In a liberal economy, the price of goods is not constant and fluctuates depending on the balance between supply and demand. Due to various factors such as natural factors such as weather, socio-economic factors, and fluctuations in exchange rates, the prices of all things can rise or fall.
Such price fluctuations can cause unexpected losses to producers, manufacturers, distributors and consumers. Commodities In Forex is used as a place to manage such price fluctuation risk and hedge the risk. In addition, the commodity futures market is also a place to form fair prices by competing with various trading participants.
On the other hand, Commodities In Forex is also used for active asset management by predicting fluctuations in commodity prices on commodity exchanges where trading takes place.
Basics of Commodities In Forex
Commodities In Forex is the trading of commodities listed on commodity exchanges, such as gold, gasoline, and corn, for risk hedging against price fluctuations and asset management, on the premise that they will be settled or delivered in kind within a certain period. It’s a transaction.
If you predict that the price of the product you are trading will rise in the future, start with “buy”, and if the price rises as expected, resell it at that point and make a profit.
Conversely, if you predict that the price of a product will fall in the future, you will start with “sell”, and if the price decreases as expected, you will buy back at that point and make a profit. Therefore, within the transaction deadline, you can pursue profits in both “buy” and “sell”, that is, in both the rise and fall of prices.
This explanation is for buying a piece of gold. If you sell it, you need to think the other way around. If you go up 5 INR per gram, you will lose 5,000 INR per kilogram, and if you go down 5 INR, you will get a profit of 5,000 INR.
Commodities In Forex transactions are conducted in markets established by exchanges licensed by the Commissioner of the Financial Services Agency, the Minister of Agriculture, Forestry and Fisheries, or the Minister of Economy, Trade and Industry, based on the Financial Instruments and Exchange Act and the Commodity Derivatives Transaction Act.
To participate in Commodities In Forex in India, you must be a trading participant on an exchange or participate in trading through a licensed commodity futures trader or financial commodity trader such as Yutaka Trustee Securities.
It is a market opened mainly for trading commodity futures, and its establishment requires the permission of the competent minister.
Commodity futures trader
A company that can place an order on an exchange after being entrusted with a transaction by a customer is called a commodity futures trader (consignment transaction participant). To operate as a commodity futures trader, permission from the Minister of Agriculture, Forestry and Fisheries Find the Minister of Economy, Trade and Industry is required. In addition, commodity futures traders who can place orders directly with the exchange are limited to trading participants on the exchange.
Registered sales representative
A registered sales representative is an advisor who can accept transactions in the commodity futures market and solicit entrustments on behalf of commodity futures traders.
Securities Clearing Corporation (JSCC)
The Securities Clearing Corporation (JSCC) conducts clearing operations for exchange transactions, over-the-counter (OTC) derivative transactions (CDS transactions and interest rate swap transactions), and over-the-counter government bond transactions and guarantees the settlement of transactions.
The Commodity Consignor Protection Fund engages in asset protection services for assets other than the deposited margin and when commodity futures traders temporarily store the margin. All Commodity Futures Traders are required to join this Conservation Fund.
Risk hedging, which plays an essential role in commodity futures trading, is a function that ensures producers, manufacturers, importers/exporters, and other persons who trade commodities in kind so that they will not suffer losses due to future price fluctuations.
In such a case, in the commodity futures market, the risk of price fluctuations in physical transactions can be avoided by having a “sell” position for those who have the physical item and a “buy” position for those who purchase the physical object the future. Increase.
For example, when a farmer plants seeds in the spring, he holds a “sell” position at the futures price when he harvests in the fall and signs a sales contract in the futures market. If the year is a good harvest, falling prices can make a significant loss in the physical market, but in the futures market, a “sell” position can profit and offset the loss in the physical market. In this way, commodity futures trading plays a significant role in the safe trading of commodities with volatile prices.
In Commodities In Forex, you can close the transaction by settling the difference between the “futures price at the time of purchase (or sale)” and the “futures price at the time of resale (or repurchase)”. This is called “contract for difference”. If you do not settle the difference, the transaction will be terminated by the “delivery” of the actual product.
Commodity futures trading is a transaction that is bought and sold on the premise that it will be settled or delivered in kind within a certain period, so there is a settlement deadline for the transaction. The settlement deadline varies depending on the product, but it is mainly set every month or every two months, and the maximum is about one year.
The month of the settlement deadline is called the “Densetsu”, and the price is determined by buying and selling for each contract month. The last trading day of the contract month is called the “delivery date”.
In commodity futures trading, by the delivery date, the “buy” position is resold, and the “sell” position is “counter-traded” by repurchase to settle the difference, or the buyer pays the delivery price of the commodity and the physical item (warehouse receipt).
While taking over the securities), the seller ends the transaction by delivering the actual goods (warehouse receipts ) and performing “delivery”.
Margin (Security Deposit)
In physical trading, the total amount of the commodity price is received and paid. Still, about 3 to 20% of the total amount of “consignor margin” is deposited as collateral for trading in commodity futures trading.
This efficiency of investment funds is an advantage of commodity futures trading because it is possible to trade several tens of times the amount of margin (leverage effect).
While you can expect to generate significant profits with a small amount of money, you may incur more losses than that, so it is essential to trade with plenty of funds in advance.
Commodity The products listed and traded on the futures market are all familiar and necessary for our lives. Gold, which represents ornaments and assets, is an essential material in electronics, and platinum, preferred as an adornment in India, is often used as a catalyst for purifying automobile exhaust gas.
Petroleum products such as gasoline and kerosene are indispensable as fuels for all power and equipment, and corn and soybeans are used not only for our food but also as feed for raising livestock.
The commodity futures market can play an essential role in supporting economic development and all industrial activities.
Among the commodity futures transactions offered by Yutaka Trustee Securities, the Tokyo Commodity Exchange offers “regular trading” that makes the most of financial efficiency and “limited loss trading (smart CX)” that allows you to trade with a limited maximum loss.
Both are “commodity futures trading” conducted on the Tokyo Commodity Exchange, but there are some differences due to the nature of the service. Here, we will explain the difference between “normal trading” and “loss limited trading (smart CX)”.