Volatile Commodity Prices and Tips to Follow when Markets are Unpredictable Basic Guidelines for Commodity Traders

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1 Volatile Commodity Prices and Tips to Follow when Markets are Unpredictable Basic Guidelines for Commodity Traders

2 What iscommodity futures contract? By definition, commodity futures contract is an agreement to buy or sell a set amount of commodity at a predetermined price and date. Buyers use these platforms to avoid risks associated with price fluctuations of the product or raw material in the physical market while sellers try to lock in a price for their products.

3 Nature of Commodities Futures It is an agreement to buy/sell a particular commodity ata future date. The price, quantity, and quality of the commodity are fixed at the time of agreement. The contracts are fulfilled by actual delivery of the commodity or cash settlement

4 Structure of Commodity Market in India

5 Why Commodities Prices are Volatile? or Factors Influencing Commodity Prices

6 Demand and Supply Demand may be vary due to seasonality, change in consumer preferences and many other unforeseen occurrences. Supply may be influenced due to seasonality geographical, economic and political tensions.

7 Currency Moves Commodity prices influenced due to changes in currency value. Since all the international trades are based on dollar, any change in the value of dollar will affect commodities significantly. Eg: Strengthening dollar push down gold prices and vice versa. Local currency moves also influence domestic commodity prices. Eg: Increase or decrease in INR will significantly impact the prices of MCX commodities.

8 Others War and natural calamities. Eg: During times of unrest in Middle-East Asia, prices of crude oil rises. Economic Growth of Countries: Demand due to economic growth of nations. Eg: Chinese demand for base metals. Government Policies and Practices Eg: Tight norms on gold import to India has curbed bullion demand from the country. The US Quantitative easing programs supported bullion earlier.

9 Risks Associated with Commodities Trading

10 When a commodity trader buys a futures contract, he will lose if the price declines and If he sells, he will lose if the price goes up.

11 Basic Tips that Investors has to Follow

12 Risk-Reward & diversifying capital Risk and reward ratio: The trader must know in advance how much risk he can afford on his available capital. Portfolio: Never invest the whole money in a single commodity. Allocate the capital in different commodities. Trading strategy : If you facing any unsure situation, the ideal strategy would be to stay away patiently until a clear picture is revealed. Executing a bad decision is worse than not trading atall.

13 Maintaining Stop Loss Protect positions yourselves: Since commodity trading includes a certain degree of risk, it is essential to protect positions ourselves. Using a sell or buy stops to contain the losses at a comfortable level or through using hedging strategies may be considered. The main reason why traders give uptrading is due to suffering huge losses as they normally would not place a stop loss in their trading strategies. It has been noticed that maintaining appropriate stop losses helps to minimize losses and maximize profits.

14 Constant market attention Develop your own trading system: Every successful trader has his own system of trading that helps them to improve profits and keep losses at minimum. These techniques can be gained by constant market attention over time by traders themselves or in combination with other trading system. Avoid common mistake: Avoiding common mistakes will help to improve winning more games. Plan before trading: Any sudden moves in prices may not be a proper entry or exit point of your trades, so plan before trading.

15 Don t rush to take profits if you are on the right way Don t book your profits too early: Traders with little experience rush to book profits on their winning strategies at the first instance, but hold on to the losing strategies to accumulate losses. It is very important not to close the winning trades too early. Revising stop loss: Always try to trail the market price by continuously revising stop losses and grab maximum profits in such trades. Be patient: Fear and impatience may lead to unfair decisions, so avoid it.

16 Be prepared. Never go behind rumors. Always start Slow: A new trader in commodity should start slow with a small initial capital. Rumors: Never go beyond rumors and invest the whole capital at a time in hopes of profiting quickly and easily. A good trader can make profits atany market conditions. Attaining market knowledge: A clear knowledge on world-related events and application of fundamental and technical analysis will help to spot more trading opportunities. Attending seminars and understanding the mistake of other traders will also help.

17 Controlling emotions: it is very important to control one s emotions. Fear, anxiety and greed are the common traits of human beings, overcoming such emotions are must for every winning trade. Developing confidence and discipline: To develop confidence in trading is also essential. Confidence based on solid research helps to overcome emotional trading decisions. However, real success in trading comes with discipline and experience.

18 Geofin Comtrade Ltd. 10th Floor, 34/659-P, Civil Line Road, Padivattom Kochi Kerala Phone: MCX Member code: FMC No.: MCX/TCM/CORP/1710, NCDEX Member code : FMC No.: NCDEX/TCM/CORP/0895,NMCE Member code: CL0324 FMC No.: NMCE/TCM/CORP/0245, ACE Member code: 6192 FMC No: ACEL/TCM/CORP/0429 Disclaimer Trading/investing in Commodity Derivatives involves considerable risk you may lose part or all of the initial investment. It is not ideal for all types of investors, and you are advised to seek professional assistance before the same. Past performance may not necessarily be repeated in the future. The news and views posted on this report is based on information which is believed to be accurate. This report is provided to enable you to make your own investment decisions and should not be construed as investment advice. The anticipatory moves mentioned in the report is purely subject to technical studies and does not take into consideration sudden currency volatility and data events. The author, directors and/or employees of Geofin Comtrade cannot be held responsible for the accuracy of the content posted on this report or for decisions taken by the readers based on such information.