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What are the challenges faced by commodity market?

Posted on September 22, 2022 by Author

Table of Contents

  • 1 What are the challenges faced by commodity market?
  • 2 What are the risks involved in trading commodities across the world?
  • 3 What are the disadvantages of commodities?
  • 4 Who are the participants in commodity derivatives market?
  • 5 What are high risk commodities?
  • 6 How can we prevent loss of commodities?

What are the challenges faced by commodity market?

The challenges facing the Indian Commodity markets are very serious in nature and cannot be ignored as they can paralyze the agricultural futures markets, much against the objective of agricultural liberalization. The main problem is that the commodity markets are under the control of Government.

What are the risks involved in trading commodities across the world?

Top 7 Types of Risks to Manage and Control in Commodity Trading

  • Operational Risks. Poor management of operational risks is one of the main reasons behind major financial downturns of commodity trading businesses globally.
  • Counterparty Risks.
  • Credit Risks.
  • Liquidity Risks.
  • Compliance Risks.
  • Market Risks.
  • IT Risks.
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What affects commodity trading?

Though demand-supply is the prime factor behind the price volatility, currency moves, geopolitical issues, economic growth and government policies are other factors influencing commodity prices. Before participating in commodity futures, an investor or trader should be prepared and ready to learn how the market works.

What are the disadvantages of commodities?

The main disadvantage of commodity trading is that commodities are highly volatile as they are dependent on demand and supply factors. A slight change in supply due to geopolitical tensions or conflicts can adversely affect the prices of commodities. Hence investor caution is advised in commodity trading.

Who are the participants in commodity derivatives market?

Key participants in the commodity futures market

  • Commodity market speculators. Speculators are there in the market for a very short period of time.
  • Directional Margin Traders.
  • Spot / Futures Arbitrageurs.
  • Commodity price hedgers.

What risk are faced in storage of commodities?

A commodity enterprise needs to deal with the following kinds of risks: Price risk is arising out of adverse movements in the world prices, exchange rates, basis between local and world prices. The related price area risk usually has a rather minor impact. Quantity or volume risk.

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What are high risk commodities?

Energy items that are traded on the commodity markets include oil, natural gas, electricity, and gasoline. The commodity speculators in the energy market were blamed for the recent price increase in the cost of gasoline at the pump.

How can we prevent loss of commodities?

5 Tips to Avoid Losses in Commodity Market

  1. Stick to a plan. Having a definite trading plan is very important in commodity markets.
  2. Trail your stop loss to break-even point (BEP)
  3. Diversify capital.
  4. Be prepared.
  5. Play Slow.

What are the types of commodity market?

Broadly speaking, there are two types of commodity markets in India. These are Spot Markets and Derivatives. Spot markets are also called physical markets or cash markets, where traders exchange commodities for instant delivery. The Derivatives Market comprises Futures and Forwards.

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