Trading commodities in India can seem complex, but it doesn’t have to be. Think about the last time you made an investment decision, whether it was buying stocks or real estate.
Trading commodities like gold, oil, or agricultural products isn’t all that different. It’s about understanding the market, making informed choices, and managing risks.
This guide simplifies the process into seven practical steps, helping you navigate the commodity markets with ease. Let’s break it down and make your trading journey smoother and more profitable.
Steps to Start Commodity Trading
Commodity trading helps you diversify your portfolio with some different instruments and reduces the overall risk. Also, you can trade in instruments such as gold or silver without actually buying them in physical form.
Here are the seven steps you need to follow to start your commodity trading journey like a pro:
Select a Stockbroker
You have to select a stockbroker who is registered with SEBI and provides a fully safe, and authentic platform to trade in commodities such as Dhan. Also, while selecting a broker, you can check the features and number of commodities offered by the platform.
A reliable broker will also provide an intuitive trading platform, allowing you to manage your trades seamlessly from your computer. This is crucial for monitoring the market and executing trades efficiently.
Open a Demat and Trading Account
Secondly, open a Demat and trading account on the chosen stockbroker platform or app. You can open the account online and complete the steps in a few steps by doing KYC from home. Check out the feature for seamless and synced trade in the app or web trading platform.
Having an account that integrates both Demat and trading functionalities ensures that you can buy and sell commodities with ease and keep track of your investments all in one place.
Choose from Options and Futures
After that, choose from commodity options and commodity futures. Buying an options contract gives you the right to buy or sell the underlying asset on the expiry date whereas in futures you have to fulfill the required obligations.
Options can provide more flexibility with limited risk, while futures might offer greater potential for profit. Understanding the difference and knowing when to use each will enhance your trading strategy.
Select from Different Underlying Instruments
You can choose from different types of underlying commodities such as gold, silver, crude oil, nickel, zinc, etc. For that, you need to stay updated about the market and macroeconomic scenarios and trade in the instruments that have the upside potential.
Keeping an eye on global news and market trends can help you make informed decisions about which commodities to trade.
Make Initial Funding
Submit the initial funding amount to trade in commodities. You don’t need the full amount of trade but rather deposit the initial margin requirement of the chosen contract along with the maintenance margin.
It’s important to manage your capital effectively and be aware of the margin requirements to avoid any unexpected shortfalls during your trading activities.
Go Long or Do Intraday
You can choose to trade in the contract with the longer term expiry or do intraday commodity trading. The decision is dependent on your risk appetite, analytical knowledge, and investment goals.
Intraday trading requires constant attention and quick decision-making, ideal for those looking for short-term gains. On the other hand, long-term contracts might be suitable for traders who prefer to wait and watch their investments grow over time.
Margin
If you are falling short of money, then you can pledge your existing shares to use the margin facility. You can use these shares as collateral and get the funding to use it to trade in commodity options and futures.
It is also a necessary requirement for trading derivatives. Utilizing margin trading can increase your buying power, but it also comes with higher risks, so it’s essential to use this facility judiciously.
Conclusion
Trading commodities in India doesn’t have to be intimidating. Following the seven steps outlined in this guide, you can confidently enter the commodity market, make informed decisions, and manage your investments effectively.
From selecting the right stockbroker to understanding the nuances of options and futures, each step is crucial in your trading journey. Remember, the key is to stay informed, be patient, and approach each trade with a clear strategy.
To start your commodity trading journey, open an account with Dhan.