Welcome to this on-demand blog where we dive into the world of commodity trading. Whether you’re an experienced trader in equity, crypto, or currency markets, the commodity market offers great opportunities too. Unlike the equity market, the commodity market’s trading hours from 9 am to 11:30 pm provide more flexibility to those with busy schedules.
Today, we have a special guest, Ms. Vandana Bharti, an expert in commodity trading, who will guide you through the fundamentals and strategies. Even if you’re new to this field, don’t worry, as we’ll start from the basics. By the end of this blog, you’ll discover how to make consistent profits in commodity trading.
Our special guest, with 17 years of experience, will guide you through the basics of the commodity market, making it accessible even for beginners. The commodity market holds a significant place as it was the foundation of today’s financial markets, originating in Japan and the US with the need to coordinate food and money.
Over time, it evolved into a standardized and technology-driven market, now operating globally. There are two types of commodities: hard commodities like gold, silver, and base metals, and soft commodities like agri-products such as rice, spices, and cotton. So, why venture into commodities? The market offers excellent opportunities with a unique business cycle, making it a compelling option for traders seeking diversification.
With the Nifty falling from Rs. 18,800 to Rs. 15,800, investors are concerned about the potential further decline to Rs. 14,700. While some may choose to hold cash to wait for a better opportunity, being entirely in cash is not ideal. This is where the commodity market comes into play as a viable option for investment.
Commodities have unique attributes, being essential items like food, clothing, and fuel, which are indispensable in our daily lives. Since we use these commodities regularly, we can better understand their price movements and seasonal trends. Unlike equity or currency trading, specific studies are not necessary in commodity trading, making it more accessible. However, it is essential to grasp some basic terminologies to trade effectively.
The spot price is the underlying effect, representing the actual physical commodity’s price. For instance, in crude trading, the spot price reflects the cost of physical crude. In contrast to the equity market, where cash and futures prices are closely aligned, the futures price in commodities is based on the quality of the physical market and is traded on exchanges like MCX and NCDX in India. Understanding the contract cycle is crucial as it determines when contracts expire. In commodities, monthly contracts are common, with 12 contracts spanning the year.
For agri-commodities, contracts expire on the 20th of each month, while base metals contracts end on the last day of the month. Knowing the expiry date is vital to wind up positions before the delivery period, which varies depending on the commodity. Delivery units differ based on the commodity’s nature, valuation, and requirements.
For instance, while 10 grams of gold may suffice for jewelry or investment purposes, one would need a higher amount of copper due to its lower valuation. The delivery unit varies accordingly, and traders must be aware of these differences.
Basis refers to the difference between the spot market and futures market prices. This difference often leads to profitable arbitrage opportunities. In the case of gold, for instance, while the spot price on MCX is 50,761, the futures price for 5th August 2022 is 50,573, resulting in an arbitrage window of around 185 rupees.
Such price differences can be exploited by buying at the lower price in the futures market and selling at the higher spot price. This type of trading, known as cash and carry or basis trading, offers great potential for earning profits.
Volatility in the futures market allows traders to capture opportunities and benefit from price fluctuations. By keeping a close eye on the spot and futures prices, traders can identify and execute successful arbitrage trades. Utilizing this strategy effectively can significantly enhance one’s earnings and overall trading experience in the commodity market.
The world of commodity trading has witnessed exciting developments, including the introduction of new tools like options for base metals, energy, gold, silver, and some agri-commodities. However, for those intimidated by the idea of high margins and delivery concerns, trading indices is a valuable option. Indices contracts are cash-settled, eliminating delivery issues, and the margins required are relatively low, ranging from 30,000 to 32,000, making it accessible for many traders.
By focusing on the technicalities, one can trade smartly and efficiently in these contracts. For example, gold contracts are available bi-monthly, while the monthly contract is an option for gold. The expiry date falls on the fifth trading day of the month. Gold contracts offer various trading units, including 1 kg, 100 grams, 8 grams, and 1 gram, allowing for trading with a low exposure. The tick size is vital, as a mere 1 rupee movement can yield substantial profits or losses.
For instance, trading in mega gold at 50,000 with a 1 rupee price movement results in a 100 rupee profit or loss. However, one must trade diligently with proper research, disciplined strategies, and stop-loss to ensure profitable and risk-managed trading. Silver, with its super volatility and rapid movements, presents a lucrative opportunity for fast-paced traders.
In commodity trading, it’s essential to understand the unique properties and opportunities offered by different commodities. Silver, being both a base metal and a precious metal, exhibits high volatility and rapid movements, making it an exciting trading option. With lot sizes of 30 kg, 5 kg, and 1 kg, traders can start with minimal investments and earn significant profits with even small price movements.
Base metals, such as aluminum, copper, lead, and nickel, offer monthly contracts with varying lot sizes and trading units. The profit potential differs with each commodity, for instance, a 1 rupee move in aluminum results in a profit of 5,000, while nickel yields 1250 on the same movement. In the energy counter, the focus is on the power crisis and inflation.
Trading in barrels and with monthly contracts, commodities like crude oil and natural gas provide opportunities for hedging against inflation and significant returns. Natural gas, with its recent volatility and substantial price movements, has shown over 100% returns from 350 to 800, offering attractive buying opportunities in the face of global energy challenges. Ms. Vandana Bharti will further guide traders on practical analysis and how to execute successful trades, helping traders make informed decisions and navigate the ever-evolving commodity market.
In the commodity trading world, we have three major indices: Bull Dex, Metal Dex, and Energy Dex. Bull Dex, as the name suggests, is derived from bullion, representing gold and silver. The proportion of these two precious metals in Bull Dex changes over time due to rebalancing. Metal Dex, on the other hand, includes five base metals: aluminum, copper, lead, nickel, and zinc, with their respective proportions being part of the index. Finally, Energy Dex is composed of crude oil and natural gas, with crude oil accounting for 51% and natural gas making up the remaining 49%.
The benefits of these indices lie in their cash-settlement feature and relatively low margin requirements. This allows traders to participate in a balanced portfolio of various commodities without requiring substantial capital. For instance, traders can begin trading 1 gram in gold for as little as 3,500 rupees in futures or opt for 7,000 rupees to trade in silver.
Energy Dex can indeed require a higher investment due to its high volatility, ranging from 1 lakh to 1.25 lakhs. Before diving into trading, it is crucial to understand the fundamentals and technical aspects of the commodities.
For instance, crude oil is expected to experience a slight decline and correct to around 8,000, but overall remains bullish. Natural gas has displayed significant volatility, indicating a potential short-term downward move to around 4.30, followed by a bounce back to approximately 7.59 in the second half of 2022. Copper is often referred to as the “doctor of the economy” as it mirrors the economy’s health. Its movement correlates with equity markets as it reflects changes in GDP, liquidity, and interest rates.
A decline in copper prices may indicate a slowdown in the economy, while an increase could signify economic growth. As the economy adjusts, copper is expected to decline for the time being. With the market showing signs of being overvalued in equities, cash may be a preferred option for some investors. However, India does not face a cash shortage, and the situation is favorable for commodity trading.
Indeed, it is wise to capitalize on buying opportunities during market corrections. In the case of copper, there may be a slight decline before a potential rebound. By monitoring levels around 780 to 810, traders can be ready to seize the opportunity for a revival in copper demand during the fourth quarter of 2022. Gold, on the other hand, acts as a safe haven in times of economic instability and currency fragility.
Even in optimistic economic conditions, central banks have been buying gold, acknowledging its role as a stabilizer during economic trade wars and inflationary periods. While gold’s value is negatively correlated with interest rates, its demand remains strong due to ongoing inflation. Therefore, though some weakness may be observed in gold, it is unlikely to experience significant declines.
Instead, it is viewed as a reliable friend during challenging times. Considering the negative correlation between gold and interest rates, it is essential to keep an eye on the economic conditions and interest rate trends while making informed decisions in the gold market.
By staying informed about these market dynamics and conducting thorough analysis, traders can navigate the commodity market with confidence and capitalize on the unique opportunities it presents. Ms. Vandana Bharti’s expertise continues to provide valuable insights, empowering traders to make informed decisions in the commodity market.
SMC Autotrender is an advanced and popular in-house software designed to provide valuable technical indicators for traders. It offers insights not only for equity trading but also for commodities and currencies. These technical indicators are crucial for traders to make informed decisions based on market trends and movements.
With SMC Autotrender, traders can analyze various aspects of the commodity market, including price movements, trend patterns, support and resistance levels, and key turning points. The software’s indicators help traders identify potential entry and exit points, enabling them to take advantage of favorable market conditions.
Additionally, Autotrender uses sophisticated algorithms and historical data to conduct thorough backtesting, which increases the software’s reliability and accuracy. This ensures that traders receive accurate and relevant information for their trading strategies.
The software’s user-friendly interface allows traders to easily access and interpret the technical indicators, making it suitable for both seasoned professionals and beginners in the commodity market. By using Autotrender’s technical insights in conjunction with other fundamental analysis tools, traders can create well-rounded strategies that enhance their chances of success in commodity trading.
For traders seeking to stay updated on market trends and indicators, Autotrender proves to be an indispensable tool that streamlines the decision-making process. Its comprehensive data analysis and real-time market updates empower traders to capitalize on emerging opportunities and manage risks effectively.
Whether traders are looking for short-term trades or long-term investment opportunities, SMC Autotrender’s technical indicators serve as a valuable guide to navigate the complexities of the commodity market and optimize their trading performance.
SMC Autotrender provides traders with a comprehensive set of technical indicators for commodity trading. After selecting a specific commodity, traders can access nine essential indicators that help them make informed decisions. These indicators are crucial for confirming buy and sell signals and identifying potential entry and exit points in the market.
Traders can find valuable information about the commodity’s current price, support, and resistance levels on the Autotrender platform. The support levels act as the lower boundaries, while the resistance levels act as the upper boundaries for the commodity’s price movement. This information is essential for setting stop-loss and profit-taking levels, ensuring that traders can manage their risk effectively.
Additionally, Autotrender’s technical indicators provide real-time insights into the commodity’s trend, momentum, and volatility. These indicators include moving averages, Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), Bollinger Bands, and more. By analyzing these indicators, traders can gauge the commodities market sentiment and potential price movements.
Moreover, Autotrender offers a unique pivot point indicator that provides support and resistance levels based on historical price data. These pivot levels help traders identify key price levels where the commodity is likely to reverse its direction or face significant price movement.
Furthermore, the platform showcases a graphical representation of the commodity’s price movement, enabling traders to visualize patterns and trends effectively. This charting feature is invaluable for conducting technical analysis and making informed trading decisions.
SMC Autotrender provides short-term trading indications, mainly for intraday to 1-2 day timeframes. These indications are based on technical analysis and are meant for traders who prefer quick and short-term trades.
On the other hand, the basis trading strategy, which involves the difference between spot and future prices, is a longer-term approach. It can last from 15 days to 1-2 months, depending on market volatility and opportunities.
The key point to understand here is that both strategies serve different purposes and suit different trading preferences. If you are an intraday trader or prefer short-term trades, you can follow the Autotrender indications for quick buying and selling opportunities.
However, if you are a positional trader, hedger, or looking for longer-term investments, the basis trading strategy can be more suitable. In this case, you can consider the difference between spot and future prices and trade based on your analysis of market fundamentals and trends.
It’s essential to keep in mind that no single strategy guarantees success in the market. It’s crucial to align your trading strategy with your risk tolerance, time availability, and trading goals. You can also combine both strategies to diversify your trading approach and optimize your overall trading performance.
We understand that commodity trading can be challenging, especially for beginners. Having expert guidance and advisory can significantly improve your trading experience and increase your chances of making profitable trades. At SMC, we offer a telegram channel where you can receive trading advisories and strategies from 8 am to 11:30 pm, covering the entire trading day.
Our experienced team provides research-based recommendations, guiding you on which commodities to trade, when to enter, and when to exit. This advisory service can help you stay updated with market trends and make well-informed trading decisions.
Commodity trading can be profitable, but it requires discipline, research, and a systematic approach. Those who follow research-based trading and maintain discipline have a higher chance of success in commodity trading. Market patterns, seasonality, and demand-supply dynamics can provide valuable insights for traders.
However, it’s essential to avoid common mistakes like blindly following others’ trades, not using stop-loss, or being egoistic with the market. A successful trader knows when to cut losses and when to book profits. Diversification is also crucial to avoid overexposure to a single commodity.
At SMC, we emphasize disciplined trading, risk management, and research-based advisory to help traders make informed decisions. With AutoTrendr and our telegram channel providing trading strategies and advisories, traders can enhance their knowledge and increase their probability of earning profits in commodity trading.
She covered various aspects of commodity trading, including the basics, different commodities, their properties, volatility, lot sizes, trading units, and price movements. She also explained the concept of bull dex, metal dex, and energy dex, and how they provide a balanced portfolio for traders.
Vandana shared her insights on different commodities like gold, silver, crude oil, and natural gas. She discussed their price movements, trends, and future outlooks based on technical indicators and fundamental analysis. She emphasized the importance of understanding correlations and triggers in commodity trading, which can help traders make informed decisions.
Furthermore, Vandana introduced the SMC AutoTrendr software, a research-based tool that provides trading strategies and advisory services for commodities. She explained how traders can use the software to get real-time indications, support and resistance levels, and profit booking targets.
In conclusion, Vandana highlighted the significance of disciplined trading and risk management in commodity trading. She also addressed common mistakes and misconceptions traders may have and stressed the importance of continuous learning and research.
Overall, this masterclass was highly informative and provided valuable insights for both beginners and experienced traders in the commodity market. For those interested in commodity trading and looking for expert guidance, Vandana’s research-based advisory services and SMC AutoTrendr software offer great opportunities to enhance trading knowledge and increase profitability.
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