Beginner's Guide to Agri Commodity Trading Online | Espresso

Agri Commodity Trading – Beginners Guide

The agriculture sector has been the spine of the Indian economy since prehistoric times. And given the evolution of technology and digitalisation, trading in agricultural commodities has become convenient. Today, you can trade agricultural commodities similarly like you do commodity trading for precious metals and others.

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Agriculture commodity trading online is even more suitable in cases when you have sufficiently invested in stocks and wish to diversify your portfolio. However, it is advisable to follow diligent strategies when online trading in India and aim for long-term profits when doing Agri commodity trading in India.

 

Here is a quick guide that can prove effective when trading online in agricultural commodities:

What are Agricultural Commodities?

Categorised as soft commodities, agricultural commodities are agricultural products such as wheat, rice, pulses, sugar, spices, etc. However, specifically for commodity trading in India, agriculture commodities refer to spices, cereals, oilseeds, cotton, jute, rubber, dry fruits, pulses, fresh fruits, pulses, etc.

What is the Mechanism for Trading Online in Agricultural Commodities?

Like all other commodity trading online, you can trade in agricultural commodities through the authorised commodity trading exchanges in India, namely:

  • National Commodity and Derivatives Exchange Limited (NCDEX)
  • Multi Commodity Exchange of India Limited (MCX)
  • National Multi-Commodity Exchange (NMCE)
  • Indian Commodity Exchange (ICEX)
  • Ace Derivatives and Commodity Exchange Limited (ACEX)
  • Universal Commodity Exchange (UCX)

Of these six commodity trading exchanges, NCDEX and NMCE are dedicated to agricultural commodities specifically and allow commodity trading in India across the entire value chain of tradeable agriculture commodities.

In 2020, NCDEX further launched Agridex, India’s first agriculture futures trading index. Agridex comprises ten liquid commodities that are traded on NCDEX. These commodities include soybean, mustard, chana, coriander, cottonseed oilcake, refined soy oil, castor oil, jeera, guar gum and guar seed.
Also Read: Trading Oil as a Commodity: A Beginner’s Guide

The Agricultural commodity trading online in India is regulated by SEBI (Securities Exchange Board of India). 

How to do Online Trading in India for Agricultural Commodities?

If you want to do commodity trading in India, specifically in the agricultural space, you can buy or sell futures contracts at any of the six exchanges mentioned above. However, like another commodity trading online, you need to open a trading account for trading in agricultural commodities. Once your account is active, you can invest in the available agricultural commodities after conducting extensive research to speculate its price.

If you believe your price speculation is reasonably accurate, you can pay the margin sum required from online trading in India and ask the broker to buy a futures contract. When you buy a futures contract for commodity trading online, you are entering into an obligation with the other party to buy or sell a particular agricultural commodity at a fixed price on a pre-agreed future date.

Farmers investing in commodity trading online can buy a futures contract to hedge against risks of price fluctuations in the future. Investing in a futures commodity contract will help to manage price risks.

One advantage of commodity trading online in India is that brokerage firms allow extensive leverage. This means that as an investor, you do not have to pay the entire commodity trading sum upfront and can pay margin money and the rest of the amount become due when the futures contract reaches the expiration date. However, prices for agricultural commodities are subject to price fluctuations because of supply and demand conditions and weather conditions. Hence, it is critical to understand the market risks when opting for commodity trading.
Also Read: What is Margin Money in Stock Market?

What are the Benefits of Commodity Trading in Agricultural Goods?

Some of the top reasons that justify trading online in agricultural commodities are:

  • Optimum diversification for a portfolio
  • Effective hedging against market risks from other investments such as shares
  • Make profits from the difference in spot and future price differences.
  • Agri commodity trading can give insight into the future prices of related commodities.
  • Potential to generate significantly high returns, provided you have an in-depth understanding of agricultural commodity trading online

Overall, you can take up commodity trading in agricultural goods easily by opening a trading account. However, as a wise investor, it is vital to understand the agriculture market, trends, supply and demand patterns, weather influence on prices, etc., before making any investment. You can also consult a professional broker to help you with agricultural commodity trading online.

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Frequently Asked Questions

Yes, SEBI permits trading online in agricultural commodities for selected agricultural products. Some include cereals, pulses, spices and sauces, cotton, fibres, nuts and dry fruits, condiments, beer ingredients, fresh fruits, guar complex, etc.

Yes, agriculture is heavily influenced by weather conditions. Hence, agricultural commodities are directly influenced by weather-related variables.

No, you only need your existing trading account for agricultural commodity online trading in India.

Yes, trading online in India for cotton and related products is available for investors. You can open a trading account online with a registered broker and buy a futures contract for trading online in cotton.