Trade Commodities with Confidence - Gold, Silver, Crude & More
Trade India's top commodities like gold, silver, crude oil, and other products on trusted MCX exchanges - diversify your portfolio, hedge inflation, and capture market opportunities.
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Commodities: A Smart Trading choice
Commodity trading lets you trade in assets like gold, silver, crude oil and more while benefiting from market price movements. It can also help hedge against inflation and market volatility. With Shriram Financial Services, you can trade commodities seamlessly using a secure platform, real-time market insights, advanced trading tools and advisory support to guide your positions.
Types of Commodity in India
India's commodity markets span five major categories traded across MCX. Each segment has distinct exchanges, lot sizes, and price drivers. The main type of commodity is :
Hard Commodities
Hard commodities are natural resources such as metals and energy products that are mined or extracted from the earth, including gold, silver, copper, crude oil, and natural gas.
Industrial Metals
Metals used in construction, manufacturing, engineering, and other industries.
Examples: Copper, Aluminium, Zinc, Lead, Nickel
Precious Metals
Rare and highly valuable metals used as a store of value and in jewellery.
Examples: Gold, Silver, Platinum, Palladium
Energy
Fuel and energy resources that power industries and economies.
Examples: Crude Oil, Natural Gas.
Why Should You Invest in Commodity?
Investors choose commodities for diversification, inflation hedge, global exposure, leverage opportunities, and volatility benefits. Learn the key benefits of adding commodities to your investment portfolio.
Portfolio Diversification
Low correlation with other asset classes helps reduce overall portfolio risk and volatility.
Inflation Hedge
Commodity prices tend to rise during inflation, protecting your purchasing power.
Global Exposure
Gain exposure to worldwide demand across industries and benefit from global market trends.
Trading Opportunities
Frequent price fluctuations create opportunities to generate returns in the short term.
Leverage Efficiency
Use margin to control larger positions with smaller capital, enhancing potential returns.
Risk Balancing
Commodities can offset losses in other asset classes during uncertain market conditions.
Advantages of Commodity Trading
Commodity trading offers a range of benefits, providing traders and investors with opportunities to participate in diverse market segments through a regulated and transparent trading environment.
High Liquidity
High trading volumes in major commodities ensure easy entry and exit.
Transparent Pricing
Prices are determined by global demand and supply, ensuring fairness and transparency.
Standardised Contracts
Exchange-traded contracts are uniform, reducing complexity in execution.
Real Asset Backing
Commodities are tangible assets with intrinsic value like gold, oil, and metals.
Wide Market Access
Trade a wide range of commodities across reputable exchanges such as MCX.
Regulated Trading
Trading on regulated exchanges ensures safety, compliance, and transparency.
Disadvantages of Commodity Trading
While commodity trading offers numerous opportunities, it also carries certain risks that traders should understand before participating in the market.
Price Volatility
Commodity prices can fluctuate significantly due to changes in global demand and supply, geopolitical events, weather conditions, and economic developments.
Leverage Risk
Commodity trading often involves margin-based trading, where a small price movement can result in substantial gains or losses.
Market Complexity
Commodity markets are influenced by multiple factors, including international events, inventory levels, currency movements, and government policies, making them challenging for inexperienced traders.
Margin Calls
If the market moves against your position, you may be required to deposit additional funds to maintain the trade, failing which your position may be squared off.
Global Event Sensitivity
Commodity prices can react sharply to geopolitical tensions, natural disasters, production disruptions, and policy changes across the world.
Limited Knowledge Risk
Trading without a proper understanding of commodity markets, contract specifications, and risk management strategies can increase the likelihood of losses.
How does Commodity Trading Works?
Commodity trading facilitates the exchange of physical goods such as metals and energy resources. It operates through structured platforms and mechanisms such as MCX, offering investment opportunities while managing market risks.
Commodity trading in India happens through exchange-traded futures and options contracts. When you buy a crude oil futures contract on MCX, you agree to buy a fixed quantity (100 barrels) at a predetermined price on a specific expiry date. Most retail traders square off positions before expiry, settling in cash rather than taking physical delivery.
Multi Commodity Exchange (MCX)
MCX (Multi Commodity Exchange) is an electronic platform where traders and investors buy and sell commodity derivative contracts (such as futures and options), rather than the physical commodities themselves. It is primarily used for metals (gold, silver), energy (crude oil, natural gas). Trading runs from 9:00 AM to 11:55 PM IST, also 9:00am – 11:30pm (for 6 months) mirroring international market hours including the US trading session.
Commodity Futures Vs Options - Key Differences
Commodity derivatives are primarily traded through Futures and Options contracts. While both allow traders to participate in commodity price movements without owning the physical commodity, they work differently and serve different trading objectives.
Understanding the difference between Commodity Futures and Commodity Options can help you choose the right instrument based on your trading style, risk appetite, and market outlook.
Feature
Commodity Futures
Commodity Options
Contract Nature
Obligation to buy or sell
Right, not obligation
Upfront Cost
Margin required
Premium paid
Risk for Buyer
Potentially unlimited
Limited to premium paid
Profit Potential
Unlimited
Significant but dependent on premium and time value
Leverage
High
Moderate to High
Time Decay
Not applicable
Option value declines as expiry approaches
Complexity
Relatively straightforward
Requires understanding of strike prices and premiums
Suitable For
Active traders and hedgers
Beginners, hedgers, and strategy traders
Settlement
Mandatory settlement at expiry
Exercise only if beneficial
Capital Requirement
Higher
Lower
How to Start Trading with Commodities?
To start trading with commodities, follow these 5 easy steps to open your account, activate the commodity segment, and begin trading on regulated exchanges.
Open Account
Open your account online. No paperwork or branch visit.
Complete KYC
Upload PAN, Aadhaar & cheque. Finish video KYC online.
Activate MCX
Enable the MCX commodity segment from your dashboard.
Add Funds
Add money via UPI, NEFT or net banking instantly.
Place First Trade
Search, check margin and place your first MCX trade.
SEBI Rules & Regulations for Commodity Trading in India
SEBI Regulation
Commodity trading is regulated by SEBI, ensuring fair, transparent, and safe market practices.
KYC & PAN Mandatory
Every trader must complete KYC verification and provide a valid PAN card before opening an account.
Position Limits
SEBI restricts the number of contracts a trader can hold to prevent excessive speculation and maintain market stability.
Margin Requirements
Traders must maintain initial margins and mark-to-market (MTM) margins to manage risk and ensure smooth settlement.
Risk Disclosure
Brokers are required to clearly inform investors about the risks involved in commodity trading before they begin.
Market Surveillance
SEBI continuously monitors trading activity to detect manipulation, fraud, or unfair practices.
Taxation on Commodity Trading Profits
Commodity trading profits are subject to specific tax regulations in India. Traders should understand how different commodity transactions are taxed to ensure net profits are added to your total annual income and taxed according to your applicable income tax slab rate (whether under the old or new tax regime). Profits from commodity trading in India are taxed as business income – not capital gains.
Non-Agricultural Commodity Futures (MCX)
- Profits from MCX contracts (gold, silver, crude oil, copper, etc.) are treated as non-speculative business income.
- Taxed at your applicable income tax slab rate.
- Losses can be carried forward for up to 8 assessment years and offset against other business income.
GST on Brokerage & ITR Filing
- 18% GST is levied on brokerage charged by SFS.
- GST cannot be claimed as a trading loss but is deductible as a business expense.
- Commodity traders should file ITR-3 and maintain a trade-wise P&L statement.
Commodity Trading Strategy for Beginners
Getting started with commodity trading is easier when you have a clear strategy. These widely used approaches can help beginners understand market trends, manage risk, and trade with greater confidence.
Trend Following
- Track the direction of a commodity's price using moving averages
- Go long in an uptrend, short in a downtrend.
- Works well on MCX gold and crude oil due to strong global macro influences.
Intraday Scalping
- Place multiple trades within the same day to capture small price moves, though it may carry a higher level of risk.
- Popular in MCX crude oil because of high liquidity and volatility.
- Requires quick execution, strict stop-losses, and squaring off before market close
Commodity Hedging
- Used by businesses and large investors to lock in prices and reduce risk.
- Example: A jeweller holding gold inventory can short MCX gold futures to protect against falling prices.
- Focused on risk management, not profit-seeking.
RSI Divergence Trading
- A bearish RSI divergence on MCX silver or gold may signal a trend reversal.
- Always confirm with trading volume before entering positions.
Pivot Point Trading
- Calculate daily pivot points (classic or Camarilla) for MCX contracts.
- Buy near support levels with stop-loss below; sell near resistance levels.
- Widely used by professional traders for intraday range trading.
Calendar Spread Trading
- Buy and sell two related contracts simultaneously (e.g., near-month vs far-month crude oil futures).
- Profit from changes in the price spread between contracts.
- Requires lower capital and carries less directional risk compared to outright positions.
Essential Rules for Risk Management
Effective risk management is essential for long-term success in commodity trading. Following these basic rules can help beginners protect their capital and trade more confidently.
Always Use a Stop-Loss
Set a stop-loss for every trade to limit potential losses and protect your trading capital from unexpected market movements.
Avoid Overleveraging
Trade within your financial capacity and avoid taking excessively large positions that can amplify losses.
Diversify Your Trades
Avoid concentrating all your capital in a single commodity. Diversification can help reduce overall portfolio risk.
Risk Only What You Can Afford to Lose
Allocate only a small portion of your trading capital to each trade and never invest money meant for essential expenses.
Follow a Trading Plan
Enter trades with predefined entry, target, and exit levels, and avoid making emotional decisions based on short-term market fluctuations.
Open Your Free Demat Account In Minutes
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Got Questions?
View All FAQsCommodity trading involves buying and selling contracts linked to commodities such as gold, silver, crude oil, natural gas, copper etc on recognised exchanges like MCX and NCDEX. Traders seek to benefit from price movements without necessarily taking physical delivery of the commodity.
Yes. Commodity trading is completely legal in India when conducted through SEBI-regulated brokers and recognised exchanges such as MCX and NCDEX.
The capital required depends on the commodity and contract size. Some commodity contracts may require margins starting from a few thousand rupees, while larger contracts may require higher margins.
Gold, silver, crude oil, natural gas, copper, zinc, aluminium and cotton commodities are among the most actively traded commodities in India.
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