Why Commodities?"
Is the inevitable question that pops in one's
mind today, more so considering that the BSE Sensitive
Index is scaling new highs by the day. Well, despite
offering relatively lower returns, commodity derivatives
provide unique money-making opportunities to a wider
section of market participants, starting from planters
to exporters, importers et al. And to the agrarian
Indian population commodities are obviously not new,
nor are the advantages of trading in them unknown.
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No
balance sheet, P&L statement, EBITDA and
reading between the lines. Commodity trading
is about the simple economics of supply and
demand. |
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Supports
are known, only resistance matters! Minimum
support price acts as a statutory support for
many commodities. |
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No
Dollar-Rupee premiums/discounts. No hedging
on the NYMEX. Indian commodity derivatives hedge
both forex and commodity specific risks at a
single cost. |
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No
breaking of heads over market direction. Seasonality
patterns quiet often provide clue to both short-
and long-term players. |
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No
scam, no price rigging. Commodity trading comes
with nil insider trading and company specific
risk. |
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What's more, why invite risk by investing in a metal
company when you can trade in the metal itself? After
all, while the stock price of the company is dependent
on several factors including the company's own fundamentals,
the price of the metal is driven by the simple economics
of demand and supply. The more the demand for the metal,
the higher its price and vice versa. Also compared to
equities it is much cheaper to trade in commodities,
where margin requirements are lower.
