BUSINESS

Dummies guide to commodity trading

By Deepa Krishnan in Mumbai
November 25, 2004 10:42 IST

If you're new to the world of commodity trading, fear not, because using the platform in India is not beyond anyone's grasp or capability -- it's only a matter of making a beginning somewhere.

If you want to clarify some basic doubts but were afraid to ask, here's your chance to catch up on lost time. Below are some answers to some frequently popped questions.

The basic difference between the commodity exchange and stock exchange is that in a commodity exchange, actual physical products that are non-financial in nature are traded.

These include agricultural products such as wheat, castor, groundnut or sesame and industrial products such as aluminum, zinc, nickel and also precious metals like gold and silver.

In comparison, a stock exchange offers all financial products such as stocks, indexes, interest rate, and government securities.

Intentions for delivery could be given right until the final day on which that the contract expires. Delivery would take place in electronic form (in the national level exchanges). All other positions would be settled in cash.

The commodity that is meant for delivery would have to meet the contract specifications with a certain allowance for variances. If the commodity meets the specifications, the warehouse would accept it.

Warehouses would further ensure that the receipt is updated in the depository system, giving the due credit in the electronic account.

Also, every client who would want to give or take delivery would have to get registered as per the prevalent sales tax rates in his or her state.

Armed with the basic information, any trader should be ready to take the leap!

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Deepa Krishnan in Mumbai

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