Commodity markets are markets where raw or primary products are exchanged. These
raw commodities are traded on regulated commodities exchanges, in which they are
bought and sold in standardized contracts.
Indian markets have recently thrown open a new avenue for retail investors and traders
to participate: commodity derivatives. For those who want to diversify their portfolios
beyond shares, bonds and real estate, commodities is the best option.
Commodities actually offer immense potential to become a separate asset class for
market-savvy investors, arbitrageurs and speculators. Retail investors, who claim
to understand the equity markets may find commodities an unfathomable market.
But commodities are easy to understand as far as fundamentals of demand and supply
are concerned. Retail investors should understand the risks and advantages of trading
in commodities futures before taking a leap. Historically, pricing in commodities
futures has been less volatile compared with equity and bonds, thus providing an
efficient portfolio diversification option.