Commodity Trading TimE in India : A brief on Commodity Trading
Commodity trading occupies a significant position with the Indian financial market enabling traders or investors to deal with a wide range of products like gold, silver, crude oil, agricultural products right from Wheat to cotton or sugar etc. It is an important part of the global economy system and the Indian economy as well connected to stock exchange, inflation, and foreign exchange. Being historically linked with the country’s past, while being correlated with the contemporary advancement in technologies and markets, commodity trading in India holds a variety of possibilities for its participants.
In this blog, we will explore the most important facets of the commodity trading industry in India including its importance, major commodities, the function of commodity exchange, regulation, and of course, optimal timing models to help investors get the most out of trading in the commodities market.
What Is Commodity Trading ?
It is dealing in the buy and sell of raw or primary products through a futures market. Commodities can be classified into two broad categories i,e,. hard and soft commodities.
Nonferrous metals are also among the hard commodities they include crude oil, gold, silver, metals, minerals that require mining.
Soft commodities are food stocks or meats, including wheat, cotton, coffee, and sugar.
In a commodities market the Actor can deal with these commodities on the spot or through derivatives where delivery and payments are made at a later date. This allows for protection from flair in prices or outright speculation in terms of price movement, creating lots of opportunity for risk control and gain.
Types of Commodity Markets
Commodity trading in India takes place in two types of markets:
- Spot Market: Often referred to as the ‘cash market,’ futures refer to contracts of physical commodities where delivery and payment are due and feasible. This is accomplished by having the transaction done on the spot.
- Futures Market: It typically has a feature in which contracts are bought and sold for delivery of a certain staple in the future. These are contracts whose volumes are expressed in units of quantity and quality and whose prices change depending on the predicted price of the underlying commodity at time of delivery.
Here in India futures markets are more developed, where there are a number of exchanges that provide and trade different futures commodities.
Development of the Commodity Market in India
The Commodity Trading in India has a long history and it was in the 19 th century when trade was done mainly in Agriculture products. The commodity organized trading started in India with the Bombay Cotton Trade Association that began trading in the future of cotton in 1875. This concept was, in later years, prescient over other agricultural commodities such as oilseeds, grains, and spices.
After the opening up of the Indian economy in the early nineties the government realized the importance of the development of markets in the context of which the commodity exchanges were born. The Forward Contracts (Regulation) Act, 1952 (FCRA) was the primary complete legislation regarding the forward trading market. The major impetus was given in the year 2003 when Fully Developed Electronic Venture Exchange (FIVEX) namely Multi Commodity Exchange of India (MCX) and National Commodity & Derivatives Exchange (NCDEX) came into existence. The Indian market today is composed of a well developed and systematized commodity trading business, providing a broad range of products and investment avenues.
Commodity Exchanges for Commodity trading in India
- MCX (Multi Commodity Exchange of India): MCX is the leading commodity derivatives exchange in the country enabling trading in the cash segment for a number of commodities like metals (gold, silver, copper), energy (crude oil and natural gas) and agriculture commodities.
- NCDEX (National Commodity and Derivatives Exchange): While operation is very limited in comparison to MCX, NCDEX mainly deals in agricultural commodities such as wheat, cotton, spices and oil seeds etc. It offers a major venue for both contagio and speculative deals in ore agricultural commodities.
- ICEX (Indian Commodity Exchange): ICEXis comparatively younger than others and is involved in trading of agricultural as well as non-agri commodities.
Role of Commodity Exchanges
One advantage of these exchanges is efficiency in the sense that different participants in the market do not have exclusive information due to transparency exhibited in the exchange. The exchanges also enhance the easy flow of trading activities because the deal, as well as the purchase and sales, activities are well regulated, and there are set rules and regulations that are followed in the trades.
Key functions of commodity exchanges include:
Price Discovery: Through exchanges, prices of commodities may be easily and directly concluded based from the forces of supply and demand.
Risk Management: Through the provision of futures contracts, the commodity exchanges provide ways in which business, producers or traders can manage risks that come with fluctuating prices.
Standardization: Exchange traded commodities are the widely accepted marketable commodities for they barter standardized commodities that are likely to elicit some form of dispute in terms of quality and quantity.
Regulation and Compliance: Exchanges guarantee that all trades also follow directions provided by special authorities such as SEBI.
How Commodity Trading Works ?
Commodity trading notably in the futures market is carried out by several major players for hedgers, speculators and arbitrageurs.
Hedgers: There are these participants who desire to minimize the likelihood of price volatility in commodities. As an illustration, a farmer can control the future price move of crops by selling a futures contract of the crops. Likewise,manufacturers who form a part of their inputs the internationally traded goods such as oil they can hedge for price increases.
Speculators: Profit seekers in the Power Plan seek to gain from increases in the prices of the outlined commodities. They have no interest in the physical commodity but in the price change from the physical commodity. They use information to anticipate increase or decrease in prices so that they can get futures contracts and sell them at high prices.
Arbitrageurs: Such traders seek to take advantage of a difference in the two related markets or two related exchanges. For example, a given commodity may have different price offers in two markets: if one market offers this price lower than the other one, arbitrageurs are going to buy the product in large quantities in this market, and then sell it at a higher price in the second market – thus, they make a profit on the difference of prices.
Commodity Trading Strategies
Trend Following: This strategy entails a study of past prices of commodities as a basis of making future trades and dispositions. If the price of a particular commodity is persistently on the rise, there is the likelihood that traders will opt to go long – that is buy. On the other hand, if the prices are declining, they may short (sell), for example, the stock.
Range Trading: A form of speculation in which a trader deals at the upper and lower extremes of a specific price range. This works well if the market is not inclined towards rising or falling values in the foreseen future.
Fundamental Analysis: Here, the analyst estimates inherent aspects of a product that may affect supply and demand; this depends on the type of commodity such as climatic conditions in agricultural products or any world affair that affects the production of oil. These are the basics that traders use to decide whether to buy or to sell.
The Role of SEBI and the Regulatory Framework
The Role of SEBI and the Regulatory Framework
The Independent Regulatory Commission that regulates the commodity trading in India is called Securities Exchange Board of India (SEBI). SEBI is primarily answerable for the regulation of securities markets and the promotion of investors’ rights.
The regulation of commodity derivatives was vested in SEBI in 2015 after FMC was dissolved and rolled over into SEBI. This change put commodity trading in the same category as securities thereby improving on the transparency, risks control and the general consumer protection of the physical commodity markets.
Key regulations in commodity trading include:
Position Limits: SEBI regulates the amount of position in its markets including leverage limits with organizations to curb manipulation and speculation.
Mark-to-Market (MTM): Futures contracts are daily settled, that is, gains or losses are determined from the price level at which they are closed. The margin levels must be maintained by traders.
Daily Price Limits: Once inflation and speculation forces a gigantic increase in the price of the commodity, then there is a high likelihood of sharp fluctuations to occur, hence SEBI has placed a daily price limit on the commodities. These limits define the extreme up and down price changes within which the price of a particular commodity may fluctuate in a trading session.
Know Your Client (KYC) Norms: It was noted that the commodity traders had to share information about Anti Money Laundering and KYC norms or norms that were considered important while trading perishable foods.
Best Commodity Trading Time in India
The timing is well known to be critical in commodity business. Hence for an individual to generate the highest possible returns it is advisable to transact at specific times of the day, respond to global market signals and factor in seasonal variation. In this article, let’s explore when one should get into Indian commodity markets.
Commodity Trading time in India
In India, the two leading commodity exchanges MCX and NCDEX operate from 10:00 AM to 11:30 PM during April-October and from 10:00 AM to 23:55 PM during November- March. The extra hours in the evening help Indian traders to respond to global markets, especially for the commodity segment like gold, crude, silver and many others.
Best Commodity Trading Time
Morning Session (10:00 AM – 12:00 PM): Fixed early in the day, after traders in America and Europe are closed. It is an appropriate time for identifying certain overnight trends and based on opening bars, make some decisions.
Afternoon Session (12:00 PM – 4:00 PM): Their markets open up in Europe bringing higher volatility especially in the energy and metal commodities. Operators targeting price fluctuations should be more involved in this session.
Evening Session (6:12 to 2:30 AM): The night session corresponds to the opening of the American markets and presents high fluctuation, especially for commodities; for instance, crude oil and gold. This is usually considered by most traders as the most effective session for trading as Flows most traders prefer this or session because of the tremendous liquidity and speed of price action.
Seasonal Commodity Trading Time
Some of the agricultural commodities are known to be seasonal commodities. For instance:
Monsoon Season (June-September): Products such as wheat, sugar, pulses go through variations and fluctuations according to monsoon. They focus on weather information to forecast possibilities of short or long supply cycles.
Festive Seasons: Homing products for instance gold and silver are considered to experience a rise in demand during festival time especially Diwali thus retails up the prices. Merchants usually take advantage of this occurrence to go long before the festive season.
Conclusion
Hedging, speculation, and diversification prospects, commodity trading in India is one of the most attractive business opportunities in the global market today. The market is huge and liberal and factors such as world and domestic seasons influence the prices. There is a need to grasp the role of commodity exchanges as well as the relevant regulations and trading strategies to be useful in trading commodities.
In relation, the idea of timing is crucial insofar as profit is concerned. This means that, by being conscious of the market timings, global market and seasonal impacts, traders stand a better chance to navigate their way well in the commerce of commodities. Only when one has these fundamentals properly set up, can one effectively leech the tremendous potential that is still untapped in India’s commodity markets for huge returns.
Also Read : Best AI Stocks In India For Long Term
FAQ'S
What is commodity trading ?
Commodity trading is the process of actualizing futures contracts by buying ‘spot’ or current physical or digital goods including gold, oil, and agriculture products, through markets including MCX or NCDEX.
What is the commodity trading time in India ?
In India, the two leading commodity exchanges MCX and NCDEX operate from 10:00 AM to 11:30 PM during April-October and from 10:00 AM to 23:55 PM during November- March. The extra hours in the evening help Indian traders to respond to global markets, especially for the commodity segment like gold, crude, silver and many others.
What is commodity trading in India ?
Commodity trading is the process of actualizing futures contracts by buying ‘spot’ or current physical or digital goods including gold, oil, and agriculture products, through markets including MCX or NCDEX.
What is the difference between commodity trading and stock trading ?
Unlike commodity trading in which a buyer sells or buys physical or raw materials such as oil and gold, stock trading entails buying and selling of shares in companies. They are performed on different exchanges and cannot be compared in terms of risk.
Can beginners start commodity trading in India ?
Definitely, new entrants can venture into the commodity trade in India through the use of the internet, practice accounts together with tutors that enable one to learn about the commodity trade and how it works.
