Introduction
Commodity trading in India allows investors and businesses to trade in physical and derivative contracts of commodities such as gold, silver, crude oil, natural gas, agricultural produce, and base metals. It plays a vital role in price discovery, risk management, and portfolio diversification.
This Saving Mantra guide explains the step-by-step process of commodity trading in India, designed for beginners who are starting out and professionals looking to refine their strategies.
Step 1: Understand What Commodity Trading Is
Commodity trading involves buying and selling commodity derivatives, primarily futures and options, on recognized exchanges.
Instead of owning the physical commodity, traders speculate on price movements.
Major Commodity Categories
- Precious Metals: Gold, Silver
- Energy: Crude Oil, Natural Gas
- Base Metals: Copper, Zinc, Aluminium
- Agricultural Commodities: Cotton, Chana, Soybean, Spices
Step 2: Know Indian Commodity Exchanges
Commodity trading in India is regulated and exchange-driven.
Key Exchanges
- MCX (Multi Commodity Exchange) – Metals & Energy
- NCDEX (National Commodity & Derivatives Exchange) – Agriculture
- ICEX (Indian Commodity Exchange) – Select commodities
All exchanges operate under SEBI regulations, ensuring transparency and investor protection.
Step 3: Choose the Right Commodity Broker
To trade commodities, you must open a commodity trading account with a SEBI-registered broker.
What to Check Before Selecting a Broker
- MCX/NCDEX membership
- Brokerage charges
- Trading platform (web & mobile)
- Research & advisory support
- Margin requirements
Saving Mantra helps you compare brokers and complete account opening seamlessly.
Step 4: Open a Commodity Trading Account
You can open a commodity trading account online or offline.
Documents Required
- PAN Card
- Aadhaar Card
- Bank account details
- Passport-size photograph
- Income proof (for higher margins)
Once verified, your account gets activated for commodity futures and options trading.
Step 5: Learn Contract Specifications
Each commodity contract has predefined specifications.
Important Contract Details
- Lot size
- Tick size
- Expiry date
- Margin requirement
- Delivery or cash-settled nature
Professionals analyze contract specs to manage capital allocation and risk efficiently.
Step 6: Choose a Trading Strategy
For Beginners
- Start with liquid commodities (Gold, Crude Oil)
- Use small lot sizes
- Avoid over-trading
- Focus on trend-based trading
For Professionals
- Hedging using futures & options
- Calendar spread strategies
- Inter-commodity arbitrage
- Technical + fundamental analysis
Step 7: Use Analysis Tools
Fundamental Analysis
- Global demand & supply
- Currency movement (USD-INR)
- Inflation & interest rates
- Government policies
Technical Analysis
- Support & resistance
- Moving averages
- RSI & MACD indicators
- Volume analysis
Combining both improves trade accuracy and consistency.
Step 8: Place Your Commodity Trade
Using your broker’s platform, you can:
- Select commodity & contract month
- Choose buy or sell
- Set quantity & price
- Apply stop-loss and target levels
Trades execute during exchange trading hours, which vary by commodity.
Step 9: Manage Risk Properly
Risk management is crucial in commodity trading due to volatility.
Best Practices
- Use stop-loss in every trade
- Never risk more than 1–2% of capital per trade
- Avoid trading on rumors
- Track global news and inventory data
Professionals focus more on capital preservation than profits.
Step 10: Understand Commodity Trading Taxation
Commodity trading income is taxable in India.
Tax Treatment
- Speculative (non-delivery): Business income
- Futures & Options: Non-speculative business income
- Expenses & losses can be adjusted as per Income Tax rules
Saving Mantra provides end-to-end taxation, accounting, and return filing support for traders.
Benefits of Commodity Trading
- Portfolio diversification
- Hedge against inflation
- High liquidity in major contracts
- Opportunities in rising and falling markets
- Global price linkage
Common Mistakes to Avoid
- Trading without a plan
- Over-leveraging positions
- Ignoring margin calls
- No risk management
- Emotional trading
How Saving Mantra Helps Commodity Traders
- Commodity account opening support
- Trading & taxation advisory
- Profit & loss reporting
- Income Tax Return filing for traders
- Compliance & audit assistance
Conclusion
Commodity trading in India offers significant opportunities for both beginners and professionals when done with proper knowledge, discipline, and compliance. By following this step-by-step process, traders can build a structured, risk-managed approach to long-term success.
For expert guidance, compliance, and taxation support, Saving Mantra is your trusted partner.
Disclaimer
Commodity trading involves market risk and price volatility. Past performance does not guarantee future returns. This article is for educational purposes only and should not be considered investment advice. Please consult a qualified financial or tax advisor before trading.