Trading in commodities is one of the most preferred options among traders as they add diversification to your portfolios. Also, it is a lucrative avenue to earn strong returns over a period of time.
But traders who are new to the commodity market might wonder, “Out of 120 different commodities to trade, which is the best commodity for me to trade India?”
Today in this article let us learn,
- What are Commodities?
- Types of commodities
- Best 5 commodities for trading in India.
So let’s get started!
What are Commodities?
Commodities are products or goods like metals, food, energy etc. that we use in our day to day lives. Commodities are tradable in nature i.e. they’re any kind of natural resource that is consumed by companies and individuals.
Types of Commodities
Today, commodities are mainly grouped into four major sectors.
1. Agriculture: Spices, grain, pulses, oil and oilseeds.
2. Metals: Silver, platinum and gold.
3. Energy: Natural gas, Brent crude, crude oil, thermal coal.
4. Livestock and meat: Eggs, feeder cattle.
Metal and energy are widely traded in the commodity market.
Understanding the types of commodities available, and by gaining knowledge of the market enables an investor to make smart investment decisions.
According to the above types of commodities, 5 commodities are considered to be the top commodities to trade based on:
- Their traded volumes
- Demand and supply effect
- The overall price movements of the commodity.
Suggested reading: What are commodities future trading?
The Best 5 Commodities to Trade in India in 2021
1. Crude Oil
Crude oil is one of the best commodities to trade because it is naturally-occurring unrefined petroleum and a fossil fuel which comprises organic materials and hydrocarbon deposits.
Why is the demand for crude oil is ever-increasing in India?
- By refining crude oil, one can produce high demand products such as petrochemicals like gasoline, kerosene, and diesel, etc.
- Crude oils are non-renewable fossil fuels. Hence, it is limited and cannot be replaced once used.
What affects the demand for crude oil?
- Crude oil gets affected by political situations in the middle east as it is one of the biggest suppliers of crude.
- Natural disasters that could potentially disrupt the production of crude oil and might also impact its cost.
Aluminium is another best commodity to trade as it is a lightweight metal and is used in various industries.
Aluminium is used in manufacturing industries like automobiles, construction, electronics, etc. and is in huge demand.
Why is the demand for aluminium is ever-increasing in India?
- As the metal is versatile and used in abundance in various industries.
What affects the demand for Aluminium?
- Aluminium is obtained from Bauxite and China is the biggest producer and consumer as well. The prices of aluminium are affected by Chinese demand in the transportation and construction industry.
- The cost of making aluminium also varies according to the prices of oil and electricity.
Thus, aluminium becomes a great commodity to trade in as it has a wide score of price fluctuations.
Copper is one of the most widely used metals in industries for electrical wiring, utensils, machinery, etc.
It is a soft metal and is a good conductor of heat and electricity.
Why is the demand for copper is ever-increasing in India?
- Copper is traded as a commodity to speculate the industrial growth in the world.
What affects the demand for Copper?
- The prices of copper are affected by the demand and supply in the construction markets.
Due to the versatile properties of the metal, it is known as one of the best commodities to trade in India.
4. Natural Gas
Natural Gas is extremely environment friendly and over the past few years, many industries have been using CNG for various purposes.
Why is the demand for Natural Gas is ever-increasing in India?
- CNG is recommended to be used in the power industry by the Indian Government.
- In future, the demand for natural gas is expected to rise as it costs less as compared to oil.
What affects the demand for Natural Gas?
- The prices of natural gas are linked to oil prices in Asia. As the prices of oil fluctuate, it affects the price of CNG.
- The prices are also affected by imports and exports, economic growth, storage levels, etc.
If we combine all of these factors, natural gas can become a lucrative commodity to trade in.
Gold is one of the oldest and valuable commodities in the world and hence it has become an important part of the financial world.
Gold is used in the form of jewellery, medical industry, dentistry, etc.
The biggest gold producing countries are China, Australia, Canada and the biggest consumer of Gold in India.
Why is the demand for Gold is ever-increasing in India?
- Gold is considered a safe haven and protects against any type of economic meltdown.
- Gold is a highly liquid commodity.
What affects the demand for Gold?
- When inflation rises, the value of the currency goes down and therefore people tend to invest in gold as it acts as a hedge against inflation.
- Gold is largely imported and hence if the rupee weakens against the dollar, gold prices will likely appreciate in terms of the Rupee.
As gold can be traded in contracts of different sizes as Gold mini, Gold Guinea, Gold Petal, etc. it is the most popular commodity to trade.
[Suggested reading: All about commodity trading on NCDEX]
Commodities have become an attractive investment option for investors, as it helps in building a well-balanced investment portfolio.
Furthermore, depending on the traders, there are different ways to invest in commodities, with commodity futures contracts being the most popular method.
To trade in the best commodities in India for 2021, open a Samco Demat and trading account and get access to the best commodities to trade.
[Recommended reading: Commodity Mutual Funds- Meaning, types, advantages]