Business

Can we make money by doing commodity trading?

Yes, you can make money by doing commodity trading. However, commodity trading comes with some inherent risks; you can incur losses too! You might think this is an equivocal statement that doesn’t answer the question. To answer this question, let us first get some insight into commodity trading basics.

Commodity trading is buying and selling real-life commodities like gold, rice, wheat, cotton, etc., in the dematerialized form. You trade online through commodity exchanges and aim to earn profits through price fluctuation of commodities. Commodity trading is profitable and a great option to consider if you want to make good money.

If you buy wheat today at Rs 100 per kg and the price goes up to Rs 115 after a month, you have earned a profit. However, if the price falls to Rs 90, then you incur a loss. The same happens when you trade in the equity market; if the script moves up, you gain, else you lose. 

Some element of risk is involved in all trading and business ventures; the Covid-19 pandemic has highlighted this like never before. Uncertainties can turn a business or a trade unprofitable despite the best efforts. 

If you want to trade in commodities, bear in mind that various macro and micro factors influence their price. These factors could be local or global and sometimes even climatic, especially for agricultural commodities.

If you are a novice, you should start small and have patience when you begin commodity trading. You might not make profits from the first trade but that does not mean that you will not make profits further down the line. There is a learning curve and you will learn with time and perseverance.

Traders make money by buying commodities (or commodity derivatives) for a certain price and then subsequently selling them for a higher price. The buyer of a futures contract makes money if the future market price of the commodity exceeds the market price of the commodity at the time of purchase.

Careful research and a sound trading strategy are a must for newbies and experienced traders alike. Another rule that applies to all trading is to trade as per your risk capacity. Do not get buoyed by profits and commit more than you can afford to lose.

So, yes, commodity trading done right can help your earn profits but do not miss out on the “done right” aspect. 

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