Commodities may be classified into agri-commodities such as spices, soyabean, corn, cocoa and so on. Bullion and other metals may also be traded. Crude oil, natural gas, furnace oil as well as vegetable oils are also traded on commodity exchanges.
Commodity exchanges in India, are basically electronic trading and settlement systems, with a nationwide presence. A number of brokers are associated with these commodity exchanges who offer online trading in commodities. Electronic trading enables even retail investors to participate in the markets by purchasing small quantities of precious metals and other commodities and holding them in electronic form.
You can buy and sell commodities very fast. All transactions are electronic. There is no need of physical buying and selling of commodities.
Traditionally the prices of commodities move in a direction opposite to equity. Commodities are a good alternate investment.
You can easily buy and sell commodities unlike real estate. There is always a buyer and a seller for the commodity.
Invest only a fraction of the cost of the commodity and take home huge profits, through margin financing.
The forward market commission (FMC) functions as a regulatory authority in the commodity market. The National Commodity and Derivative Exchange (NCDEX), Multi-Commodity Exchange (MCX) and National Multi Commodity Exchange (NMCE) are the commodity exchanges present in India.
In order to open a commodity account you need to submit an address and an identification proof, such as a copy of the voter's card or the passport, a bank account statement, copy of the PAN card which form a part of the know your customer (KYC) norms. This is similar to the opening of a demat account in the equity market.
A trading account will have to be opened with National Spot Exchange Limited (NSEL) and a demat account with a depository such as National securities depository limited.
A minimum amount of INR 5000 is sufficient to trade in most commodities. The brokerage charges are in the range of 0.1-0.3% of the contract value. Transaction charges are in the range of INR 5-10 per Lakh per contract. The brokerage varies based on the type of commodity.
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