Invest wisely in commodity trading

Commodities are an integral part of stock market. However, they are not much sought after by investors because it requires significant amount of time, money and knowledge. If invested wisely commodities also yield good returns.

Commodities, whether they are related to food, energy or metals, are an important part of everyday life. As the current ongoing hike in crude oil price is bound to affect car owners and two -wheeler drivers.

Also, the sudden increase in the prices of food grains such as rice or wheat may influence the composition of our meal. We have often heard that crude oil prices have shot up and gold prices have increased -- all this news is related to commodity market. Commodity market can be broadly classified into metals, energy and agro-based products.

Metals
Metal commodities are classified into bullion and base metals, wherein gold and silver come under bullion. A volatile stock market compels investors to transfer money to precious metal such as gold which has historically been viewed as a reliable metal with appreciable value. Moreover, precious metals can also be used as a hedge against high inflation. Whereas, the metals like copper, lead, tin, aluminium, zinc and others are base metals.

Agro-based products
Agro-based commodities include rice, wheat, cotton, sugar, coffee and others. Commodity trading in agri products is less for various reasons. One of them being the many factors that affect its prices. As the government fixes minimum support price for Agricultural Products, along with the price being dependent on monsoon, demand and supply of the product. But, sometimes there is high volatility in this product.

Energy
Energy related commodities include crude oil, natural gas and others. One can invest in any of the above commodities. Also, one can trade in commodities through exchanges like Multi Commodity Exchange of India Limited (MCX), National Commodity and Derivatives Exchange Limited (NCDEX). Just as SEBI regulates BSE and NSE, these exchanges are regulated by Forward Markets Commission.

We can invest in commodities when the prices are low and sell them when the prices are high. When we buy gold in commodity market we get units of gold. And, we can invest in commodities through futures and hedging.

But, one has to be cautious while trading in commodity market. One should never over trade. You should always maintain a stop loss and never let emotions drive you. When the market is bearish, investors park cash in commodities as commodities traditionally move in opposition to stocks. (The author is a homemaker who dabbles in stock market investments in free time)