Commodity Market | Everything You Should Know in 2025
Posted by : sachet | Fri Aug 22 2025
A commodity market is a type of marketplace that allows individuals to buy, sell, and trade raw materials or even primary products. Ordinarily, it is a marketplace for investors that enables investors to trade in commodities such as crude oil, precious metals, natural gas, spices, etc.
Commodity trading in the commodity market is considered an essential part of the financial markets. Investors are authorised to trade physical and derivative contracts of raw materials like gold, silver, crude oil, agricultural products, and more. The commodity market involves the buying, selling, transporting, storing, and transforming of physical commodities, accompanied by asset management.
Traders who operate in markets for raw materials and some agricultural products secure a supply chain efficiency and price stability. In this article, we will discuss commodity trading in detail to adapt to the market fluctuations and global demand shifts. Commodity Exchange ensures the safety, reliability and trust of all the investors.
What is the Commodity Market?
A commodity market facilitates an exchange of physical goods between all the residents in a country. Individuals aiming to diversify their portfolio can undertake investments in both perishable and non-perishable products; therefore, it not only diversifies risks but also provides a hedge against inflation rates in an economy.
What Does Commodity Trading Mean?
Commodity trading in India involves the buying and selling of physical goods like metals, energy, and agricultural products on exchanges such as MCX and NCDEX. Usually, it is a marketplace for investors that allows trading in commodities such as crude oil, precious metals, natural gas, spices, and other commodities.
Investors can diversify their portfolios and capitalise on price movements, making it a popular option among those seeking insight into physical goods and economic trends in India. Commodity trading is regulated by SEBI, securing transparency and accountability. Till 2015, the market was regulated by the Forward Markets Commission, which was finally merged with SEBI to create a regulatory environment. The commodity exchange has become more convenient to retail investors.
Types of Commodities
Before plunging into commodity trading, it is essential to familiarise yourself with the diverse categories of commodities available for trade.
These are the following common types of commodities:
- Agricultural Commodities: This category includes a vast variety of crops, such as chana, soybean, jeera, rice, and rubber. Global demand, weather conditions, and government policies influence agricultural commodities. It plays a vital role in exploring other agricultural commodities in the commodity exchange.
- Metals: Metals can be further categorised into precious and industrial metals, including aluminium, copper, and lead, which are essential for manufacturing and construction in the commodity exchange. Precious metals like gold and silver hold industrial and investment value. The demand for metals in the commodity market leads investors to invest rationally.
- Energy Commodities: Energy Commodities involve resources that provide power to various aspects of our daily lives. Some prominent energy commodities are Natural gas, crude oil, and coal. The prices of energy commodities are influenced by geopolitical events, supply-demand dynamics, and global economic conditions. The investors in the energy commodity market invest at a reasonable level in response to changes in commodity prices.
Understanding these different types of commodities provides a foundation for sound decision-making in commodity trading, which allows traders to show the unique factors influencing each category. A commodity exchange offers a reliable platform for investors willing to invest in gold, oil, and agricultural products.
Explore the best commodity trading platforms to invest your invaluable money seamlessly for better returns!
Commodity Trading Market: History
A commodity market in crude oil, in its early form, is believed to have originated in Sumer between 4500 BC and 4000 BC. The Sumerians first used clay tokens sealed in a clay vessel, then clay writing tablets, to represent the amount. Gold and Silver markets evolved in classical civilisation. Initially, precious metals were valued for their beauty and intrinsic worth, and were often associated with royalty. Gold’s scarcity, its unique density, and its ease of melting, shaping, and measurement made it a natural trading asset.
Beginning in the late 10th century, commodity markets grew as a mechanism for allocating goods, labour, and capital across Europe. Between the late 11th and the late 13th century, English urbanisation, regional specialisation, expanded and improved infrastructure, and the increased use of coinage and proliferation of markets and fairs were evidence of commercialisation. The commodity exchange plays a vital part in financial systems by facilitating trading in futures and derivatives.
Commodity Exchanges in India
India has six major commodity trading exchanges. These are the following names,
- National Multi-Commodity Exchange India
- National Commodity and Derivative Exchange( NCDEX)
- Multi-Commodity Exchange of India (MCX)
- Indian Commodity Exchange (ICEX)
- National Stock Exchange( NSE)
- Bombay Stock Exchange( BSE)
How Commodity Markets Work?
A commodity market works similarly to any other market. It can be a physical/ virtual space where an individual can sell, purchase, and trade multiple commodities at current/ future dates. There is a possibility of doing commodity trading in the commodity market using futures contracts as well.
How does Commodity Trading Work?
Commodity trading involves the buying and selling of tangible goods such as metals, agricultural produce, and energy resources. The process of commodity trading is implemented through organised platforms that enable investors to trade while mitigating market risks.
The SEBI ensures transparency and accountability in the commodity market, and the Commodity Exchange networks globally drive the commodity market on an international level.
To begin Trading, these are the following essentials every individual must have:\
- Choose a broker- Choose a broker, either full-service or no, for expert advice or a discount broker for lower fees.
- Open a demat and trading account- For a demat account, some documents are required to be submitted, such as PAN, Aadhar, and proof of income.
- Deposit an initial amount. Usually, deposit 10% of the contract value and maintain margin requirements.
- Implement trades with commodity exchanges, brokerage firms, or online trading platforms.
The above essentials are necessary to start trading in the commodity market.
How to Trade in the Commodity Exchange With Key Considerations?
- Open a trading account with a registered broker.
- Subscribe to the Know Your Customer(KYC) process and provide a valid PAN card and other identification documents.
- Pay sufficient capital into the account before starting trading in commodities.
- Select the commodity you want to trade in the commodity exchange and understand the market conditions of the selected commodity before investing.
- Follow the trading strategy that you wish to adopt, such as spot trading, futures trading, or options trading.
- Stay updated by subscribing to real-time news feeds on the commodity market and following supply and demand trends.
- Identify and manage your risks, such as changes in prices and margin requirements in the commodity exchange.
- Work with a reputable and trustworthy financial service provider to evaluate research and analysis tools that can inform your trading decisions and help in achieving maximum returns for investing in the commodity exchange.
- Follow the updates, which can help you invest rationally in the commodity market.
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Types of Traders in the Commodity Market
- Speculators: Speculators try to predict whether the price of commodities like gold and metals will go up or down in the commodity exchange. If they think it will go up, they buy a contract at a lower price and sell it when the price is higher to make a profit. If they expect prices to slow down, then they sell the contract at a higher price and repurchase it when it’s lower to make a profit in another way in the commodity market.
- Hedgers: Hedgers use commodity futures to protect themselves from price fluctuations. Any change in the price level does not affect the rate at which all the commodities are traded in the market. Most hedgers trade physical goods in the commodity market, as they require the stipulated goods for production or resale. The investors have an aim to reduce exposure to market volatility by entering into a futures contract with traders. It helps investors to trade based on profit and loss in the commodity exchange.
How are Prices Determined in Commodities Exchange?
The prices of commodity markets are primarily dependent on the market demand and supply of commodities, both from the perspective of domestic and foreign sources.
Speculative news also affects commodity prices heavily, as social and economic conditions closely influence the productive capacity of respective companies. Investors use commodity exchanges to diversify their risk into different types of commodities. Factors that affect commodity prices in an economy are:
- Market Demand and Supply: The forces of demand and supply of goods traded on a commodity exchange heavily impact the prices of the market. A rising demand can lead to a rise in prices, but in the short run, as supply cannot be increased immediately to compensate for the higher demand in the commodity market.
- Global Scenario: Global indicators also play an essential role in determining the commodity prices available in a country. For example, any turmoil in the Middle Eastern countries can affect the price of exported crude oil, thereby affecting the prices at which it is traded domestically. The Commodity Exchange plays a vital role on the international level for the buying and selling of commodities.
- External Factors: Any condition affecting the total production of specified goods traded in an exchange can lead to changes in prices accordingly, which can affect the other factors influencing the terms and conditions of investors in the commodity market.
- Speculative Demand: Demand for investing in commodities online can rise among speculative investors, aiming to profit from fluctuations in commodity prices. Speculators may make predictions related to the direction of movement of prices, resulting in realised capital gains for the commodity exchange.
- Market Outlook: Any unforeseen fluctuations in the stock market can lead investors to shift towards commodity trade; however, the chances of fewer fluctuations in the prices of certain commodities are low. Hence, commodity market investments are secure and act as a hedge against risk-averse individuals.
Let’s start investing in the best commodity trading platform for getting valuable results!
Importance of Investing in the Commodities Market
The importance of commodity market investing is affected by the following factors:
- Diversification: The Commodity market displays an inverse performance when compared to stock and bond market returns, as during an increase in the market prices of goods, stocks, and bonds, market returns. Investing a growing percentage of the investment into trading commodities can help individuals earn a high return on investment(ROI) even during a stock market downturn. The commodity exchange diversifies the risk of investors by providing investment opportunities for investing in commodities.
- Inflation Hedge: The prices of top commodities, such as gold, tend to rise over time at a very high rate when compared with rising inflation rates in a country, allowing investors to enjoy a rise in the real value of their investment in the commodity exchange. Also, as the demand for some goods is about to rise or remain stable over time, it wipes out any unsystematic fluctuations. It positively affects the commodity market by creating results.
- Margin Trading: Commodity Trading offers margin trading to commodity brokers at a lower margin for trading relative to stock and bond market dealings. Commodity traders who deal in physical delivery can benefit from bulk orders with a promise of repayment at a later date. Margin Trading plays a crucial role in the event of buying and selling stocks in the commodity market.
- Substantial Returns: When some goods are known for their stability, many commodities are subject to high volatility due to economic and capital market conditions. Speculators invest in commodities to profit from such price volatility and can secure a long or short position, as per their market prediction in the commodity exchange.
Types of Commodity Investment
Commodity investments are classified into four major categories:
- Metals: Industrial metals like iron and copper, as well as precious metals like gold and silver.
- Energy Goods: Compressed Natural Gas, Crude oil, and uranium are crucial for both household and industrial use.
- Agricultural Goods: Involves products like Wheat, sugar, cotton, and livestock
- Environmental Goods: Focuses on renewable energy, carbon emissions, and white certificates.
Some globally traded commodities are gold, crude oil, natural gas, soybeans, and coffee.
Different Ways to Trade in the Commoditity Market
- Spot Trading- In spot trading, traders buy or sell physical commodities to make an immediate payment and delivery. If a trader may purchase a certain quantity of crude oil at its current market price, then they receive the delivery of the same. It is most commonly used in commodity market.
- Futures Contract: Futures contracts are contracts that involve buying and selling a commodity at a predetermined price for future delivery. Future Contracts have a standardised size and contract length that differ from one contract to another.
- Options Contract- An option contract provides the right but not the obligation to purchase or sell a commodity at a pre-determined price on or before a specified date. Options contracts are more commonly used by traders who wish to benefit from price movements in the commodity market.
- Commodity ETFs- Commodity Exchange Traded Funds(ETFs) analyse the performance of the price of a commodity index. They are designed to provide experience to a basket of commodities, allowing investors to gain diversified exposures without taking any physical delivery of the underlying asset.
- Commodity Shares- Commodity shares are an indirect way to invest in commodities by buying shares of companies that primarily produce, distribute, or market commodities.
Start Trading with the Best Commodity Trading Platform Today!
Commodity Market Vs the Stock/Bond Market
| Parameter | Stock Market/ Bond Market | Commodity Market |
| Meaning | Stock markets focus on investing in company shares to earn capital gains and dividends. | Commodity markets trade raw materials like iron, wheat, and gold, helping investors hedge against price fluctuations and diversify portfolios. |
| Investment purpose | To benefit from capital appreciation and gain dividends. | To hedge against the adverse effects of the commodity price movements. |
| Pricing | Depends on how investors perceive the performance of a company and its growth prospects. | It depends on the forces of demand and supply, geopolitical situations, and global economic parameters. |
| Traded Assets | Stocks represent fractional equity ownership in a company. | Products include actual commodities like gold bars, wheat, etc. |
| Time horizon | Both intraday and long-term investments are allowed since stocks do not have an expiration date. | Futures and options contracts expire every month. Each contract has a specific expiration date. |
| Exchanges | NSE and BSE | MCX, NMCE, UCX, and others. |
Advantages of Commodity Market Trading
There are several advantages of commodity market trading in India.
- Protects Against Inflation
Inflation is the slow and steady rise in the prices of goods and services. The increase in the demand for products and services exceeds supply, allowing manufacturers to use more raw materials and raising costs. The investors use more valuable aspects for growing in the commodity market.
- Offers High-leverage Facilities
Many derivatives in commodities, either futures or options, provide the investor with significant leverage to make trades. Essentially, leverage boosts will be enjoyed by funds that have borrowed. The commodity market offers high-leverage facilities to all investors for making a long-term investment.
- Hedge Against Geopolitical Tensions
Geopolitical events like riots, wars, and political instability can highly affect a country’s supply chain, leading to scarcity. Transportation problems also worsen the situation and create hurdles for manufacturers to get raw materials. Commodity trading provides a platform on which the conditions of instability in the commodity market are less effective. Global commodity exchanges like CME and MCX connect with investors globally.
Disadvantages of Commodity Market Trading
Besides understanding the meaning of commodity trading, it is just as essential to explore the various risks and benefits of the commodity market.
- High Volatility- Commodity market prices are highly volatile due to the interplay of supply and demand, as well as external factors such as geopolitical events, natural disasters, and political instability. These events can quickly change market prices, making it challenging for investors to analyse trends and manage risks.
- Speculation- While commodity trading is most speculative, it attracts investors willing to take risks for short-term gains in search of high returns. This leads to bumper bull-trade swings that can change rapidly in the commodities market.
- Asset Concentration- Commodity Trading is an easy way for investors to diversify their portfolios. However, they merely focus on one or two industries at most, which loses the purpose of diversification. It may also lead to increased exposure to segment-specific risks and compromised effectiveness of the commodity market.
Explore the best commodity trading platforms to invest your invaluable money seamlessly for better returns!
How to Choose a Commodity Broker?
The commodity broker for a commodity trading firm chooses those who have credibility and experience. Choose a broker wisely, depending on the range of services offered, the proactive customer support team, the soundness of financial advice, the margin-processing practices, and not just their changes. Before signing up with the broker, the investor should check the platforms where investments are made. A demonstration of the application or media is advised for the non-voice investors. Commodity brokers built trust between the commodity market and investors to prove the reliability of the commodity trading.
Conclusion
Commodity Trading is a fascinating and potentially rewarding endeavour that demands a deep understanding and continuous learning. Catching the fundamentals of the commodity market enables risk management and staying informed about market trends, so that you can navigate the complexities of commodity trading with greater confidence. Remember that success in commodity trading requires patience, discipline, and a willingness to adapt to ever-changing market conditions. The commodity market provides investors with a comprehensive guide and a solid foundation to embark on a commodity trading journey. The Commodity market helps investors who are new to commodity trading understand market situations and circumstances. The primary role of a commodity exchange is to provide liquidity and reduce the risk for other investors.
Explore the best commodity trading platform to invest your money seamlessly!
How to Research Commodities with Univest?
1. Download the Univest app from the App Store or Play Store.
2. Visit the commodity section to research the best commodities.
3. Consider the action, price, range, stoploss, and target.
Also Read : P/E Vs P/B Ratio | Everything You Should Know in 2025
Frequently Asked Questions (FAQs)
1. What is the Commodity Market?
Ans. Commodity Futures contracts are the principal means for traders to profit in the commodity market. The Commodity Market provides a more straightforward approach for individual traders to trade and gain without incurring significant initial losses.
2. How can I start trading commodities in India?
Ans. To start trading, you need to open a commodity trading account with a SEBI-registered broker and deposit the required margin. Once your account is set up, investors can trade futures contracts on exchanges like MCX and NCDEX.
3. What are the risks involved in commodity market trading?
Ans. Commodity markets are highly volatile due to geopolitical events, weather conditions, and factors such as changes in demand and supply. Additionally, leverage can magnify both profits and losses.
4. Which are the most traded commodities in India?
Ans. Gold, Silver, crude oil, natural gas, copper, and agricultural products like wheat and cotton are among the most traded commodities. These traders are attracted to the commodity market, where these commodities are widely traded in the commodity exchange.
5. What is the difference between spot and futures trading in the commodity market?
Ans. Spot trading involves buying and selling commodities for immediate delivery at current market prices. In contrast, futures trading allows traders to enter contracts to buy or sell a commodity at a fixed price on a future date in the commodity exchange.
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