The exchanges allow for the trading of both hard and soft commodities. Metals, crude oil, etc. Metals, crude oil, and other hard commodities fall under the umbrella of hard commodities, while agricultural commodities such as corn, wheat, cotton, soybean, and guar are considered soft commodities because they have a short shelf life. Let's focus on India's commodity markets and the list of commodities traded on them.
Bullion: Gold, Silver
Base Metals: Aluminum, Brass, Copper, Lead, Nickel, Zinc
Energy: Crude Oil, Natural Gas
Agri commodities:Black pepper, Cardamom, Castor seed, Cotton, Crude palm oil, Mentha oil, Palmolein, Rubber
Cereals & pulses: Chana, Maize south, Maize kharif/south and Wheat rabi, Maize rabi. Paddy (basmati).
Fibres: Kappa's, Cotton
Guar seed, Guar gum
Oils and Oil Seeds:
Castor seed, Cotton oil cake, Mustard seed and Crude palm oil
Spices: Pepper, Turmeric, Jeera, Coriander
The most traded commodities worldwide are crude oil, Brent oil and Silver, as well as Crude oil, gold, Brent oil, silver, corn, Natural Gases, Soybeans. Below are the details of a few commodities that make up the list.
Crude oil is the most desired commodity because there are many products that result from refining crude oil, such as diesel and petroleum. All over the world, geopolitical tensions are raging for control over crude oil resources. With the growing demand for cars, the demand for crude oil will rise. OPEC is a group of oil-producing nations. The supply of crude oil can be disrupted by wars, armed rebellions, etc. The top oil-producing countries worldwide are the US, Saudi Arabia and Russia.
Consider gold a safe haven. People buy gold when the US dollar price falls. Gold prices drop when the dollar's value increases. The relationship between the US dollar and gold prices is inverted.
The factors that influence soybean prices include biodiesel demand and weather.
The drivers of the commodity market are hedgers and speculators. They constantly monitor the price of commodities and predict the future price movements. If they believe that the prices will rise, they purchase commodity futures contracts. If the prices appear to move higher than they purchased, they then sell the contracts at a higher price. They can then sell the contracts and buy them back at a lower price if they believe the prices will fall. Both cases result in them making profits.
Producers, manufacturers, etc. Using commodity futures markets to hedge their risk is a common way for producers and manufacturers to do so.Let's look at an example to illustrate the concept. A wheat farmer is subject to price fluctuations during harvest. If the price drops, the farmer will lose his crop. The farmer can hedge this risk by entering into a futures contract. The farmer can make gains in the futures markets if the local market prices fall. The farmer will lose in the futures market if the price of the crop rises during harvest. However, he can make up the difference by selling the crop at a higher local price.
Commodity trading takes place over the exchange. There is no manipulation of prices by sellers or buyers. If the price quoted by the buyer matches the price offered by the seller, the order is executed. The main advantage of advanced online trading platforms is that price discovery for commodities can be done without manipulation. Small trades can benefit from lower margins in commodity futures. They can also use this segment to hedge risk and gain greater leverage.
Trading on exchanges is free from counterparty risk. The exchanges enforce proper risk management procedures to protect investors.
Before you trade in commodities, make sure to understand the list of commodity types and learn how price affects a specific commodity.