Investors Looking On Commodity Future Markets

Submitted On 16-Jan-2018 by Abhinav Mishra

For investors interested in commodity future markets, it is good news that Indian markets are opening up new avenues for retail investors and traders to participate in commodity trading. For those who want to diversify their portfolios away from shares, real estate and bonds, commodity trading is considered the best option.

As per an estimate, 10 per cent of retail investors occupied in equity trading have now moved to commodity trading. On account of the increase in rate of inflation, there is a new insight among people with regard to the price of commodities, which has resulted in the growing interest of traders and investors in commodity market.

Following are some parameters for investing or trading in commodity on a large sale: 

Since commodity future trading is done on the margins, the investor deposits a portion of the value of the future contract with a broker to cover the margin requirements of the exchange. This gives the investor greater leverage whereby the ability to generate higher returns sounds more. Investments in commodity future offer high liquidity and it is easy for the investors to buy and sell in future market and can liquidate their position, if so they desire. Further, there is an additional advantage of being able to utilize the profits from a trade to a different interest, without having to close earlier the position.

It is to be noted that the commodity markets’ investments are an exceptional means of portfolio diversification. For instance, the price of gold has historically shown a low correlation with most other asset prices, and thus offers an excellent means for portfolio diversification.

Commodities offer vast potential to become a separate asset class for market-friendly investors, speculators and arbitrage. The retail investors, who claim to appreciate the equity markets, may find commodities a profound market. Retail investors should recognize the advantages and risks of trading in commodities future before taking a leap.

The other benefit for commodities traders, especially, in India is a risk management. Commodity future market widely helps in price discovery process and risk management. Exchanges have prudent risk management practices and structured settlement procedures, which restore confidence to an investor. Commodity future exchanges have an electronic trading platform which helps creating a transparent price detection mechanism driven by market fundamentals and the risk factor without any intervention by sellers or buyers.

The above parameters pronounce, in fact, that commodities have emerged as an alternative investment class and commodity markets, not only in India but also across the world are keeping momentum by the latest technological innovations and up-gradations which have made information flow from one market to another very fast.


Vikas Punia


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