Commodities exchange as the name suggests refers to the trading of goods. When the context is being referred in terms of the financial market, it simply means formal exchange of commodities taking place on the commodities exchange. Investors can invest their money in the commodity market in several different ways. There are shares issued by commodity companies, mutual funds, or exchange-traded funds (ETFs) which can be bought by the investors to safeguard themselves against the risk of inflation in the future.
Read more about the commodities market in the following sections, and if you are looking for some new investment avenue then find out how to invest in it:-
What is a Commodity?
Basically, a ‘commodity’ is a group of assets or goods of everyday relevance such as food, energy, or metals. However, it has to be exchangeable in nature so that it can be traded. It can be categorized as every kind of movable good that can be bought and sold, except for actionable claims and money.
Where to Invest in Commodities?
Commodities are traded on the commodity trading exchanges in India. Here is a list of few popular commodities trade exchanges:-
Multi Commodity Exchange – MCX
National Commodity and Derivatives Exchange – NCDEX
National Multi Commodity Exchange – NMCE
Indian Commodity Exchange – ICEX
Commodities Exchange Benefits
There are several benefits of investing in commodities market.
- Protection Against Inflation- Commodities traded in the commodities exchange tend to protect investors against the effects of inflation.
- Hedging Against Price Fluctuations: Fluctuating import and export product pricing can affect the commodities market. Investing in Commodity Futures helps investors procure or sell commodities at a price decided months before the actual transaction. This technique is popularly known as hedging in the commodities market.
- Diversification: Investing in commodities will enable an investor to diversify one’s investment portfolio of financial securities.
How to Buy Commodities FAQs
In order to trade in the Commodities market, an investor first needs to open a DMAT account.
Commodities are traded just like shares are traded on the stock exchanges of India.
In order to invest in commodities, there are several routes, such as commodities futures and options, commodities ETFs, investing directly into physical commodities.
An individual need to choose which one the above mode of investment best suits their pockets and matches their needs.
Commodity ETFs enables ease of trading because they are purchased like stocks. However, Commodities future prices keep on fluctuating frequently just like share prices on the stock exchange.
*Disclaimer - The information provided above is only for information purposes to spread financial knowledge and enhance literacy among our readers. It shouldn’t be taken as financial advice by anyone.