In India, people have been trading goods for a very long time. But as history went on, we were hit by invasions and changes to government policies that made commodity trading hard to do even though it was booming in other places. Now that good laws are in place, even people in rural India are once again buying and selling goods. And as our stock markets have grown stronger, commodity trading has again lost its power. Today, we try to figure out what commodity trading is and how to get to it in different ways.
Here are all the ways you can invest in commodities:
- Futures:Futures and options are also used for trading commodities, just like they are used for trading stocks. Futures contracts are legal agreements to buy or sell a good at a specific price at a particular time in the future. No matter what the market price is at that time, the buyer has to buy it at the agreed-upon price. In the same way, the buyer has to buy it from the seller under the same terms. It helps ensure that farmers will still make money on food grains. But he has to give up the extra profits if the prices of the goods go up.
- Stocks:You can do this by buying stocks that have something to do with the commodity signals. For example, you can purchase shares of IGL or BPCL if you want to invest in energy fuels. The risk is relatively low on the stock market, and investments can be sold quickly. And everyone can find out everything about the company. It helps people make better decisions. But the price of a stock may also be affected by other things. It might not affect investments that were hoped for.
- ETFs and ETNs:As mentioned above, online trading in commodities occurs on certain exchanges. The Multi Commodity Exchange (MCX) and the National Commodity and Derivatives Exchange are the most well-known exchanges in India (NCDEX). You can make money from price changes by buying ETFs and ETNs. ETFs use an index to track the prices of a group of goods. ETNs are debt securities that move up and down at a price like the price of a commodity.
- Index Funds and Mutual Funds:Some mutual funds invest in businesses that have something to do with a commodity. It has the advantages of being professionally managed, diversified, and liquid. But you may have to pay a lot for management fees, which could cut your returns.
Diversifying your portfolio is smart and investing in commodities is one way to do that. In the end, don’t forget that the price of a stock can go to zero (in extreme conditions). But it doesn’t apply to commodities, which are real things. So, don’t be afraid to put your money into commodities. Recognize your goals, devise a good plan, and invest in a good mix of assets.