The usual trading which occurs in the stock market is of shares. These shares are not physical material but mire of paper proof that someone who bought a share has a stake in the concerned company. These shares have little to no value outside the stock market since their physical form is merely paper. A different type of trading that takes place is commodity trading.
In this type of trading in real life, materials are traded. Trading real-life materials do not mean selling them physically by selling in the market. For better understanding, let us try to understand the situation with the help of an example. Suppose a trader estimates the price of oil to shoot up by Rs.15 and he is quite sure of that, then he can place the order of 1000 litre of oil at the initial price and sell them later at an increased price hence making a profit of Rs. 15000, where the trader didn’t have the physical possession of oil, but he still bought and sold the oil. If someone wants, then they can also gain physical ownership of the commodity that they have bought.
Commodities in which the trading usually takes place are precious materials such as gold, silver, etc, natural products such as oil, natural gas, agricultural products such as farming produce, livestock such as cattle, etc. These are the materials in which the said trading usually occurs. One advantage associated with this kind of trading is that these materials also have value outside the commodity market. Suppose someone buys 100 gm of gold from the point of view of trading but later intends to sell it to a near relative at a lower price than that trader can gain the physical ownership of the gold and can sell it to his/her relative personally outside the market. For the execution of commodity trades, one must have a Demat account with the MCX feature.
Setting up an account:
It is compulsory to have a Demat account for the execution of trades made in the commodity market. A Demat account can be opened with any depository participant in the market there are a lot of them available in the market. One can choose according to their convenience and suitability. Additionally, there should be the MCX feature enabled in it. This feature is the thing that allows the trader to trade in the commodity market. A Demat account without the MCX feature is an account that is only capable of treading inequities and nothing else. Once the depository participant is chosen and all the required documents are submitted, then the process of verification will begin and within 2-3 days the login id and password will be provided for initiating trading.
Going through the facts and details mentioned we realize the methodology of commodity trading, its values, advantages, setup required, etc. The thing with this type of trading is that the materials here have their value outside the market too.
To trade in the commodity market, you need to open a Demat account. You can open a Demat account with 5paisa.