Advantages of COMMODITY MARKET Trading in India


1. High Leverage.

The primary attraction, of course, is the potential for large profits in a short period of time. The reason that futures trading can be so profitable is the high leverage. To ‘own’ a futures contract an investor only has to put up a small fraction of the value of the contract (usually around 10-20%) as ‘margin’. In other words, the investor can trade a much larger amount of the security than if he bought it outright, so if he has predicted the market movement correctly, his profits will be multiplied (ten-fold on a 10% deposit). This is an excellent return compared to buying and taking physical delivery in stocks.


2. Profit in both bull & bear markets.

In futures trading, it is as easy to sell (also referred to as going short) as it is to buy (also referred to as going long). By choosing correctly, you can make money whether prices go up or down. Therefore, trading in the futures markets offers the opportunity to profit from any potential economic scenario. Regardless of whether we have inflation or deflation, boom or depression, hurricanes, droughts, famines or freezes, there is always the potential for profit making opportunities.


3. Lower transaction cost.

Another advantage of futures trading is much lower relative commissions. Your commission for trading a futures contract is one tenth of a percent (0.10-0.20%). Commissions on individual stocks are typically as much as one percent for both buying and selling.


4. High liquidity.

Most futures markets are very liquid, i.e. there are huge amounts of contracts traded every day. This ensures that market orders can be placed very quickly as there are always buyers and sellers for most contracts.