commodity trading investments

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Investors.. Welcome to Commodity Trading.

Presented by S. Arunagirinathan.

Investing in commodity market

Commodities are an excellent investment option as it can add a great deal of diversification to your portfolio

TAGS: diversified investment portfolio, excellent investment option, high price volatility, non-agri products, practical knowledge

Investing in commodity market

A person having no knowledge about commodity market and the one who doesnt know how to invest in it, then he can probably look for that information about commodity investments from the Internet and follow some online Tips. But this is not enough, as having practical knowledge of how to go about investing is also very important. So, lets understand how we can invest in commodity markets and what are its benefits and drawbacks.

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How to invest in commodity markets?The commodity markets are markets where the raw products are exchanged. It is a market where we can trade in both the NCDEX and MCX markets. MCX includes the gold, zinc, copper, lead, nickel, rubber and crude oil and the NCDEX market includes agri and non- agri products. The commodities are traded on exchanges where the buyers and sellers can work together to get the products they need or make profit from the fluctuating prices. Commodity trading is buying and selling of futures and futures options.Key benefits of investing in commodity marketsLess risk: If you choose to invest in commodity then as an investor your chances of risks are less. Thus, profits from commodity investing will be helpful for you to balance other losses on account of other losses due to other financial instruments in your portfolio. There are chances of less risk as commodity investing deals with diverse items.Main component of diversified investment portfolio: The commodities are generally viewed as the main part of the diversified investment portfolio.Economic growth of the emerging countries: The economic growth of emerging countries like India, Brazil and China and the demand for raw materials rise significantly. The growing economies need raw materials to boost the pace of the industry and also make products. So, stronger the economy grows, the greater the demand for commodities.

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How commodity trading can make you richFor a lot of people, trading in commodities is as good as trading in the stock markets. It has the same amount of uncertainties and risks associated with it. You can also make the same amount of profit, if not more, from it.Knowing the basics of commodity trading, however, is essential before you dabble in its nitty-gritty.

What is commodity trading?Commodity markets are markets where physical raw or primary products such as gold, agricultural products, precious and base metals, energy commodities, etc, are exchanged. These raw commodities are traded on regulated commodities exchanges such as National Commodity and Derivatives Exchange Limited and Multi Commodity Exchange of India, in which they are bought and sold in standardized contracts.

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Why should you opt for commodity trading?The commodity market is a promising avenue for your investment. It offers huge opportunities and enables you to diversify your portfolio. With the least margin requirement being as low as Rs 5,000, it is suited for small investments also. It also enables you to have more control over the costs associated with trading. For example, if you have traded in gold as a long term investment, there might have been times when you would have been worried about the protection, transportation and purity of the gold you are investing in. With commodity trading, you can deal in gold futures where, just like stock futures, you do not have to actually buy the gold and keep it somewhere. Instead, by buying gold futures, you can eliminate the need to worry about these things and concentrate on maximizing your profits. The potential for attractive returns is probably the most obvious reason to go in for commodity trading, but it isn't the only factor. Commodities also offer investors other significant benefits, including enhanced portfolio diversification and a hedge against inflation and event risk.

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What are commodity futures? Commodities can be traded on either spot markets, or in the form of futures.

Spot markets are those in which the commodity is traded immediately in exchange for cash or some other goods.

Futures are standardized contracts among buyers and sellers of commodities that specify the amount of a commodity, grade/quality and delivery location.

Commodity trading with futures contracts takes place at a futures exchange and, like the stock market, is entirely anonymous.

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How does the trading work?Commodity trading works exactly like stock futures. When you buy a 'futures,' you don't have to pay the entire amount, just a fixed percentage of the cost. This is known as the margin.

For example: You decide to buy 100gms of gold futures (which is the minimum contract size) for a certain price. You have to pay a certain amount of margin set by the commodity trading exchange you are trading on, which would be a lower amount than the original price for 100 gms.

The next day, the price goes up by Rs. 1000. Rs. 1000 would be credited into your account. The following day, it dips by Rs. 500. Rs. 500 is debited from your account.

Once you feel that the amount that you have already profited with is not going to change, you can choose to sell the futures. This is simplest way to explain commodity futures trading.

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What are the dos and don'ts of commodity trading?

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Why the time is not ripe to buy a home

That the property market has undergone a significant correction is well known. That real estate experts are now talking about prices bottoming out is well known too.

But, contrary to conventional wisdom, experts are of the view that this may not be the right time to invest in residential property. And, their advice is for both first and second-time home buyers.

Consider this: A report from PropEquity, a firm that maintains data on real estate, said that in the first quarter of the current financial year, the Mumbai market saw an average correction of 42.84 per cent compared to the corresponding quarter last year.

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Time not ripe for buying a homeAccording to another report by Centrum Broking on Maharashtra Chamber of Housing Industry's exhibition, prominent developers such as Kalpataru, Lodha, Rustomjee and the Acme Group were quoting prices 20 per cent lower than their card rate six months ago. Godrej Properties had dropped the quoted price of its Mahalaxmi project (Planet Godrej) by 34 per cent.Prices in other major metros too have seen a significant correction in the past six months, according to the PropEquity report. These include Gurgaon (24 per cent correction), Chennai (13 per cent) and Hyderabad (10 per cent) for the same time period.Then comes the taxation part. If the house is let out, then the rent income is taxable. It is combined with the person's salary and charged as per the tax bracket. The income tax department also charges wealth tax of 1 per cent on a residential house unless it is let out for 300 days in a year. This is applicable on the value of the house exceeding Rs 15 lakh (Rs 1.5 million). If the property value is, say, Rs 25 lakh (Rs 2.5 million), the wealth tax will be levied on Rs 10 lakh (Rs 1 million).

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Also, if the person does not let out the property, the IT department takes a notional value of the rent that the property can fetch and taxes the owner accordingly.If you buy it in the name of your family member, you will lose out on the tax deduction. "For a second house, a person can claim the entire interest as a deduction. In case of co-applicant, the deductions are in the same proportion as the funds deployed by each person," says Kanu Doshi, a tax expert."A house for investment purpose will also skew the portfolio," says Gaurav Mashruwala, a certified financial planner. A major chunk of the portfolio will be real estate. This asset class is illiquid. If there is an emergency in the future, the entire house will need to be sold. A person can sell other investments in parts. The same is true when the person reaches closer to his goals for which he has been saving.One can look at property only if they have excess cash and the property value is only a minor part of the investment portfolio, say investment experts.But if you still not convinced and want to go ahead with the purchase, wait for another six months. "There will be some clarity on the economy as well as the real estate industry in this period," says Vakil.

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All about the New Pension Scheme

From May 1, Indians have access to another investment avenue to plan for retirement in the New Pension Scheme (NPS).

The scheme has been in the pipeline for at least five years but it finally took shape in 2007-08. Although the government was pushing for the scheme after a law providing statutory backing to the regulator was enacted, the L