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Journalism of Courage
The uncertain events over the last three years have thrown up one certainty 8211; that every prudent investor now has commodities in her portfolio. This finds extension in the increased and regular coverage of commodity business in the print and television media as more and more people demand real-time information to make the right investment decisions.
This has led to increased volumes on the commodity exchanges and now averaging well over Rs 40,000 crore a day. The other symptom is increased innovation,which can be witnessed in the E-Gold and E-Silver products on the NSEL National Spot Exchange Ltd.
Traders who deal in futures trading are clear that they are entering a leveraged position i.e. they typically pay only 5-15 per cent of the value of the commodity being traded. This helps them to get potentially super-high returns on their investment but this should only be done by sophisticated traders as the chances of loss also increase if the market moves against you.
The smart traders make volatility their friend and learn to trade with discipline. Traders are also able to take advantage of the ability to sell short when they feel the markets will fall; they make money by simply buying the same commodity at a lower price and pocketing the difference.
So,traders are able to play both sides of the markets which double their turnover and the opportunities. Good traders also have one more characteristic 8211; they never trade in all commodities,but specialise in a few. So,you have traders who specialise in bullion and only trade gold and silver,while others prefer to trade only in energy and focus all their attention on crude oil and natural gas.
Similarly,base metals and agri-trading are other sectors in which traders become experts. In other words,in commodities trading it pays to be a master of one rather than a jack of all. So if you are a trader,soak up all the information available from research reports,the internet and any other sources you can find on the commodities of your interest.
Finally,all good traders keep strict stop losses in place and it is this discipline which decisively wins the day for them. Commodities are now the international favourite with investors too. As shown over the last decade,gold has had a dream-run and had the steadiest rise among all assets. Silver,too,has held pride of place in several large portfolios. Investors are now taking to crude oil too but that is only for the very brave because it is practically not deliverable on Indian exchanges 8211; which means you are a trader and not an investor. Base metals like copper have seen historical highs and E-Copper can now be traded in multiples of just 1 Kg on the NSEL.
Agri-investing too has gained popularity as more and more money flows into this segment and people have been able to decode the seasonal price movements as well as the mechanics of demat delivery with a fair amount of success.
With the expected changes in related bills like the FCRA placed before parliament,it is only a matter of time before Portfolio Management Schemes PMS becomes a reality in the Indian commodity markets. When that happens,you can be sure that significant amounts of money will flow in as investments and this segment will become as popular in India as it is abroad as a trading and investment destination.
Author is president Religare Commodities
