Commodity trading means buying and selling raw or primary goods—such as gold, silver, crude oil, or agricultural products—often through futures contracts on exchanges. This article explains the basics so you can understand how commodity markets work. It does not recommend any trade or product.

What Is a Commodity?

A commodity is a basic good that is interchangeable with other goods of the same type. Examples include metals (gold, silver, copper), energy (crude oil, natural gas), and agricultural products (wheat, cotton, sugar). Commodities are traded in standardized quantities and grades on exchanges. Prices are driven by supply, demand, weather, geopolitics, and other factors.

How Commodity Trading Works

In India, commodity derivatives are traded on exchanges such as MCX (Multi Commodity Exchange) and NCDEX (National Commodity and Derivatives Exchange). Most retail participants trade commodity futures: contracts to buy or sell a fixed quantity of a commodity at a set price on a future date. As with equity futures, you typically close the position before expiry. You need a trading account that allows commodity segment; margin is required. Spot trading (buying and taking delivery) is different and not covered in detail here.

Types of Commodities

Metals

Gold and silver are widely traded. Prices can be influenced by interest rates, the US dollar, and demand from industry and jewellery. Copper and other base metals are also traded and are sensitive to economic activity and supply.

Energy

Crude oil and natural gas are major energy commodities. Prices depend on production, demand, geopolitics, and inventory levels. Energy futures can be volatile.

Agricultural (Agri)

Wheat, rice, cotton, sugar, and other farm products are traded. Weather, monsoon, government policies, and global supply affect prices. Agri contracts often have specific delivery months and quality standards.

Important Concepts

  • Lot size: Minimum quantity per contract; differs for each commodity.
  • Expiry: Date when the contract settles. You should close or roll over before expiry if you do not want delivery.
  • Margin: Collateral to hold a position; varies by commodity and volatility.
  • Tick size: Minimum price movement of the contract.

Risks in Commodity Trading

Commodity markets can be very volatile. Weather, policy changes, or global events can cause sharp moves. Futures involve leverage, so losses can exceed your margin. Currency moves can affect dollar-priced commodities when converted to rupees. This article is for education only; it does not advise you to trade or avoid commodities.

Summary

Commodity trading involves buying and selling contracts on raw goods like metals, energy, and agricultural products. Trading is done mainly through futures on exchanges like MCX and NCDEX. Understanding lot size, expiry, margin, and volatility is important. This content is for learning only and is not financial advice. Always do your own research.