What do you know about Commodity trading? Do you or not? Well you know, that’s amazing, however, in case you don’t know, then give us a chance to explain it to you. Well, trading of essential commodities with the objective of risk management or speculation. Let’s understand the community trading by the following example:
- Imagine that you are a farmer who grows rice and you sell them in the market at Rs. 500 for each quintal which gets you a fair benefit. You have a huge amount of corn to sell and you need to be sure that you don’t face a loss if the cost of corn decreases out of the blue. To shield yourself from losses, you can go into a future contract to sell the rice at Rs. 500 for every quintal on a future date. This is called hedging.
- Think that you are a trader and you have a great interest in crude oil futures trading. Now, one contract of crude oil is 100 barrels and which has a price of Rs. 2,50,000 (Rs. 2,500 per barrel); however, you do not want to pay whole money to buy a futures contract. You have to pay a margin of 5% which comes at Rs. 12,500. Now think that the crude oil prices go up to Rs. 2,550 per barrel, you earn a profit of Rs. 50 per barrel and make a total profit of Rs. 5,000 by investing just Rs. 12,500. Then, commodity trading provides leverage to traders. Do you know that you can profit from falling global crude oil prices in the commodity market?
NSE Derivatives: Open an account then check the above example, you can benefit from falling oil costs by entering a fates agreement to sell sometime not too far off at a greater cost. For instance, you purchased an oil futures contract on December 1 and by December 30 oil costs tumbled from Rs. 4520 to 4420 for each barrel. Be that as it may, you can in any case sell the fates at Rs. 4520 and make a benefit of Rs. 100 for every barrel which adds up to a net benefit of Rs. 10 lakh (10,000 barrels x 100).
How to do commodity trading in oil: Commodity oil futures work equivalent to the example given previously. Be that as it may, crude oil futures trading happens generally for speculation instead of conveyance except if you own an oil organization like the IOC, ONGC, BPCL, and so on.
Before you find out about trading oil as a commodity, remember the accompanying salient features of commodity oil futures:
Crude oil is quite possibly the most fluid commodity on the planet since it is a wellspring of fuel and energy for such countless areas.
To prevail in product trading oil, you should have the option to see what variances are demand and supply means for oil costs.
Both technical and fundamental analysis can be applied for raw crude oil futures trading.
You should have a trading strategy to dodge losses.
The oil market is bigger than all the metal markets combined
More than Rs. 3,000 crore of crude oil futures trading happens in the MCX consistently. It is the most effectively exchanged ware on the trades.
Two types of crude oil contracts are traded on the MCX:
Crude oil (Main)
Price quote- per barrel
Lot size- 100 barrels
Expiry- 19th or 20th of every month
Crude oil (Mini)
Price quote: Per barrel
Lot size- 10 barrels
Expiry- 19th or 20th of every month
Crude oil mini is well known with traders because the parcel size is less, thus the edge cash required is additionally negligible
Now the question arises, can retail investors go for commodity trading in oil
Unquestionably, it requires negligible investment and you have the most extreme freedoms to procure higher benefits because of higher leverage. Be that as it may, oil futures are not just profoundly fluid they are additionally exceptionally unstable and it’s difficult to anticipate price movements.
If your dealer offers a commodity broking service and is partnered with MCX or NCDEX, you can counsel them for crude oil futures trading. At first, it’s smarter, to begin with, specialists and step by step begin trading all alone.