Now that I have your attention with that headline, let me get straight down to business and outline here some simple facts and strategies, which would take us closer to our goal of making money in commodity markets.
Commodity markets are generally assumed to be exotic and while many people are familiar with MCX and NCDEX as exchanges, not many have tried their hand at trading on these. Broadly speaking, there are four main segments - agri, base metals, bullion and energy. Of these, bullion, viz. gold and silver, account for about 70% of the volumes - a clear reflection of our love for these commodities. Bullion trading is liquid with sufficient depth and is value-transparent. A key reason which drives these volumes in bullion is also the international price linkage i.e. bullion prices in India are dictated by international markets where the dominant volumes are traded in gold and silver. In fact, this is the first and one of the simplest strategies utilized by traders. As soon as international markets (read NYMEX/COMEX) open, serious traders get their prices on their screen and quickly make trades in MCX or NCDEX locally based on international price movement.
Since gold is quoted in US$ per troy ounce (The troy ounce remains a traditional fixture of the gold trade and the most important basis for expressing quotations on a majority of the leading gold markets), the effect per 10 grams in rupees translates to about Rs 14 depending on the prevailing exchange and duty structure. Using this as a base, traders follow international markets and in the process make money, besides making our markets more efficient by pushing up prices closer to the price leaders. Bullion also frequently has direct correlation with the price of crude and inverse correlation with the US$ and therefore these two commodities are closely tracked by traders. Spread trading (trading on the amount of price difference between two contracts, e.g., between gold with June expiry and gold with August expiry) is also a popular form of trading and is considered to be a product with lesser risk-reward. Your broker remains the best person to educate you about strategies in trading.
1 comment:
To the owner of this blog, how far youve come?
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