Things To Keep In Mind While Trading In Agri Commodity Futures
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.
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