Guide to Agro Commodity Trading
When you fulfill your immediate financial goals, you will really want to diversify your portfolio. Agro commodities trading can be the best option for you if you’re wanting to make a lot of money in order to reach your long-term financial objectives. Futures contracts are for trading agricultural commodities. These contracts offer a chance to make money from speculation as well as a means of risk management. A commodity is a necessary good. Soft commodities include agricultural items; hard commodities, on the other hand, typically refer to mined goods. If you want to really understand this topic you must read the detailed blogs of Vimpex Limited.
How to trade in agro commodities?
Since 2002, modern commodities trading has been permitted in India. By purchasing and selling futures contracts on any of the six exchanges that permit trading in agricultural commodities, you can transact in the market for those commodities. Two of the six exchanges that provide trading in commodities on their platforms are devoted exclusively to the trade of agricultural commodities. National Commodity & Derivatives Exchange Limited and National Multi-Commodity Exchange are these exchanges. Prior to 2017, trading in agro commodities was challenging. The Securities and Exchange Board of India did permit trading in commodities from standard Demat accounts around the end of that year, though.
You can conduct research on a commodity and make price predictions if you wish to invest in the market for agricultural commodities. If you are sure in your prediction of future pricing, you should pay your broker the required margin and purchase a futures contract. The sale would be carried out on the future date specified in the contract. When it comes to trading commodities, brokers offer significant leverage; however, you should be aware of the associated hazards. Your life savings could be quickly depleted by a few bad bets.
Agro commodity market
About 12% of all commodity trade consists of agricultural products. Not all agricultural products are available on the agro commodities markets. Only major commodities trading takes place in agro commodities on India’s six commodity markets. Typically, these goods are cash crops. Spices, grains, pulses, oilseeds, rubber, fibers like cotton and jute, dry fruits, and so on are some goods that are regularly exchanged.
Benefits of agro commodity trading
Agro commodity trading can give you practical hedging alternatives against hazards in addition to offering a feasible diversification option. Profiting on the price discrepancy between spot and futures contracts may also be an option. Trading in agricultural commodities also serves as a successful method of price discovery, giving buyers and sellers an idea of future pricing. Given the higher than average margins available in agro commodity trading, if you have a solid grasp of supply and demand in the market for agricultural commodities, you could generate significant profits on your investment. Vimpex Limited is the leading firm in the import export industry with relevant experience. You must contact us before investing into agricultural commodities. We will guide you through the whole process.
The simplest ways to Make the Best of Agro Commodity Trading
Some investors claim that trading agricultural commodities is simpler than stock trading because the volatility is much lower and more predictable (apart from some agricultural commodities and metals). In addition to these and other advantages, commodity trading enables investors to diversify their approach to asset allocation, insure against inflation, obtain respectable leverage, and much more.
Investors assert that it is relatively simple to generate money because many agricultural commodities are cyclical in nature, meaning that prices rise around the same time each year. But just like with any investment, successful commodity trading depends on having the right knowledge. Get some of the best commodities trading advice in the parts from Vimpex Limited that follow to help you make profitable transactions in the commodity market.
Treat Leverage With Caution
Contrary to stock trading, agro commodity trading has a high level of leverage. The margin you must pay to execute a trade is “leverage”. For instance, the margin is typically 10% for index futures and 15% for stock futures. Leverage can be as high as 16 times in the case of commodities trading, though. If you place a cover order with a stop loss, you can also raise it even higher.
Leverage frequently attracts investors looking for commodity market tips, and many enter the market hoping to make large gains with little initial commitment. But if not used carefully, leverage could be a double-edged sword. While leverage can significantly boost your profits, it can also greatly raise your losses (if the market goes in the opposite direction).
As a result, it is advisable to weigh the advantages and drawbacks of leverage before trading on the commodity market.
Make Volatility Your Best Friend
A trader’s life is characterized by volatility. The greatest commodity market trading advice may be ones that help you comprehend volatility and take advantage of it.
While some commodities (like copper or agricultural products) are quite volatile, others are less volatile (such as gold, crude oil, etc.). Low-volatile commodities typically move in a predetermined direction along a longer-term trend. For instance, gasoline prices plummeted at the height of the COVID-19 pandemic and kept falling for a considerable period of time. And such times may be the greatest for an investor to profit from trading on the agro commodity market.
Understanding the overall trend and the price range of the commodity you want to trade is necessary to make volatility your friend. Additionally, you have to select the lot size for each product you trade.
Inexperienced traders decide on the lot size based on the amount of available margin. But when choosing the lot size, knowledgeable investors always consider the volatility of a commodity rather than its margin.
It is advisable for new traders to begin with low-volatile commodities before moving on to high-volatile ones. The commodity market advice your broker gives you will make more sense once you understand how prices change.
Select The Best Broker
The broker is the tip that matters the most out of all the agro commodity market advice you can obtain online.
Brokers really influence the dealing in commodities. The execution of the order could be delayed, for instance, if the broker’s web platform is sluggish. Furthermore, your actual return can be lower if the brokerage is too expensive.
Thankfully, a lot of online brokers allow you to sign up for a free account and trade with no commission. Additionally, they offer an app so users may do online transactions while on the go. Read the blogs on their website to learn more about commodities.
Things To Keep In Mind While Trading In Agri Commodity Futures
One of the main draws of the commodity market is trading in agricultural commodities. Trading in agricultural commodities is particularly appealing to people who are eager to achieve their long-term financial objectives. An agreement to acquire or sell a specific amount of agricultural products at a predetermined price at a future date constitutes this type of commerce. Grains, sugar, cocoa, oil, and other examples of such commodities are available.
For you to get the most from the trade, keep in mind the following:
- In any of India’s six exchanges, you can purchase or sell contracts for the trading of agricultural commodities.
- A range of agri commodities are the focus of the National Commodity & Derivatives Exchange and National Multi-Commodity Exchange. Using your standard demat account, you can trade.
- This kind of commodity trading relies heavily on volatility, which has a direct impact on your return. A higher level of volatility entails greater price risk and a larger margin deposit in your commodity trading account.
- Trading in agricultural commodities makes it possible to effectively mitigate risk. You may earn based on the difference between the spot and agro commodity prices.
- Since the majority of agricultural commodities are soft goods, warehousing facilities directly affect the price of various agro based commodities.
- Due to their shorter shelf lives, soft commodities like grains are more expensive than hard ones like zinc.
- If farmers have access to suitable storing facilities, prices for agricultural goods may become more competitive.
Additionally
- Agro commodity prices are significantly impacted by the rise in the usage of substitutes; if a sizable portion of consumers select soybean oil over groundnut oil for health reasons, prices will change to reflect the patterns of demand.
- Since most agro based commodities in India are grown as kharif crops, the monsoon is crucial for the harvesting season and consequently affects prices in this type of commodity trade.
- Agro commodity prices could rise sharply if farmers lack access to adequate irrigation facilities and do not receive enough monsoon rain.
- If you want to try trading agro based commodities, you must be sure of your forecast of future pricing.
- To begin trading, you must open a trading account and give the broker the margin funds; nevertheless, you should not risk all of your life savings on agricultural commodity trading.
