Commodity traders in India are primarily categorised into two types – speculators and hedgers. Speculators, also known as intra-day traders, typically try to exit their long or short positions on the same trading day or after a few days. These traders are known to be direction-agnostic, i.e., they leverage their trades as per market momentum by relying on technical charts to base their trades. On the other hand, hedgers take an offsetting or contrary position in their investments to balance their gains and losses from an underlying asset. They take on an opposite position that allows them to protect themselves against price movements and cover all their bases to ensure they take the minimum risk on their investments.

You can open a commodity trading online account with a SEBI-recognised brokerage firm in India. You only need to fill an online form and submit the necessary KYC documents – PAN, ID, Address proof documents, and your income proof documents. You also need to submit your DEMAT account details so that the broker can link your commodity trading account to the DEMAT account. Linking the two accounts enables the broker to debit or credit your derivatives. Once you provide these details, you can pay the account activation fee, and the broker opens your account. You will receive your Trading ID and password, and you can begin commodity trading.

Commodity trading proves beneficial in several ways. Firstly, traders benefit from the inflation of commodity prices. During inflation, the cost of commodities and raw materials increase substantially, which helps commodity traders book maximum profits. Traders can also hedge their commodity portfolios against a declining USD and save their assets. Furthermore, they can take advantage of various socio-economic and geopolitical events and uncertain global and economic periods, during which time the supply of goods is constricted. They can speculate or hedge their trades and book significant profits resulting from shortages.

Commodity market traders use Futures and options commodity trading contracts. Traders who enter into futures contracts agree to buy or sell commodities on a fixed, future date, at a fixed price, irrespective of the commodity’s market price on the contract maturity date. Traders can also enter into options contracts with more or less the same conditions as the futures contract. However, commodities options traders have the right or option to exit the trade if it does not prove profitable. Such traders must pay a margin while entering into the contract and forfeit the margin if they choose to exit the contract.

A commodity market is a place wherein trades can trade in a wide variety of commodities ranging from agricultural products to energy resources and precious metals. It is a derivatives trading market, i.e., traders buy and sell commodities with the intention of booking profits by entering into Futures and Options trading contracts.