Commodity trading is where various commodities and their derivatives products are bought and sold. A commodity is any raw material or primary agricultural product that can be bought or sold, whether wheat, gold, or crude oil, among many others. When you engage in commodity trading, such commodities can diversify your asset portfolio.

If you want to explore commodity trading, take the first step, and brush up on your basics. Get acquainted with the commodity market and how things work here.

Types of commodities

Before you begin commodity trading, learn about the types of commodities available for trade. Some common categories are:

1. Agricultural (e.g. chana, soya bean, jeera, rice, rubber)
2. Metals (e.g. industrial metals like aluminum, copper, and lead, and precious metals like gold and silver) Non- Agri
3. Energy (e.g. natural gas, crude oil, coal) Non- Agri

Commodity exchanges

To participate in the commodity market in India, you must know how to trade in commodity exchanges. A commodity exchange is a regulated market where the trading of commodities takes place. Traders may choose not to take physical delivery of commodities and instead deal in Futures contracts. A Futures contract is an agreement to buy or sell a fixed quantity of a commodity at a pre-decided price and within stated expiry date.

Here are the commodity exchanges in India:

1. Multi Commodity Exchange of India Ltd (MCX)
2. National Commodity and Derivative Exchange (NCDEX)

Trade in commodity futures

Many traders in the commodity market in India trade through Futures contracts. Businesses use Futures to hedge against the prices of commodities that they handle to minimize the risk of financial loss. The commodity market in India also draws participation from speculators.

Benefits of commodity trading

• Diversification – Commodity returns have a low correlation to returns from other assets. As an individual asset class, commodities can be considered to diversify your investment portfolio.
• Inflation safeguard – Commodities are considered a good hedge against inflation as their prices tend to rise during periods of high inflation. This helps maintain the purchasing power parity.
• Hedge against event risk – Supply disruptions during a natural disaster, an economic crisis, or war could push up the prices of commodities. However, the trading of commodities could help you guard against loss by leveraging strategically on price swings. For instance, to lock in the input price of raw material, a consumer could take a long hedge by buying a Futures contract based on the commodities price today. Meanwhile, a producer that is aiming for a high sale price could choose a short hedge by selling a Futures contract.

Benefits of commodity trading with Trade Edge

Know the advantages of being a Trade Edge customer when you open a commodity trading account with us.

• Operational support: From explaining how to open a commodity trading account and other commodity trading basics, to resolving order-related issues, we support you at every step.
• In-depth research: Make the most out of our commodity research reports and snapshots. We provide outlooks on active commodities in Bullions, Metals, Energy, and Agri.
• Trade recommendations: Get detailed buy and sell recommendations in real-time for commodity market trading.
• Educational resources: Hone your knowledge of commodity trading basics with our comprehensive guides to the commodity market.
• Corporate advisory: Our corporate desk advises on hedging strategies and monitors your positions. We help you withstand market fluctuations to generate high risk-adjusted returns.

Intraday trading guide for beginners

Intraday trading, also called day trading, is the buying and selling of stocks and other financial instruments within the same day. In other words, intraday trading means all positions are squared-off before the market closes and there is no change in ownership of shares as a result of the trades.

Until recently, people perceived day trading to be the domain of financial firms and professional traders. But this has changed today, thanks to the popularity of electronic trading and margin trading.

Today, it’s very easy to start day trading. If you want to start, read on to understand the basics of intraday trading:

HOW IS INTRADAY TRADING DIFFERENT FROM REGULAR TRADING?

There’s only one difference between regular trade and intraday trade. It lies in taking the delivery of the Commodity/Stocks.

In intraday trading, you square off your positions the same day. So, your sell order offsets your buy order. This way, there is no transfer of ownership of Commodity/Stocks. A regular trade gets settled over a span of days if not longer. So, you get delivery of the shares you bought while the shares you sold move out of your Demat account.

What is the difference between Demat and a Trading account?

The key difference between a Demat and a Trading account is that a Demat account is used to hold your securities such as your share certificates and other documents in electronic format whereas a Trading account is used for buying and selling these securities in the Commodity/Stock market.

Intraday Trading Indicator & Strategies

Intraday trading decisions are usually made based on price movements. But not all traders may be equally adept at reading and interpreting these movements. This is why many intraday traders depend on some indicators to help them arrive at the right decisions.

That said, remember that intraday trading requires precise timing of sell/buy decisions to be profitable. As such, using too many indicators can be counter-productive too as they can slow down your decision-making. Plus, many indicators present the same information with a slight variation. This makes some of the indicators redundant.

Types of Trading Indicators

Broadly speaking, intraday trading indicators come in 6 flavors. Experts recommend following one indicator of each type for most decision-making. However, you can follow more indicators at your convenience. These flavors are:

1. Oscillators: This is a group of indicators that move up and down between an upper and lower bound. Examples of this type of indicator include Relative Strength Indicator (RSI), Commodity Channel Index (CCI), Stochastics, and Moving Averages Convergence Divergence (MACD).

2. Volume: This flavor of indicators mainly relies on trade volumes. They also combine this volume data with price data. This helps indicate the strength of a trend. Such indicators are Chaikin Money Flow and On Balance Volume (OBV) among others.

3. Overlays: These are indicators that are overlaid directly on the price movement and are not shown separately. These serve a variety of purposes and some traders may use multiple overlays as well. Popular examples of this type of indicator include: Bollinger Bands, Parabolic SAR, Keltner Channels, Moving Averages, and Fibonacci Extensions and Retracements.

4. Breadth indicators: These indicators show how the stock market at large is behaving. They do not directly show how a stock being monitored behaves. Examples include Trin, Ticks, Tiki, and the Advance-Decline Line.

5. Trend: Trend indicators help to capture gains from an asset’s momentum in a given direction. This highlight the direction in which the market is moving. They also offer hints on the strength and likely continuation of a trend. Moving Averages, RSI, and OBV are examples of trend indicators.

6. Volatility: These indicators show the extent of price change over a given period. When volatility is high, price swings are expected. When volatility is low, price fluctuations are more subtle. Depending on the market condition, one could use indicators like Average True Range and Bollinger Bands.

Useful Indicators for Intraday Trading Beginner

Now that you have a basic understanding of the broad types of indicators, here’s a list of indicators that are likely to be useful for a beginner intraday trader.

1. Moving Average: A Moving Average (MA) is a line showing the average closing price of a stock for a given period. As the price movements have volatility, it may not always be clear if the price movement has any long-term trend. MA isolates this trend by showing the average closing price over a period. A short-term average higher than the long-term average usually indicates that the market is bullish about the stock under consideration.

2. Bollinger Band: This is a band that shows how the price deviates on average from the moving average over a period. Traders believe that the stock price is likely to trade within this band. So if a stock is trading under the Bollinger band, traders expect it to rising and vice versa.

3. Momentum Oscillator: This indicator shows how strong the demand for a share is at a given price point. For example, if the share price is rising and approaching the weekly high, but the momentum oscillator is falling, a trader infers this to indicate that the price will soon turn as the demand for the share is falling. On the other hand, a rising momentum oscillator shows that the trend is strong and is likely to continue to hold.

4. Relative Strength Indicator: RSI is one of the most popular oscillators. It tracks the last 14 periods by default and shows the strength of a price. It does so using an index that ranges between 0 and 100. If the RSI is at 70 or above, it could indicate that the market is overbought. This means a price fall or a correction is due. On the other hand, if the RBI is below 30, it could indicate that the market is oversold. Traders then expect the price to start rising soon.

5. Commodity Channel Index: CCI measures the difference between the current market price of an asset and its historical average. A CCI above zero indicates the price is above the historic average. If it is below zero, the price is below the historical average. CCI can rise or fall indefinitely. So, it is used to assess if an asset has been overbought or oversold. Traders check this for individual assets by studying the historical extreme CCI readings at which a price reversal occurred.

Intraday Vs Positional Trading: Which One Should You Prefer?

Investing in the stock market is among the most sought-after skills, which is why millions of people trade and invest money on public exchanges every day. When starting off as a trader there are two ways in which one can trade: positional or as an intraday trader. You can either trade (intraday) or you can patiently wait to extract your profits from these in the long term (positional trading). Both of these strategies are commonly practiced in the market with Intraday trading being more preferred among traders.

If you are seeking mainly short-term benefits, a form of trading worth trying is intraday trading. In fact, this type of trading involves purchasing and selling stocks as well as other financial instruments within a single trading day. Hence, intraday trading aims to capture the smaller market movements. However, there is another way one can gain through the stock market: positional trading. Positional trading can be placed in between intraday trading and long-term investing.

Positional trading involves carrying overnight positions that are based on risk management, the chosen approach of trading, and the interest time frame. Positional trades involve holding only shares for a timeframe that can be between 1–2 days upto months so that one can book profits. It is completely up to you when you want to exit your position as a trader. The markets are highly volatile and thus intraday trading can appear to be a bit risky to some traders, therefore they choose positional trading because it provides a longer time frame.

Intraday Trading vs Positional Trading

By taking a detailed look at both styles: intraday trading and positional trading, you can learn to pick which style is the appropriate trading strategy for your needs.

1.      Intraday Trading

As suggested by the name itself, intraday trading involves taking new positions after the opening of the market while also closing those positions on the same day prior to the market closing. As an intraday trader, you are likely to close your position by the end of the trading day, no matter whether it ends in a profit or a loss. Hence, intraday trading aims to make a profit out of the smaller market movements.

Since traders can trade in late positions with high leverage and a very small exposure, intraday trading is widely practiced. In case of trading that is leveraged-based, you are required to exit your position fifteen to thirty minutes prior to the market closing. If one does not exit their position, the broker will automatically square off all positions. When you desire to convert your intraday position into delivery, you need to be paying the complete amount for the same to your brokerage. These procedures must be completed prior to the market closing.

Since it requires that you are active in the entire train session, intraday trading is suitable only for full-time traders. Markets are highly volatile, so if you were to miss out on your target, your portfolio may begin to bleed. The primary advantage intraday affords to traders is trading at high leverage. High leverage or margin trading comes with the benefits of big wins but it also comes with the potential for bigger losses.

2.      Positional Trading

In recent years, trading positionally has gained a lot of popularity as it eliminates one of the biggest risks of intraday trading: having to square off one’s position by the end of one’s trading session. Trading positionally allows one to hold their positions as per one’s needs, for one or more days, weeks or months. With positional trading, one’s time frame will not be fixed, but rather, it can be selected based on the nature of one’s trade.

Due to its flexibility in holding positions, positional trading requires a higher working capital but comes with a greater risk-bearing capacity. Depending on who your broker is, you may require 50% or more of your capital as a margin simply to carry future contracts overnight. Higher ranges of positional trading may lead to a greater stop-loss risk. For instance, you can make use of a stop-loss that is worth fifteen to twenty points for your intraday trade of a Nifty Futures Contract. For a positional trade that is long-term, however, you will be required to use a stop loss that is roughly forty to 150 points.

You might have over 20 trades within a week with intraday trading. With positional trading, you will only have two to five short-term positional trades. So basically, you may have over 20 trades in a week with intraday, but with positional trading, you will only be having 2–5 short-term positional trades. Based on one’s stop loss, it is evident that one’s risk tolerance might be the same or even lower with positional trading.

When you choose to hold your position from a few weeks to months, this is known as long-term positional trading. As a result of the larger trading ranges, here the risk levels of a stop loss can reach as high as 200 points, while at the same time, one’s rewards will also go higher up — to 1000 points or even more. In fact, it is recommended that one should first get hands-on with intraday trading as well as short-term positional trading prior to stepping into the world of long-term positional trading.

The Bottom Line

The answer about which type of trading is best for you depends on the following factors. If you have low capital affordability, going with intraday trading is a smarter move as positional trading requires higher capital. Another factor to consider is how much risk you can bear. Intraday is a high-risk trade. If you can accept a high amount of risk, intraday trading may be more suited to you than positional trading, the latter of which involves moderate to high risks. A final parameter is your time frame. A full-time trader who wishes to remain glued to their screen should consider going for intraday trading, whereas someone who wishes to trade on the side or cannot dedicate their entire day to it, can opt for positional trading.

What is intraday Trading?

Everything you need to know about intraday trading

Intraday trading means buying and selling Commodities / Stocks on the same trading day. Intraday trading is also known as Day Trading. Commodity / Stock Price keeps fluctuating throughout the day. And intraday traders try to draw profits from these price movements by buying and selling Commodity /Stocks during the same trading day. Intraday trading refers to buying and selling Commodities/Stocks on the same day before the market closes. If you fail to do so, your broker may square off your position or convert it into a delivery trade. This kind of trading is always beneficial whether a person is an experienced trader or a beginner as the indicators and trends of the market will guide them properly.

Basics of intraday Trading

Day trading refers to buying and selling Commodities/Stocks on the same day. This enables the user to buy and sell the same number of commodities/stocks on the same day before the market closes. The purpose is to earn profits through the movement of commodities/stocks. Hence it is also referred to as day trading.

The commodities/stocks earn you great returns if you are a long-term investor. But even in the short term. They can help you earn profits. For example, a commodities/stock opens a trade at Rs: 500 in the morning. Soon it climbs to Rs:550 within an hour or two. If you’ve purchased  1000 commodities/stocks in the morning and sold them at Rs: 550, you would have made an incredible profit of Rs: 50,000/- all within a few hours. This is called intra-day trading.

Intraday Trading – Features

Offline trading, you must specify if an order is specific to intraday trading. In that case, you take a position on the Commodities/stock and close it within the trading  hours on the same day. If you don’t close it yourself, the position gets squared off automatically at the market close price. You don’t get ownership of the commodities/stocks you buy and sell in intraday trading. The goal of intraday trade is not to own the commodities/stocks it is to make profit by reaping the benefit of price movements during the day.

Leveraging: leveraging means borrowing money from our broker to enhance your buying power and amplify the potential investment returns. For Example, you can take the benefit of leverage in intraday trading to take a larger exposure while paying a fraction of the open position. There are terms and conditions associated with leveraging that your broker should get familiar with to tap its benefits.

Offline trading platform, you have to specify if an order is specific to intraday trading

You take a position on the commodities/stocks and close it within the trading hours on the same day

If don’t close if yourself the position gets squared off automatically at the market closing price

The goal of intraday is not to own commodities/stocks its instead to make profits by reaping the benefits of price movements during the day

Advantages and Disadvantages (Pro and Cons) of Intraday Trading

Advantages of Intraday Trading

1. The trader can make profits based on the movement of the market price of the Commodities/stocks
2. The trader can avoid huge money to carry ward position
3. If the trader doesn’t close the deal, the position gets squared off automatically, if it’s set in the trading platform

Disadvantages of Intraday Trading

1. The trader will not own the commodities/stocks he traded  for the day
2. The trader incurs a loss if the closing rate is not conducive. If the market is unfavorable, he may have to forego profit.

Intraday Trading FAQ

What is the difference between day trading and intraday trading?

Day trading and intraday trading are different terms but have the same meaning.

Buy and selling commodities/stocks on the exchange on the same day are known as intraday trading. As buying and selling happen on the same day is also known as day trading.

The price of shares keeps moving up and down during the day the trader makes a profit from the movement of the commodities/share price.

How is intraday trading different from regular trading?

The objective of any form of trading is to make profits. However, there are different types of trading that you use to make profits. With intraday traders. The timeframe is only one day whereas, with regular trading, you can hold the commodities/stocks you have bought for as long as you want

When you feel that a certain commodities/stocks price is going to decline you can take a short position on an intraday trader, however, there is no such option with regular trading.

Intraday traders are usually available with margin however, delivery or regular traders are not a form of margin trading.

How does intraday trading work?

In intraday trading, the trader takes a position in the commodities/stocks market and once the price movements of the specific commodities/stocks are conducive, he will close the deal, if the position taken during the day is not closed by the trader, it automatically takes the reverse position at the closing market rate. The trader does not own commodities/stocks at the end of the day as the intention of the trader is to book profit based on the movement of the price.

How to do intraday trading?

In the case of intraday trading, if a trader takes a position in the stock market, he will have to close the deal within the trading hours of the same working day. If the position is not closed by the trader the commodities/stocks will automatically get squared off at the closing price.

How do I start intraday for beginners?

If you are completely new to the Commodities/stock market and have no idea about it, then you should ideally, halt your plans for intraday trading. Intraday trading requires some basic knowledge about the commodities/stocks market and Entry, exit, especially the stop loss order. If you are aware of the basics then you can Create Your Trading Account with your broker. Deposit funds, understand the exchange rules guidelines for margin requirements, and start trading during market hours. You need to remember that intraday trades are meant to be closed on the same day itself or the position will be squared off automatically.

Is intraday trading profitable for beginners?

Intraday trading is profitable if you can analyze the market trends and patterns and time your entry and exit properly. As there is a considerable risk involved in intraday traders because of the market volatility.

Beginners should understand the importance of a stop–loss order to minimize the losses.

Who should participate in intraday trading?

Anyone good at analyzing market trends and patterns can participate in intraday trading. This is popularly known as technical analysis. A trader must know how to read and understand various trends through different types of indicators on the price chart.

What is the timing for intraday trading?

The usual market hours for intraday trading are between 9.00 am to 11.30 pm Usually, intraday traders don’t make a trade right after the market opens as there are slightly more price fluctuations in the first hour or so. A trader will wait for the market to settle and then time their traders according to the indicator they are referring to for signals.

Can I hold Intraday Commodities?

No, you cannot hold intraday Commodities if you don’t have sufficient funds in your trading account, your broker will automatically square off the position.

How many commodities can I buy Intraday?

There is no fixed amount to start intraday trading. You can start with any amount you want. If you are a new trader. Then it is recommended to start small an advantage of trading on intraday is that all brokers provide leverage. This means you can buy commodities worth more than available funds.

How to find commodities for intraday trading?

Intraday traders believe that volume and liquidity are the most important aspects of intraday trading. Usually, intraday traders will choose commodities with high liquidity and high trading volume although these are the primary attributes for choosing commodities it is also important to do your due diligence (research, check the news, use technical indicators) before choosing any commodities for intraday.

What is a stop loss and why is it important in intraday trading?

A stop loss is a sell/buy order that is placed to close the existing long/short position on trade. A stop loss is used to minimize losses during volatile market situations. A stop loss order acts as damage control in case the market moves in the opposite direction of your position.

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