders accordingly. you can choose Commodity trading tips by the expert to get rid of big losses.

For instance, a buyer may speculate that the price of mangoes will increase in 6 months time, therefore he buys some (deposit) enough to cover his deals and in 6 months if his prediction proves accurate, he sells and makes a profit; likewise, the seller; a seller of mangoes may speculate the price to fall in 6 months when his oranges will be ready for sale, he sells now at the current prices, making money now, while he supplies in 6 months time, when the mangoes are ripe for sale. More than anything, this stabilizes the price of the commodity.

Like all futures market, there are elements of risk involved. Those who bid very high margins stand the risk of heavy losses or astronomical gains, depending on the outcome of their speculations. But moderate and prudential buyers/sellers who assume reasonable risks, may not lose much but stand the chance of increasing their earnings over a long period of time.

The commodities futures, also known as a futures contract, serves several important functions to the public, apart from the profit it provides to speculators. It reduces the cost of traded commodities, as prices are fixed in advance which helps keep prices down. Liquidity is provided to speculators, by assuming the risks of price fluctuations or provided as live commodity trading tips and earning returns in the process. If you are interested in trading in commodity futures, you should always seek expert opinion in avoid catastrophic capital loss. As in all things financial, expert opinion will go a long way towards ensuring stupid mistakes are avoided.

Small Discussion About Commodity Options Trading

Just like stock options, commodity options trading gives the investor the right to buy or sell an underlying asset at a set price during a specific time period. But in the case of commodity options trading, the underlying asset isn't a stock, but a commodity.

A commodity is something more substantial than a stock; it is an actual product. Goods considered to be commodities are those that come up out of the earth and are in their raw, unprocessed form. Examples of commodities are things like wheat, oil, coffee, and gold. All of these things have a value determined by the market, which is of course based on supply and demand. Most of us know that oil is a valuable commodity, and its value is likely to stay high unless we discover a new, cheaper source of energy to run our vehicles. Many commodities, however, can have much bigger fluctuations in price, which makes them a great investment opportunity.

Commodity options trading is a way for investors to be able to make a profit on the changeable value of commodities without huge investments or risk. An investor purchases the right to buy or sell the underlying commodity at the strike price within a certain time period. A profit can be made if the change in the value is enough to cover the premium paid for the option; if the change that is anticipated doesn't occur, the investor loses the premium. you can choose Online Commodity trading tips to prevent from big losses.

Commodity options trading follows many of the same rules as stock options and has the same two basic types of the transaction, the call, and the put. The call allows the holder of the option to buy the underlying asset at the strike price, while a put allows the option buyer to sell at the strike price.

Because the option is being purchased on goods that often don't exist yet - such as a harvest of wheat, it is often referred to as futures trading. Commodities can be very volatile - as can stock, and it carries risks to the investor. Knowledge of the commodity market is vital to successful investing in this area. Commodity options trading, like all options, is less risky than outright purchase of a commodity and requires a smaller investment. This makes it a great way for the average investor to get into the commodities market even if they don't have a lot of money with which to invest.

Substantial and Effective Commodity Market

Commodity markets are platforms where raw products such as food grains, metals, cotton, and oilseeds are exchanged. Investors use this platform to buy and sell goods; the idea is to earn money through such transactions. These transactions are typically bound by contracts. Each buyer and seller has to respect these contracts.

The Indian commodity market made of two elements; retail as well as the wholesale market.

The commodity market in India allows people with a big investment occasion. India is yet to exploit commodities exchange to the fullest, which is one of the most active and matured markets in developed countries. As the demand for commodities grows, India will also see a subsequent rise in players. The commodity market in India has already gone through a sea change in terms of the number of products that comes under its portfolio and the overall dealings and part.

Commodity trading makes an interesting and financially sound proposition for investors who would like to tap or diversify into new investment options. Stocks, bonds and mutual funds have their own merits but commodities markets offer an exciting new avenue to earn money. Online commodity trading tips are vital for new traders and prevent them from calamities.

Retail investors can now choose from several commodity exchanges that have been set up in India to facilitate trades. The three national exchanges in India are as follows:

1. Multi Commodity Exchange (MCX)

2. National Commodity and Derivatives Exchange (NCDEX)

3. National Multi-Commodity Exchange (NMCE)

Copper price in India is typically based on international spot market rates. The prices are affected by several factors such as.

1. Global demand due to industrial growth.

2. Global financial crisis or recession.

3. Spurt in inflation.

A decade ago India was an importer of copper. But today, the scenario is quite different; it has become a net exporter. The credit for the rise in copper production goes mainly to private companies. As China, India, and Brazil continue to grow rapidly; the consumption of copper in the coming years will rise significantly, pushing the prices further.

Copper is the third most consumed metal after steel and aluminum.

In India, people love gold and silver. No wonder then trading in gold and silver is increasing with each passing day.

Commodity trading is based on futures trading, which gives a trader the option to pay margin money, which is just a fraction of the whole contract value. You do not need to deliver a commodity in physical form.

This option makes trading in commodities like gold and silver a great way to diversify your portfolio. This is the reason why more and more retail investors are now considering gold and silver commodity trading as an exciting investment option.

Beware of Some Dangerous Feautures Of Commodity Trading

Commodity futures trading is one of those terms that make people wonder what it is all about. It is merely another way to describe stocks and shares, although 'futures trading' is just slightly different in that it is buying and selling things which may not exist as yet. This could be crops or other similar things and the person buying and selling is taking a risk on whether the goods will be available or not. The money is made when someone already has these goods ordered and there is a shortfall in supply. In this way, he can sell his goods at a higher price bringing him a much higher profit of course. If there is a surplus to supply, he could lose money on the deal and this is why this is a high-risk gamble.

Speculators, as these buyers and sellers are called, come in three different forms. One is the commercial speculator who is either the grower of such crops or the company which will always need the crop. Those companies which sell breakfast cereals, for example, are considered to be speculators. Another form of the speculator is a large speculator which normally consists of a group of investors who pool their resources so that they can reduce the risk while maximizing the gains. Very much like a mutual fund, these speculators will employ money managers to make general decisions for the investors as a group instead of as individuals. Small speculators are individuals who work on their own or through brokers to get what they want. These latter groups are known to shake the market from time to time with their combined efforts which usually unsettle the commercial speculators with their buying power.

For those who want to learn this kind of business, first, they have to understand what all the jargon is about. These goods will be bought and sold just like any other investments. That is, they are bought low and sold high in the perfect world. Any change in this kind of strategy will mean a loss for sure. However, those who buy goods like this will not have to come in contact with them physically as some would think. you can choose Online Commodity trading tips to assure your profit and prevent loss.

Before people were organized in this way, it was usual for the farmer to bring his goods to the market physically. Putting them in storage facilities often ended up in losses since if there was a glut, the goods would literally be left to rot. He still had to pay for the storage facilities though and he ended up losing money all around. For those who could bring the product to the market at the right time though, when there was a shortage of goods, then they could command a much higher price and this is where the huge profits were made.

This is obviously a job not for the faint-hearted since there could be huge amounts of money at stake. Risky business for sure but with the kind of profit levels that makes people want to give it a try. Being educated is the key for sure.