Getting To Know The Benefits And Disadvantages Of Commodity Trading

The fact is that the commodity and the stock market has been luring people in lacs to enter this highly lucrative market and make the most o...

The fact is that the commodity and the stock market has been luring people in lacs to enter this highly lucrative market and make the most of their investment. But it is only the few who are able to make riches from it since fortune strikes those who have gained in-depth knowledge about the domain and are confident in the actions taken by them. The commodity futures market does allow the commercial consumers and producers towards offsetting the risk related to movements of future price in the commodities that includes MCX silver tips, gold tips, which are buying and selling. 

Benefits of commodity trading:

  • Commission costs: This is regarded to be much affordable when it comes to buying / selling one futures contract when compared to buying/selling the underlying instrument. 
  • Leverage: The commodity futures is known to operate on the margin, which means that for taking a position, just a fraction of total value is required to be present in cash in trading account.
  • Ability of going short: The futures contract could be sold easily, since they are purchased enabling a speculator for profiting from the falling markets including the rising ones. No particular uptick rule is present, like there is one present with stocks.
  • Liquidity: Involving speculators would mean that the futures contracts are liquid reasonably. But how liquid it is, entirely depends upon the traded actual contract. The electronically traded contract like the e-minis are to be considered the most liquid ones, but the pit traded type of commodities such as orange juice corn, etc. are not readily available to retail trader as well as more expensive towards trading, with regards to spread and commission. 
  • No time decay: The options tend to suffer from decay, since the much closer they come towards expiry, the much less time is there for option to get into the money. This is something that is not suffered by commodity futures, since they do not anticipate a specific strike price upon expiry.

Disadvantages of Commodity Trading:

  • Trading speed: Commodities traditionally are pit traded. For the purpose of trading, the speculator requiring to contact brokers by phone for placing orders and then transmits the order to get executed to the pit. As the trade gets filled, the broker is informed by the pit broker, who goes on to inform the client. Here, slippage risk is quite high. NCDEX, online futures trading can assist in reducing this time by offering by offering the clients to electronic exchange, with direct link. 
  • Leverage: It can prove to be double edged sword. The poor margin requirements could encourage inappropriate money management, thereby leading towards excessive risk trading. Besides the increasing profits, even the losses do get huge.

In order to make the most from the commodity market, there is a need for the aspiring trader to get hold of discount brokerage India offered by the reputed brokers in the region. Doing some research and making wise decisions can help the person to enjoy constant income from this domain and become rich.

Author Bio:

Zero Shulk is a company India that helps you to trade simply across all the platforms with our highly advanced technology. Get in touch with the company for low brokerage charges, cheapest trading account etc.

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Vyas Infotech: Getting To Know The Benefits And Disadvantages Of Commodity Trading
Getting To Know The Benefits And Disadvantages Of Commodity Trading
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