How Can You Buy Commodities with a Demat Account?

The commodity market in India is older than a century but this emerged into legal trading in the 2000s. The commodities markets play an important role in a country’s economic growth.

 At the same time, it also allows investors and traders to leverage this opportunity via exchange like MCX.

If you are also wondering how to buy commodities from your Demat account, this article will guide you. The process is quite simple like equity trading.

What is Commodity Trading? 

Commodity trading consists of buying and selling various commodities and their derivative products. These commodities are categorised into two types i.e hard commodities and soft commodities. 

Hard commodities are raw materials such as metals and minerals which are used for making goods and providing services.

Soft commodities are directly used for consumption. Agriculture products like wheat, rice, spices, cereals etc are considered soft commodities. 

Types of Commodity Trading 

There are 4 types of commodities that are traded on the two major commodity exchanges i.e. MCX and NCDEX.

Precious Metals

This majorly revolves around gold, platinum and silver. The denominations and lot sizes are determined by the exchange. MCX has control over trading in precious metals.

Industrial or Base Metals

This means trading in basic industrial inputs used for manufacturing like copper, aluminium, zinc etc. Here also MCX holds a dominant position.

Oil and Natural Gas

This consists of oil and natural gas. Crude oil on the MCX is benchmarked to the WTI crude which is traded on the NYMEX and the settlement price is taken from WTI which is considered as the global benchmark delivery price. MCX holds a leadership position here.

Agricultural Commodities

These consist of a variety of agricultural products like Mentha, Mentha oil, pulse, wheat, spices etc. In this segment, we can see NCDEX holding the dominance. 

How to Buy Commodities with a Demat Account? 

Various brokers in India provide commodity trading services. You can select the one as per your need and start commodity trading online. Commodity trading provides the opportunity to diversify your portfolio.

To start trading in commodities, firstly you need to undertake the basic KYC and open your commodity trading account. As you need a Demat for equity trading, in a similar way you also need a Demat account for trading in commodities. As of now to trade in commodities you need to open a Demat account with NSDL. 

A Demat account is like a bank account, but your holdings are commodity instruments.  You cannot directly buy crude or a metal on the exchange using your Demat account, but you can buy the Futures contract. They allow you to take position in the commodities of your choice and trade them with ease. 

The Demat account of commodities has the storage of the information of your trades and the actual holdings of the instruments you have invested in.

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Conclusion

You can open free Demat account through NSDL and start commodity trading. By trading in commodities, you can transact in a variety of items like metals, minerals, oil, natural gas, wheat, species etc. Through commodity trading, you can take the benefit of diversification and hedging your risk.