Commodity & Currency Trading (MCX, MCX SX, NCDEX) – Rewards, Risks and Limitations

In Commodity/Currency  Trading, even though we can make huge PROFITS high risk is also there in booking profits. If you get good profits, book profits and square off your existing positions. Simple concept is what goes up has to come down because of technical selling, profit taking and other factors. If you are not entering the right market, then you may book losses.

Your PROFIT and LOSS is based on several factors and commodity risk management is essential.

Few examples are:

1. Bull and Bear Market: example: gold; Bullish means gold is in the upward trend; bearish means gold is in the downward trend.
2. High volatility and CHOPPY market: Commodities price will not follow upward or downward trend; it will be volatile and commodity which has gone to days low will also touch days  high. It’s better not to trade in this market.
3. Support Level & Resistance Level: When commodity price is in the upward trend, it will break resistance level and will go up. When it is in downward trend, it will break support levels. You can predict support level and resistance level by watching the closing price of each commodity. It may go to low levels, but at certain price, it will get support and tend to rise higher.
4. Physical Demand & Investor Demand: example Gold: When the price has become low, buyers will go to jewellery shops for purchasing ornaments and creates physical demand; investors in online trading will buy gold and creates investor demand; so, physical demand and investor demand will push prices higher. When gold prices go higher, physical demand may stop, but investment demand may become higher.
5. Profit Booking/Technical Selling: At a certain stage, due to some reason, profit booking will happen and price will follow downward trend. Technical selling means, based on the technical charts, they will sell it.
6. Short Covering: The price of commodity will follow a downward trend, when more short positions are there and these short positions will be covered (squaring) when they buy it. When investors buy, it creates a demand and price will go up. So, you have to be careful and see the Momentum. When there is a sustained momentum, you can take it for granted, that commodity prices are following a pattern; either the upward trend or downward trend.
7. Equity Markets: When an equity market doesn’t yield good profit, investors will invest in commodities.
8. Export, Overseas Demand: Based on these factors, agriculture commodity prices will increase.
9. Exchange Traded Funds (ETF): When volumes increase, commodities price will increase.

Strength and Weakness of the dollar against different currencies/Strength and Weakness of the INR: When dollar is strong, INR will depreciate. When dollar is week, INR will appreciate. The information given below depends on dollar strength and global price of commodities.

• When dollar is strong, and if international/global commodity prices goes up, then mcx/ncdex online commodity price for certain products will go up.
• When dollar is strong, and if international/global commodity price remains stable, then mcx/ncdex commodity price for certain products will go up.
• When dollar is strong, and if an international price/global commodity price goes low, then mcx/ncdex online commodity prices for certain products may be little low/up/neutral. All depends on the strength of dollar and global prices.
• When dollar is weak, and if an international price/global commodity price goes low, then mcx/ncdex online commodity prices for certain products will be low.

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