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Your Guide to Commodity Trading: Investing Beyond Stock Markets

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by Ankita Lodh on 20 January 2025,  3 minutes min read

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Today’s Indian markets are packed with exciting opportunities that go way beyond just buying and selling company shares. If you’re reading this, you’re probably already interested in growing your investments and diversifying them. 

Let’s explore how commodity trading could become part of your investment story, especially if you’re just getting started on this journey.

What is Commodity Trading in India?

Trading commodities is all about dealing in raw materials and natural resources—everything from gold and silver to wheat and crude oil. Instead of buying actual physical goods, traders work with standardised contracts on specialised exchanges regulated by SEBI in India. Think of it like a marketplace where you can buy and sell these materials without ever touching them.

In India’s commodity trading landscape, we have several primary commodities trading exchanges, including MCX, NCDEX, NMCE, ICEX, ACE, and UCX. 

Why Step Beyond Regular Stock Trading?

Think about your neighbourhood kirana store owner. When dal prices rise, his business is directly affected. When petrol prices surge, transport companies feel the pinch. When the rupee weakens against the dollar, IT companies often see their profits soar. These real-world connections show us why trading in commodities isn’t just for big players anymore—it’s relevant to all of us.

What’s Changed in Indian Markets?

Gone are the days when commodity trading meant physically buying and storing gold or trading currency meant visiting money changers. Today, you can trade gold futures or USD-INR pairs right from your phone! The beauty is that you don’t need crores of rupees to start—many beginners start with as little as a few thousands rupees in their trading accounts.

What to Look For in Your Trading Platform

  • Live Prices: You get real-time market prices for better entry and exits
  • Charts: Visual representations of price movements, like comparing last year’s and this year’s rainfall patterns
  • Fund Management: As easy as managing your UPI payments
  • Research: Like having a financial advisor in your pocket
Dhnaush stock trading app

Also read: A Beginner’s Guide to Stock Trading: Understanding Dhanush for Smart Investments

Understanding Market Relationships

Let’s break this down with examples:

Gold and USD: When the dollar strengthens, gold prices often rise in rupee terms.

Crude Oil and Markets: A rise in crude oil prices often affects our entire market because India imports most of its oil.

For example, during the Covid-19 market crash of March 2020, stock markets fell sharply, Gold prices rose as investors sought safety.

Apart from being aware of the above-mentioned aspects of the market, you also need to follow certain risk management practices for commodity trading, including:

The 2% Rule: If you have ₹1 lakh in your trading account, never risk more than ₹2,000 on a single trade. 

Stop-Loss: If you buy gold at ₹60,000 per 10 grams, place a stop-loss at ₹59,700. This means your maximum loss is limited to ₹300 per 10 grams.

Investors who understood these aspects were usually better positioned to protect their investments.

Research Support

Technical Analysis 

Basic Patterns to Look For as a Beginner in Trading:

  • Uptrend: A sustained price movement where each peak and trough is higher than the previous one. The asset’s price creates a series of successively higher high points and higher low points on the chart, forming an ascending pattern. 
  • Support Level: A price point where historically, buying interest has been strong enough to stop prices from falling further. It represents a level where demand typically outweighs supply, causing prices to bounce back up. 
  • Resistance Level: A price point where historically, selling pressure has been strong enough to prevent prices from rising further. It represents a level where supply typically outweighs demand, causing prices to reverse downward. 

For example, look at Crude Oil prices between 3 PM and 3:15 PM any day – you’ll often notice similar patterns forming. These 15-minute patterns are great for beginners to practice their analysis.

Understanding News Impact 

When the RBI announces interest rates or when the US Fed makes a decision, markets react. Here’s how to stay informed:

– Follow RBI’s bi-monthly policy meetings

– Track major economic data releases

– Monitor global events that affect commodity prices

Also read: Futures and options trading in India: A beginner’s guide

Common Mistakes to Avoid in Commodity Trading 

Conclusion

To begin your trading journey, it’s essential to take measured steps that set you up for long-term success. Opening a trading account with a reliable broker like Dhanush is your first move.

You can start small—even if it’s just a few thousand rupees. As you progress, keep learning and tweaking your strategy based on what works for you, and take advantage of Dhanush’s regular research reports and trading tools to help refine your approach.

Every successful trader started exactly where you are today. The key is to start small, learn continuously, and never risk more than you can afford to lose.

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