April 30, 2021

commodities market: Issues you could know earlier than investing in commodities futures

A concrete basis or good studying is a should earlier than branching out to any area with a purpose to make a such enterprise profitable — be it in enterprise or in constructing a monetary portfolio.

For correct portfolio diversification, one ought to try to make investments part of the cash in commodities, as this asset class tends to supply the good thing about financial cycles. Indian commodities exchanges are going by way of a sea change amid the huge reforms within the Indian financial system, and that is anticipated to lead to big buying and selling volumes on this house.

Most traders are effectively versed with the fairness market. Commodities work nearly in the identical method, although there are some primary variations one we must always concentrate on earlier than moving into it.

Sebi is the regulator for commodities, like fairness, and one wants a demat and a buying and selling account to commerce in it. One ought to observe the circulars, directions, guidelines and rules issued by Sebi and the inventory exchanges infrequently. Commodity buying and selling is accessible on all the highest bourses – be it MCX, NCDEX, NSE, BSE and ICE.

One essential factor to notice it that to get into commodity futures, one must develop the self-discipline of squaring off positions previous to expiry, if one isn’t desiring to take supply. If one doesn’t need bodily supply, then it’s a should to wind up the place or roll over the identical to subsequent month earlier than it goes into the supply course of.

The market remains to be 17 years outdated since its inception in 2003, whereas worldwide exchanges are centuries outdated. It’s attempting to get the popularity worldwide with its world-class mechanism and revolutionary merchandise. One ought to attempt to commerce in liquid contracts like bullion, metals, power, oil seeds, spices and guar. One can take pleasure in buying and selling in indices like iComdex bullion, Agridex and Metallic index, that are money settled. Now, Indian commodities exchanges are additionally geared up with choices wherein margin necessities are lesser than to futures. Traders ought to take positions in choices based mostly on research-based advisory to take pleasure in a greater risk-reward. Many farmers and producer organisations (FPOs), bodily merchants and producers are contemplating this feature in items to hedge their positions on the exchanges.

One ought to observe margins too. There are specified percentages of margin on commodities, that are calculated on the worth of the commodity contracts. An investor has to deposit the margin upfront on the buying and selling account earlier than taking purchase/promote positions in commodities. In some particular circumstances, the exchanges impose particular and extra margins on commodities to curb extreme volatility.

In India, buying and selling in commodity futures begins at 9 am and goes on until 5pm on NCDEX (for agrocommodities), whereas buying and selling continues until 9 pm for worldwide markets-linked agro-commodities like cotton, soy oil and CPO and until 11:55 pm for commodities equivalent to bullion, base metals and power contracts. Few different agrocommodities additionally commerce for lengthy hours.

The prolonged buying and selling hours create further alternatives to take the benefit of the volatility in worldwide markets.

Varied components equivalent to demand-supply math, climate, fluctuations in currencies — primarily greenback — and numerous financial actions throughout the globe — primarily within the US and China – have a bearing on commodity futures. You will need to maintain a detailed watch on the worldwide markets, as a result of India is the worth taker for many commodities from the worldwide exchanges like COMEX, NYMEX, SHFE and LME.

A wonderful portfolio will be created, assembling numerous lessons of commodities equivalent to agro-commodities, bullion, base metals and power. The most important profit right here is that it may possibly strike an ideal stability within the portfolio. To conclude, one should take knowledgeable selections and go for self-discipline buying and selling with a purpose to maximise the advantages.

(DK Aggarwal is the CMD of SMC Funding and Advisors)