Commodity Analysis

The basics of commodity trading

Bavadharini KS | Updated on January 12, 2018 Published on January 01, 2017

PO02_classroom

For all those of you who want to start investing in commodities, here are some basic steps to be followed.

The first step towards commodity trade is the selection of broker. Traditional brokers offer an offline platform where a dealer puts through the trades. These brokers also provide support through research tips. On the other hand, the discount or online brokers will offer you an online trade platform for relatively lower brokerage. However, you will not have an advisor to help you trade or provide research reports. Traditional brokers like Sharekhan, Kotak Securities and Geofin Comtrade charge brokerage between 0.01 and 0.03 per cent on contract value or turnover for trading in commodity futures. With discount brokers like Zerodha and RKSV, the brokerage is only lower of ₹20 or 0.01 per cent per trade irrespective of the contract value. But, do your homework to check on the broker’s reputation before you sign up.

Choose smart

Once you decide on your broker, you will have to open a commodity demat account, for which you will have to provide PAN, bank account details, and address proof as a part of the KYC norms. Make a careful study to choose the commodity you wish to trade. First, to trade on any commodity contract, you need to pay upfront the initial margin of 5-10 per cent (minimum) of the contract value. The contract value is the lot size multiplied by the market price. So, commodities that are traded in large lots will have a higher contract value, and thus a higher margin requirement. A beginner should thus choose small contracts. For instance, one lot of gold guinea, which is 8 grams, costs ₹22,275 currently. The initial margin on this contract is only 4 per cent - which is ₹961. Similarly, there are small lots in silver, copper and aluminium, which you can consider. In addition to initial margin, clients will also be required to pay for MTM margin to offset the loss, if any, in the contract at the end of each trading day. It is calculated by marking all positions in the futures contract to the settlement price at the end of the day. The exchanges may also charge other margins. If volatility in a contract increases, the exchanges will recalculate the margins and collect the additional money in T (trading day)+1 day.

Have a question on commodities?

Write to us at commodityquery@gmail.com

Published on January 01, 2017

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Sincerely,

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.