What Is Commodity Trading In India?

Posted by Mehul Kothari | Published on 08 May 2019
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What Is Commodity Trading In India?

The stock market has always been a paradise for traders and investors. They invest their savings in the stock market to make good returns and build a huge corpus over time. Another popular avenue for traders is commodity trading. Commodity trading in India has a long history. In fact, India is among the few countries that started trading in commodities since a very long time. Today commodity trading in India has a significant role and importance. In this article, we will walk you through the commodity trading basics and its related concepts in detail.

Let us first learn about the meaning of commodity trading.


What is Commodity Trading?

A commodity is a group of assets that are important to support our lives like metals, food, energy, etc. When such a commodity can be traded on an exchange and has a price change, they can be purchased and sold just like the stocks, this is termed as commodity trading. In India, there are four classified categories of commodities, they are:
• Agriculture – Includes items such as Corn, Coriander, Chana, Castor Seed, Wheat, etc.
• Energy – Includes items such as Crude Oil, Natural Gas, etc.
• Metals – Includes items such as Copper, Gold, Silver and Platinum
• Livestock and Meat – Includes items such as Eggs, Pork, Cattle, etc.

Commodity trading is a profession for many traders in India. The trader uses the price fluctuation in the above commodity prices to trade and find opportunities to make money.

Now that we know what it is, let us learn where you can invest in commodities in India.


Where Can You Invest in Commodities in India?

Anyone living in India can trade in commodities through the exchanges. There are six commodity exchanges in total where you can trade in India; they are
• National Commodity and Derivatives Exchange – NCDEX
• National Multi Commodity Exchange – NMCE
• Multi Commodity Exchange – MCX
• The Universal Commodity Exchange – UCX
• Indian Commodity Exchange – ICEX
• Ace Derivatives Exchange – ACE

Knowing about the commodity markets in India, let us now learn about investing in the commodity market.


How to Invest in the Commodity Market?

You can trade in the commodity market through a futures contract. In this type of contract, you enter into an agreement to buy or sell a specific quantity of a commodity at a future price. Every commodity is available for trading through the futures market. The traders, depending upon the predicted price movements take their position. Like for example, if the trader expects the price of a commodity to go up, he would purchase a specific quantity of the commodity and go long. Similarly, if the trader expects the price of the commodity to go down, the trader sells a specific quantity of the commodity and goes short.

As you are now aware of the ways through which you can invest in the commodities market, let us now know about the commodity trading time in India.


Commodity Trading Time in India

The commodity markets in India is open on all days of the week except Saturdays, Sundays and holidays declared by the exchange. The market timings of the Indian commodity market is as follows:
• Agri Commodities: 9 a.m. to 9 p.m.
• Bullion, Metals, Crude Oil and Internationally linked Agri Commodities: 9 a.m. to 11:55 p.m.

In the year 2018, The Securities and Exchange Board of India (SEBI) extended the commodity trade timing to the above timings in order to deepen the commodity markets as well as to increase the participation of stakeholders such as value chain participants, farmers producers organisations, foreign entities having actual exposure to Indian physical markets, etc.

There are many benefits of trading in the commodities market. In this section of the article, we will learn the benefits of commodity trading.


Benefits of Commodity Trading

• Hedging
Hedging plays an important role in commodity trading. It protects the traders from price fluctuations as they enter into an agreement at a pre-decided price.

• Speculation
Since commodity trading is very popular, traders speculate the future price movements and make heavy profits out of it.

• Arbitraging
There are instances when the price of a commodity varies in different markets. The traders take advantage of such a situation by arbitraging. They buy a commodity in one market where the price is low and instantly sell it in another market where the price is high.

Individuals wanting to trade in the commodities market often find it difficult to select a commodity broker. In the following section of the article, we will look at how the selection of a broker should be done.


How to Select a Broker for Commodity Trading?

Selecting the right broker is an important part of commodity trading as your whole experience in the commodity market will depend on it. While selecting any broker, you must look at their credibility and service record. Since your trading experience will depend on the services of a broker, check whether the broker provides the facility of commodity trading online. Another important criterion is the brokerage rates charged by the broker. So, the broker selection must be made after considering all these factors.

While selecting the broker, you must ask them to provide a demo of the services provided by them on their trading platform. Test the commodity trading online through the desktop or mobile application and understand the working of the platform. Another important factor that must be considered is the customer support team of the broker. Check how proactive and strong the team is to assist you during any problem or query. Understand with the broker the process of depositing the margin money. Last but not least, you must select the broker who is certified. IndiaNivesh is one such broker who is well known to fulfil all the above criteria and provide its clients with a hassle-free experience.

After selecting the right broker for commodity trading, you must open the commodity trading account. In this section of the article, we will learn about the process of opening a commodity trading account.


Opening Commodity Trading Account

The primary requirement for trading in the commodities market is to open a trading or demat account. All you need to do is fill an application form and submit documents like your identity proof, source of income, financial statement, etc. The broker then, depending upon the financial details submitted by the individual, approves or rejects the application. This is an important step as brokers want to be sure that the applicant will be able to meet the debt payments and he does not suffer the losses.

After opening a trading account, the next big question for a trader is how much minimum investment is required to trade in commodities. So, let us have a look at the minimum amount required for making the investment in the commodity market.


Minimum Amount Required For Investment

After opening the commodity account, you have to deposit an initial amount to start trading in commodities. Initially, you have to deposit at least 5% to 10% of the total contract value. Along with the margin money, the trader must pay a maintenance margin amount to the broker so as to cover the losses that may happen in case of adverse market situations.
Let us now read about the importance of trading strategies while trading in commodities.


Importance of Trading Plan

Trading strategies are very important in commodity trading. With the right trading plan, commodity trading can be very profitable. The commodity trading plan must be developed as per the financial objectives and risk-bearing capability. The trading plan of one trader may not be suitable for another trader. Therefore, the commodity trading plan must be prepared after conducting research and other necessary requirements. The most important part of commodity trading strategy is not to overtrade and always put a stop loss. Furthermore, the trader must put various risk management techniques to maximise his returns and minimise the risk in commodity trading.
IndiaNivesh is one of the leading broking firms that provide you all the assistance along with risk management techniques to make commodity trading a profitable venture for you.




Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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Different Types of Derivatives in India

Posted by Mehul Kothari | Published on 08 May 2019

People invest money in the financial market with the hope of making good returns. But the investment may turn risky due to volatility in the prices of securities like commodities, currency, equity, etc. During such fluctuations, all the predictions could go either way. This increases the chances of wiping out your entire investments. Thus, the primary concern of the trader is the risk that is associated with the financial market and flow of returns while trading in the market.There are various instruments available that can protect a trader from the risks and volatility of the financial markets. These instruments not only protect the traders but even guarantees returns to them. Derivatives are such instruments. In fact, you will be surprised to know about just the types of derivatives market that exist. In this article, we will understand the concept and different types of financial derivatives in detail.Before understanding the types of financial derivatives, let us first learn the meaning of derivatives.What are Derivatives?Derivatives are financial contracts that derive their value from an underlying asset. The value of the underlying asset keeps on changing depending on the market conditions. The derivatives can be traded by predicting the future price movement of the underlying asset.The derivatives contracts are widely used to speculate and make good returns. These are used for various purposes like hedging, access to additional assets, etc. Let us now learn about the different types of derivatives market in India.Different Types of Derivatives in IndiaThere are four types of derivatives that can be traded in the Indian stock market. Each type of derivative differs from the other and has different contract conditions, risk factor, etc. The different types of derivatives are as follows:• Forward Contracts• Future Contracts• Options Contracts• Swap ContractsLet us now study the different types of financial derivatives in detail.• Forward ContractsWhen two parties enter into an agreement to buy or sell an underlying asset at a specified date and at an agreed price in the future, it is termed as a forward contract. Forward contracts are an agreement between the parties to sell something on a future date. The forward contracts are customised and have high counterparty risk. Since the contract is customised, the size of the contract depends on the term of the contract. Forward contracts are self-regulated and no collateral is required for the same. The forward contract's settlement is done on the maturity date and hence they must be reversed by the expiry period. • Futures ContractsJust like the forward contract, a futures contract is an agreement to buy or sell an underlying instrument at a specified price on a future date. In the futures contract, the buyer and seller are not required to meet each other to enter into an agreement. In fact, the agreement between them is done via exchange. Since there is a standardised contract in the futures contract, the counterparty risk is very low. In addition, the clearing house acts as a counterparty to the parties of the contract which further reduces the credit risk. Being a standardised contract, its size is fixed and it is regulated by the stock exchange. Since the future contracts are listed on the stock exchange and being standard in nature, these contracts cannot be modified in any way. To put it in simple words, future contracts have pre-decided format, pre-decided expiry period and pre-decided size. In future contracts, initial margin is required as collateral and settlement is done on a daily basis. • Option ContractsOptions contracts are the third type of derivatives contract. Options contracts are very different from futures and forwards contracts as there is no compulsion to discharge the contract on a certain date. Options contracts are those contracts that give the right but not the obligation to buy or sell an underlying asset. There are two types of options: call and put. In the call option, the buyer has the right to buy an underlying asset at a price determined while entering the contract. While in the put option, the buyer has the right but not the obligation to sell an underlying asset at a price determined while entering the contract. In both the contracts the buyer has the option to settle the contracts on or before the expiry period. Therefore anyone trading in the options contract has the option of taking any of the 4 positions i.e. long or short in either the put option or the call option. Options are traded at over the counter market and at the stock exchange. • Swap ContractsOut of the various types of derivatives contracts, swap contracts are the most complicated. Swap contracts are private agreements between two parties. The parties to the contract agree to exchange their cash flow in the future as per a predetermined formula. The underlying security under swap contracts is interest rate or currency. Since both interest rate and currency are volatile in nature, it makes swap contracts risky. Swap contracts protect the parties from various risks. These contracts are not traded on the exchanges and investment bankers are the middlemen to these contracts.To conclude, derivatives contracts like forwards, futures and options are one of the best hedging instruments. The traders can predict future price movements and make good profits out of them. For further assistance regarding derivatives contracts trading, you can contact IndiaNivesh who can assist you with trading in derivatives.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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Things to keep in mind while investing in commodities

Posted by Mehul Kothari | Published on 08 May 2019

If you wish to diversify from traditional investment products like bonds, shares and mutual funds, trading in commodities is an interesting idea. But where should you start and how should you invest? Here are some things to keep in mind when you invest in commodities1) How to start investing in commoditiesThere are a lot of different products you can choose. Gold, silver, crude oil, natural gas and agricultural products are some of the popular options. But where should you start? Well, it is always good to begin trading in a commodity you know. For example, if you work in the mining industry, you may have sufficient knowledge about metals. Similarly, if you work in the confectionery industry, you may be updated with regular changes in the price of sugar. Having a basic idea of a commodity can be a good starting point. 2) How to tradeIn commodity trading, an investor decides to buy or sell a commodity at a pre-determined price on a specified date in the future. There are different ways to trade in commodities. You can purchase Exchange Traded Funds (ETFs). Some funds invest in a commodity or a specific sector. Others diversify and invest in many different sectors. If you are a novice investor, it is best to allocate your capital into different assets so that you can minimize your risk. You can also invest in stocks of companies related to commodities. 3) Manage riskMetals, agricultural products and petroleum products are all clubbed under the title commodities. However, this does not mean they are all the same. Different commodities have different risks. Some of them have small price movements during a day while others show great volatility. Identify your risk appetite and invest accordingly. You don’t want to find out any unwanted surprises after investing. 4) Create a stop lossLosing money in the financial markets is nothing new. Most investors make wrong investments from time to time. But those who create a stop loss can rebound from these losses. For example, would you rather lose Rs 10 or Rs 100? The answer is obvious, right. Trading in commodities can be a bit risky, especially if the commodity is volatile. By creating a stop loss, you can manage the risk and minimize your losses. 5) Be preparedTo gain success in the commodities market, you need to be prepared. Be updated on the latest events (nationally and globally) that influence commodity prices. Identify the factors which influence the change in prices of a commodity and take appropriate investment decisions based on these factors. Also, don’t forget to improve your trading strategies through research and analysis. This is very important in a commodities futures market.ConclusionThe commodities market is influenced by many factors. Government policies, macroeconomic factors and global events are some of the key influencing factors. As an investor, it may not be possible to control all these different factors. However, you can control your own emotions. And this is a very important trait in commodities trading. In addition to the above points, remember not to let fear or greed influence your investment decisions. Do your research and invest confidently and over time, you can enjoy the fruits of your investments. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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Child ULIPs Child ULIPs are especially designed unit-linked plans for the financial security of the child if the parent is not around. Under these plans, the parent is insured while the child is the beneficiary. These plans have an inbuilt premium waiver rider. If the parent dies during the policy tenure, the death benefit is paid. However, the plan does not terminate. The policy continues, and future premiums are paid by the company on behalf of the insured parent. On maturity of the policy, the fund value is again paid as the maturity benefit which provides the child with the financial corpus needed to pursue his/her dreams. Pension ULIPs These are other specific unit-linked plans which help in creating a retirement fund. Pension ULIPs are deferred annuity plans wherein you pay premiums during the policy tenure to build up a retirement corpus. In case of death, the death benefit is paid. 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Benefits of ULIP A ULIP is popular because of the following benefits it provides – It allows you to avail insurance coverage as well as investment returns in a single product The premiums paid and the benefits received under ULIPs are completely tax-free in nature helping you save tax The flexible benefits of ULIPs allow you to manage your investments as per your investment strategy The different types of ULIPs help you fulfil the various financial goals that you might have Switching and partial withdrawals do not attract any tax making ULIPs tax efficient Since the returns are market-linked, you get inflation-adjusted returns from ULIP ULIPs are attractive insurance policies that give you coverage as well as returns. Now that you understand ULIP meaning, its types and advantages, use our IndiaNivesh platform to invest in a plan as per your insurance and investment needs and enjoy all the benefits that the plan has to offer.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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  • What is CAGR & How to Calculate it?
    Posted by Rushabh H. Mehta | Published on 06 Mar 2020

    There are different types of investment avenues in the market and each of these avenues promises you a compounded rate of growth if you remain invested. Compounding of return means earning a return on the return earlier generated. So, if you invest INR 100 and earn a return of 10% in the first year, the amount would become INR 110. Thereafter, in the second year, you would earn 10% on INR 110 giving you a return of INR 11. This compounding helps grow and multiply your wealth considerably over a period of time. In the case of market-linked investments, the rate of return is not guaranteed. It varies over the investment period. To know the average rate of return on your investments, the concept of CAGR is used. Let’s understand what CAGR is and how it helps you find the growth of your market-linked investments. What is CAGR? CAGR’s full-form is Compound Annual Growth Rate. 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Investors can check the annual CAGR of mutual fund schemes and use the rate to find out which scheme offers better returns than others. The fact sheet offered by the mutual fund house contains returns generated by the fund over different time frames. These returns can prove to be confusing and so CAGR is an easier alternative to understand the performance of the fund. CAGR acts as a ready reckoner for investors to assess returns from a mutual fund scheme and also highlights the compounding of returns on mutual fund investments. Important points to know about CAGR The investment risk inherent in the scheme is not highlighted by CAGR. CAGR is merely a yardstick to measure the growth rate CAGR proves to be a good measure of growth for a short-term period, i.e. up to 6 or 7 years. If you are considering long-term investments, the growth trends over a short-term period would be averaged out. 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Annualised returns Annualised returns are calculated as the geometric average of the return yielded by the fund over a given period of time. CAGR v/s Absolute returns Absolute returns measure the total return yielded by an investment. The time period is not considered. CAGR, on the other hand, measures the return over a specific time period. For instance, in the previous example, INR 10,000 grew to INR 13,500 over a 3-year period. The absolute return would be 35% since it measures the total return earned on the investment. However, when CAGR is considered, the time period of investments is also taken into consideration thereby considering the time value of money. As such, CAGR comes to 10.52% which is a more realistic figure. While absolute returns show the returns generated, the time period is missing. You cannot figure out how many years it took the investment to generate this return. But CAGR shows you the annual return making it easier to make a judgement on the performance of the fund. The next time you invest in mutual funds, stocks or other market-linked investment avenues, consider their CAGR to choose the fund or investment which has better returns over its peers. So, visit IndiaNivesh and find out a mutual fund scheme of your choice and then compare the scheme’s CAGR with its peers to choose the best performing fund.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. 

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  • Capital Market – Meaning, Types & Functions of Capital Market
    Posted by Mehul Kothari | Published on 20 Nov 2019

    We all know how various companies and industries raise funds for their short term requirement through the money market. However, when they need funds for long term, capital market is their source. The capital market is just like the money market but with a difference that funds raised in the capital market can be used only for long term. In this article, you will learn about the concept of capital market in detail. Let us first understand what is the capital market? Understanding Capital Market Capital market in simple words means the market for long term investments. These investments have a lock-in period of more than one year. Here, the buyers and sellers transact in capital market instruments like bonds, debt instruments, debentures, shares, derivative market instruments like swaps, ETFs, futures, options, etc. Let us now understand the types of capital market. Types of Capital Market The capital market is of two types i.e. Primary Market and Secondary Market. Primary Market The primary market is also called “New Issue Market” where a company brings Initial Public Offer (IPO) to get itself listed on the stock exchange for the first time. In the primary market, the mobilisation of funds is done through right issue, private placement and prospectus. The funds collected by the company in the IPO is used for its future expansion and growth. Primary markets help the investors to put their savings into companies that are looking to expand their enterprises.  Secondary Market The secondary market is a type of capital market where the securities that are already listed on the exchange are traded. The trading done on the stock exchange and over the counter falls under the secondary market. Examples of secondary markets in India are National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). After learning about the types of capital market, let us now learn about the capital market instruments through which money is raised. Ways of Raising Funds Offer through Prospectus In the primary market, the prospectus is used to raise funds. The company invites the investors and the general public through an advertisement known as the prospectus to subscribe to the shares of the company. The shares or debentures are allotted to the public on the basis of subscription. If the company receives a high subscription then allotment is done to them on pro-rata basis. The company hires merchant bankers, brokers or underwriters to sell the shares to the public.  Private Placement Some companies try to avoid the IPO route to raise funds as it is very costly. Instead, they give investment opportunity to few individuals via private placement. Here the companies can offer their shares for sale to select individuals, financial institutions, insurance companies and banks. This way they can raise funds quickly and economically. Rights Issue The structure of capital market allows the companies in need of additional funds to first approach their current investors before looking at the other sources for finance. The right issue gives the current investors the first opportunity to make additional investments in the company. The allotment of right shares is done on pro-rata basis. However, if the current shareholders of the company do not want to exercise their rights, the shares can be offered to the public. e-IPO e-IPO means Electronic Initial Public Offer. e-IPO is an agreement between the stock exchange and the company to offer its shares to the public through online mode. It is a fast and speedy process. The company here needs to appoint registrar to the issue and brokers to accept the application received from the public. The above mentioned are the ways of raising funds through the capital market. Let us now learn about the various functions of the capital market. Functions of the Capital Market Helps in the movement of capital from the people who save money to the people who are in need of it. Assists in the financing of long term projects of the companies. Encourages investors to own the range of productive assets. Minimises the transaction cost. Helps in the faster valuation of financial securities like debentures and shares. Creates liquidity in the market by facilitating the trading of securities in the secondary market. Offers cover against price or market risks through the trading of derivative instruments. Helps in efficient capital allocation by way of competitive price mechanism. Helps in liquidity creation and regulation of funds. The above mentioned are the functions of the capital market. The capital market performs its functions with the help of buyers and sellers who interact and transact. The structure of the Indian capital market is well regulated and highly organised. The capital markets may be sometimes termed risky because they do not give fixed returns annually. But when looked from a long term perspective, their performance has always been good and rewarding for the investors. If you want to learn more about the capital market or put your savings in the capital market, you can contact IndiaNivesh Ltd.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

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