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.
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