By Mr. NAVEEN MATHUR, Angel Broking
Here are some of the things a commodity trader should know to avoid
facing a default or / paying a penalty.
With an organised electronic exchange platform in the Indian commodity market,
one can trade with ease,but it helps to be aware of its functionality, both for
the investor and trader.
Besides knowing how to choose the right broker,minimum investment
required,applicable charges and taxes to be paid,one should also know if the contract
is available for delivery or / is settled in cash and, most importantly, about
the risk management procedure.
 |
| Naveen-Mathur, Angel Broking |
Picking the right broker can help resolve all the doubts for a first-time
commodity trader. One can shortlist the brokers with a nationwide presence and
conduct a comparative analysis based on the following factors:
Brand strength.Number of years for which the company has been in the
commodities business. Market share of the broker in this business;a higher
share shows strength in the industry.Brokers network in terms of the branches
and franchises.
Availability of important services, like research & online / offline trading facility.
Brokerage charges; the lower the better. Media presence in print and
television. Employee strength. Net worth strength in terms of
infrastructure.Business focus (if it is in the financial services space then it
shows a focused approach).
Track record since inception.
Presence of the branch in your locality.
Though the list seems long,it is the most important step for a beginner
as it simplifies the trading on a day-to-day basis.
Once you have finalised the broker, decide the minimum investment with
which you want to start commodity futures trading.
In case of futures,an investor has to pay a margin ranging from 5% to 10
%, depending on the commodity. So, if you want to trade in a gold contract of 1
kg, which is worth about 30 lakh of contract value, then the minimum investment
required will be about 5 %, or 1.5 lakh.
Trading in commodity futures offers the advantage of leveraging
& a trader has to pay only the
margin amount. Now, depending on the risk appetite of the trader, he/she can
decide the percentage of allocation to commodities.
Used in combination with traditional assets, like stocks, fixed deposits
bonds and physical commodities such as gold & silver, commodities can help reduce the
overall portfolio risk for the long term, besides increasing the upside
potential.
Before starting trading, one must identify the applicable charges as
well.From brokerage, stamp duty and exchange transaction charges,to commodities
transaction tax, service tax on brokerage &
exchange transactions, a trader must comply with these in order to
conduct smooth trading.
One of the most important aspects of trading in commodity futures is to
understand the delivery procedure. In the case of most agricultural
commodities, the contracts are delivery-based, and in the non - agri
commodities, delivery is only available in gold & silver contracts, with base metals (except
for steel) and energy contracts settled in cash.If the above factors are
studied carefully, one can create a simple formula for trading and reap the
benefits of avoiding defaults.
Finally, its important to understand the role of risk management since it
ensures that day-to-day margins are collected & any shortage of margin is met.
Traders must realise that in case of shortage or failure of payment of
margins, positions are liquidated. In case of a default by the trader with
respect to delivery, he/she is liable to
pay a penalty of 3% to 5 % of the contract value. Hence, it is critical to
observe caution while trading in commodities.
Trading in any financial instrument involves procedures and guidelines,which
can help the investor make long-term gains.
Checklist before you start trading
* How to choose a broker.
* Minimum investment required.
* Applicable charges and taxes.
* Delivery or cash settlement.
* Repercussions of a default.
* Risk management.
Angel Broking Registered Office
G-1, Ackruti Trade Center, Road No -7, MIDC,
Andheri (E), Mumbai - 400 093.
Tel: (022) 2835 8800 / 3083 7700
Corporate Office
6th Floor, Ackruti Star, Central Road - MIDC,
Andheri (E), Mumbai - 400 093.
Tel: (022) 3935 7600
E-Broking Support
ebroking@angelbroking.com
(022) 3355 1111
Account Opening
sales@angelbroking.com
(022) 2921 1500
Investment Advisory
advisory@angelbroking.com
(022) 4040 3800
Sub Broker Support
partners@angelbroking.com
(022) 3935 7600
Media Queries
brandpromotion@angelbroking.com
(022) 4000 3666
About the Aouther
The writer Mr. NAVEEN MATHUR is Associate Director,
Commodities & Currencies, Angel
Broking
No comments:
Post a Comment