By Taylor Wilman

Before understanding what the commodity market is or how it works- you should, at first, understand what exactly a commodity is. A commodity, very simply, refers to anything on which you can place a value. It can be anything ranging from a market item including grains, food, oil or any kind of agricultural produce including wheat, corn, cocoa, rice, coffee, cotton or sugar. The price of the commodity varies in accordance with its demand and supply. Here is what trading commodities is all about. Read on to find out more about the same.

Commodity Trading: The basics explained

When commodities including metals (silver, gold and platinum), energy (natural gas, crude oil and gasoline) and the agricultural products, such as the ones mentioned above, are traded for financial gains, then it is called commodity trading. The commodities, notably, can either be traded as derivatives or spot.

Reasons why you might like to trade commodities

Let us tell you that commodity trading is known for bringing huge profit within a not-so-long span of time. The trader can start trading with a very low deposit margin- paying anything between 5%, 10% or 20%of the total value of the contract – which, of course, is much lesser than that of other forms of trading. However, it is not sufficient to acquaint yourself only with these details if you are really willing to start trading commodities.

In the spot market, the trader is able to trade commodities with the advantage of instant delivery. However, when it comes to the derivatives market, you can buy or sell commodities based on several financial principles including futures. And, then these are traded in exchanges. The exchange refers to the governing body, which is responsible for controlling all the trading activities. It is their duty to ensure that the trading between buyer and seller is conducted smoothly- without hassles. The exchanges aid in the process of forging an agreement between the buyer and the seller. A futures contract refers to the agreement between the buyer and the seller for a future date but at today’s price. It is the Exchange which lays down the rules or terms of the futures contract.

Besides the low deposit, there are other definite factors that attract traders to commodity trading. Traders have hardly anything to worry about the regulations governing the market since there is the Exchange at the helm of things. Irrespective of which commodity you are buying or selling, your trading activity is governed by a reliable regulatory system.

Another major benefit is that there is no company risk involved. As against stock market, trading commodity trading is all about demand and supply. Plus, there is also the scope to hedge your positions- which again, is based on your exposure to the commodity.

Make sure you are educating yourself more about commodity trading in order to make the best use of the platform. It is extremely important to do your homework properly if you are willing to make the most of commodity trading.

By Taylor Wilman