Commodity trading can reap the desired reward if you approach it with the right strategy. The Multi Commodity Exchange (MCX) is India’s premier commodity derivatives exchange, facilitating online trading of commodity derivatives.
MCX began operations in November 2003 and offers commodity derivative contracts across various segments, including bullion, energy, metals, etc. However, analysing MCX commodities correctly is essential for making better trading decisions. How do you do it? Let’s find out.
What is MCX Trading?
Before getting into the nitty-gritty of analysing MCX commodities, let’s understand what is MCX trading? MCX trading refers to trading commodity derivatives on the MCX exchange. The MCX exchange allows you to diversify your investments beyond traditional financial instruments such as equities.
To get started with MCX trading, you need a Demat account. You also require a trading account and a bank account. You can use the Demat app of a stockbroker to open a Demat account and a trading account.
Analysing MCX Commodities
Here are some ways through which you can analyse MCX commodities:
Gauge Market Fundamentals
You need to understand supply and demand when analysing commodities. Weather conditions, economic policies, and geopolitical events can influence commodity prices. For instance, crude oil prices can increase due to geopolitical tensions involving countries supplying it, while agricultural commodity prices depend mainly on monsoon forecasts.
Studying market fundamentals can help you make informed trading decisions regarding commodities you want to trade in. Websites and research platforms can help you study market fundamentals.
Understanding how macroeconomic factors such as inflation, currency fluctuations and interest rates impact commodities is essential. For instance, gold happens to appreciate during inflation. This is because gold is seen as a safe asset during such times.
Use Technical Analysis
Technical analysis is another way to analyse commodities. It involves studying price charts and patterns to predict future price movements. You can use tools like moving averages, relative strength indexes, Bollinger bands, and Fibonacci retracements to identify trends.
These tools can help you understand entry and exit points. Candlestick patterns are another vital component of technical analysis. For example, you can gain critical insights about market sentiments through patterns like Doji and Hammer. Regular practice can help you interpret charts and backtest your strategies before implementing them in live trading.
Once you master these tools, you can make better trading decisions, especially while tracking commodities like silver or gold through a stock market app.
Keep Abreast with Global Events
Global events profoundly impact commodity prices. To stay ahead, follow economic calendars highlighting key events, such as meetings of central banks worldwide or any significant announcements that can impact the price of the commodity you’re trading. Awareness of these events can give you a competitive edge in the commodity market.
Understand Contract Specifications
Each commodity you trade on the MCX has certain unique specifications you must understand while entering a trade. These include:
- Lot size: It refers to the minimum quantity of commodity you can trade
- Tick size: This refers to the slightest price movement of the commodity
- Expiry date: It’s the last date you can trade the contract before it expires
- Margins: It’s the amount of money you need to have in your account to trade a commodity contract
For instance, gold contracts may have different lot sizes and margin requirements than crude oil. You must review them, as any misunderstanding can lead to unnecessary losses. Hence, it’s prudent to double-check before placing a trade.
Track Commodity Trends Daily
Tracking commodity trends daily is one of the most effective ways to analyse them and make better trading decisions. Commodities often experience price fluctuations due to internal and external events.
Monitoring them daily can help you better predict future price movements. You can do so through features like live price updates, market alerts and real-time charts on your broker’s platform. These tools can help you stay ahead in your trade by providing critical information, ensuring you never miss any opportunity. They also help you understand how’s the stock market today.
Learn from Previous Trades
Reviewing your past trades can help you grow as a trader. Take time to analyse each strategy and focus on strategies that worked and those that did not. For instance, identify what led to the profitable analysis of an MCX commodity, such as solid technical analysis or fundamental factors. Similarly, when you’ve experienced losses, find out what went wrong. Was it because of emotional decisions or poor timing?
You can maintain a daily trading journal where you document your observations and outcomes. This can help you record your progress and identify areas for improvement. For example, if you pen down how crude oil prices responded to a significant announcement, it can help you better guide your decisions in the future.
Take the Help of Experts
Expert advice can make a significant difference if you’re new to commodity trading. It can help you in the correct analysis and guide you in the right direction. For example, many brokerage platforms offer research reports and in-depth analyses that can help you better understand commodities and their trading.
These insights often mix technical and fundamental analysis, which saves time while providing you with actionable ideas. That said, verifying expert recommendations with your knowledge and research is crucial before taking action.
Conclusion
Analysing and trading MCX commodities requires patience and discipline. It’s crucial to avoid emotional decisions, particularly during volatile market conditions. You must also develop a consistent routine and stick to your strategy.
HDFC SKY offers a seamless commodity trading experience on the MCX platform. Open Demat account today with HDFC SKY to unlock a new world of commodities and stock market trading. Download the app today to get started.