Things To Keep In Mind While Trading In Agri Commodity Futures

19 Oct 2021|

1 min read |

by ICICI Securities Team

Agri commodity trading is one of the major attractions of the commodity market. Those who are keen to meet their long-term financial goals are particularly interested in agri commodity trading. This kind of trade involves an agreement to buy or sell a specified quantity of agricultural commodities at a pre-fixed price on a future date. Examples of such commodities include grains, sugar, cocoa, oil etc.

Here is a list of things you need to remember to make the most out of the trade:

You can buy or sell agri commodity trading contracts in any of the six exchanges in India.
National Commodity & Derivatives Exchange and National Multi-Commodity Exchange are specifically focused on a variety of agri commodities. You can trade using your regular demat account.
Volatility is a crucial aspect of this type of commodity trade that directly impacts your profit. A higher volatility means you suffer a greater price risk and deposit a higher amount of margin money in your commodity trading account.
Agri commodity trading helps ensure an effective hedge against risks. Depending on the difference between the spot and futures prices, you can enjoy profits.
Commodity trading of this kind is an efficient way to discover the future price. Investors who have a solid grasp of how supply and demand work in the agri commodity market can make substantial returns.
Warehousing facilities have a direct impact on the price of various agri commodities as most are soft commodities.
Price for soft commodities such as grains are different from prices of hard commodities such as zinc due to shorter shelf life.
Prices of agri commodities can become more competitive if proper warehousing facilities are available to the farmers.
Surge in the use of alternatives is a key factor that affects the price in commodity trading; if a vast majority of consumers choose soybean oil over groundnut oil due to health reasons, the prices are going to fluctuate to meet the demand patterns.
Prices in this form of commodity trading are also affected by external factors such as weather conditions; most of the agricultural commodities in India are kharif crops and, therefore, monsoon is critical for the harvesting season.
If sufficient monsoons are not received, and the farmers don’t have access to proper irrigation facilities, the prices of the agri commodities may shoot up.
If agri commodity trading is something you wish to try out, you need to be confident about your assessment of future prices.
You will need to open a trading account and deposit the margin money to the broker to start trading; make sure not to bet your entire life savings on agri commodity trading.
Like every other investment, commodity trading also has its own share of risks; one wrong move can undo all your efforts. So, make sure that you play your cards smartly.

Disclaimer

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ICICI Securities Ltd. is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. ICICI Securities Ltd. is a SEBI registered with SEBI as a Research Analyst vide registration no. INH000000990. Name of the Compliance officer (broking): Mr. Atul Agrawal, Contact number: 022-69997051, E-mail address: complianceofficer@icicisecurities.com Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. ICICI Securities Ltd. and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Such representations are not indicative of future results. The securities quoted are exemplary and are not recommendatory. AMFI Regn. No.: ARN-0845. PFRDA registration numbers: POP no -05092018. ICICI Securities Ltd. acts as a Composite Corporate agent having registration number -CA0113. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Please note, Mutual Fund, Corporate Fixed Deposits, Bonds, Alternate investment funds, Tax planning, Succession planning, NPS, IPO, Investment Advisory and Loans related services are not Exchange traded products and ICICI Securities Ltd. is acting as a distributor to solicit these products. Please note, Insurance related services are not Exchange traded products and ICICI Securities Ltd. is acting as a corporate agent to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The non-broking products / services like Research, etc. are not exchange traded products / services and all disputes with respect to such activities would not have access to Exchange investor redressal or Arbitration mechanism. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.

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