What Are Commodities?

Introduction

Commodities are one of the oldest forms of trade in human history, yet many retail traders still misunderstand them. While stocks, mutual funds, and cryptocurrencies receive most of the attention today, commodities remain the foundation of all financial markets.

What Are Commodities?

Let’s start with something familiar.

Finished Goods vs Raw Materials

• Petrol is a finished product
• A T-shirt or shirt is also a finished product

But these products are not made directly.

• A T-shirt is made from cotton
• Petrol is made from crude oil

Cotton and crude oil are raw materials, and these raw materials are called commodities.

Definition: What Are Commodities?

Commodities are basic raw materials that:

• Come from below the earth (crude oil, gold, copper)
• Grow on the earth (cotton, wheat, rice)

Without commodities, no finished goods can be produced. Every major industry—textiles, energy, construction, food, and transportation—depends on commodities.

Why Are Commodities So Important?

Before modern finance existed:

• There were no companies
• No shares
• No stock markets

Yet people still needed essential goods to survive.

The First Trades in Human History

• Rice trading in ancient China and Japan
• Gold, copper, and grains in early civilizations
• Agricultural barter systems across the world

This is why commodities were the first traded assets in human history.

Commodities: The First Financial Market Product

The first product ever traded in financial markets was commodities.

“Commodities are the Mother of All Asset Classes”

Every other asset class—currencies, bonds, and equities—came later.

The First Commodity Exchange

The world’s first organized commodity exchange was the Chicago Board of Trade (CBOT).

Its purpose was to:

• Help farmers lock prices in advance
• Reduce price risk
• Create fair and transparent trading

Forms of commodity trading existed 4,000–5,000 years ago, even before modern money systems.

How Other Asset Classes Came Later

The evolution of financial markets followed this order:

• Commodities
• Currencies
• Bonds
• Shares (Equity)

This clearly shows that all modern finance is built on commodities.

Understanding Commodities and Liquidity in the Indian Market

Commodities are broadly divided into two categories.

1. Soft Commodities (Above the Ground)

Soft commodities mainly include agricultural products:

• Maize
• Barley
• Wheat
• Spices
• Chickpeas (Chana)
• Cumin (Jeera)

Indian Exchange: NCDEX is the leading exchange for agricultural commodities in India.

2. Hard Commodities (Below the Ground)

Metals

• Copper
• Nickel
• Lead
• Zinc
• Aluminium

Energy

• Crude Oil
• Natural Gas

Indian Exchanges: MCX (dominant) and NSE (growing rapidly).

The Big Myth: “Commodities Don’t Have Liquidity”

This belief comes from the pre-2015 era.

Before 2015

• Commodity regulator: FMC
• Equity regulator: SEBI
• FCRA governed commodities
• SCRA governed securities

Because of restrictions:

• Options trading was not allowed
• Mutual funds could not participate
• FIIs were not allowed
• Commodity indices were banned

Liquidity was limited.

What Changed After 2015?

In September 2015, commodities came under SEBI regulation.

• Futures & options were allowed
• Institutional participation increased
• Corporates could hedge efficiently
• New lot sizes introduced
• NSE entered commodity derivatives

The commodity market started growing rapidly.

Liquidity in Today’s Commodity Market (2025 Reality)

Example: Gold

• Contract size: 1 kg
• Contract value: ~ ₹1 crore
• Margin required: ₹8–10 lakh

Retail traders usually avoid such large contracts.

Solution for Retail Traders

• Gold Mini
• Gold Micro / Gold Petal

These contracts have excellent liquidity.

Why Gold Is the Best Commodity to Start With

• Deep cultural importance in India
• High liquidity
• Lower volatility than equities
• Strong correlation with silver

Crude oil is important but requires understanding global geopolitics.

Variable Lot Sizes: A Big Advantage

Gold Contract Sizes

• Gold – 1 kg
• Gold Mini – 100 g
• Gold Guinea – 8 g
• Gold 10 – 10 g
• Gold Petal – 1 g

Gold Petal (Best for Beginners)

• Contract size: 1 gram
• Contract value: ~ ₹10,000
• Margin required: ~ ₹1,000

Is the Commodity Market Too Volatile? (Myth)

• Gold rarely falls 10% in a single day
• Equities have seen multiple 10% crashes
• Gold is defensive and stable

Total Major Commodities for Retail Traders

• Gold, Silver
• Copper, Nickel, Lead, Zinc, Aluminium
• Crude Oil, Natural Gas

Tracking just three segments gives a complete market view.

Final Takeaway

• Commodities are the foundation of financial markets
• Liquidity issues belong to the pre-2015 era
• Gold is stable, familiar, and highly liquid
• Indian commodity markets are retail-friendly and well-regulated

Disclaimer: This article is for educational purposes only. Commodity trading involves risk. Please consult a registered financial advisor before making any investment or trading decisions.

What is Forex?

What Is Forex Trading?

Introduction

Forex, also known as FX (Foreign Exchange) or the currency market, is a global marketplace where currencies are bought and sold. It is a decentralized over-the-counter (OTC) market, meaning there is no central exchange like the stock market.

The forex market determines exchange rates for all currencies worldwide and is the largest financial market in the world, far bigger than stocks, bonds, or commodities.

Why Does the Forex Market Exist?

The forex market exists to support international trade and global investment.

Example:

A company in the United States importing goods from Europe must pay in Euros (EUR), even though its income is earned in US Dollars (USD). Forex trading enables this currency exchange.

Forex is also used for:

• Currency speculation
• Measuring currency strength
• Carry trade strategies based on interest rate differences

How Does Forex Trading Work?

Forex trading involves speculating on the price movement between two currencies, known as a currency pair.

Example:

EUR/USD represents the Euro against the US Dollar.

• If you expect the Euro to strengthen, you buy the pair
• If you expect the Euro to weaken, you sell the pair

Your profit or loss depends on how the exchange rate moves.

Key Features of the Forex Market

• Largest financial market with very high liquidity
• Operates globally across multiple time zones
• 24-hour trading, five days a week
• Strongly influenced by economic data, interest rates, and global events
• Lower transaction costs compared to many markets
• Use of leverage (which increases both risk and reward)

What Are Currency Pairs?

A currency pair shows the value of one currency compared to another.

• Base Currency: The first currency in the pair
• Quote Currency: The second currency

Example:

EUR/USD = 1.1000 → 1 Euro = 1.10 US Dollars

Types of Currency Pairs in Forex

1. Major Currency Pairs

Major pairs are the most traded currency pairs and account for nearly 85% of total forex volume.

• EUR/USD
• GBP/USD
• USD/JPY
• USD/CHF

Why beginners prefer major pairs:

• High liquidity
• Lower spreads
• Relatively stable price movement

2. Minor Currency Pairs

• EUR/GBP
• EUR/JPY
• GBP/JPY

3. Exotic Currency Pairs

• USD/INR
• USD/SGD
• EUR/TRY

Important Note

Exotic currency pairs usually have higher spreads and higher risk compared to major pairs.

Important Forex Trading Terms

Pips and Points

A pip is the standard unit used to measure price movement in forex. For most currency pairs:

1 pip = 0.0001

Bid Price and Ask Price

• Bid Price: Price at which the broker buys
• Ask Price: Price at which the broker sells

Spread

The spread is the difference between the bid and ask price. Lower spreads mean lower trading costs.

Leverage and Margin

Leverage allows traders to control large positions with a small amount of capital. Margin is the amount required to open and maintain a leveraged trade.

Risk Warning: Leverage can increase losses as well as profits.

Forex Market Sessions (Trading Hours)

Market	Trading Time (UTC)
Sydney	9:00 PM – 6:00 AM
Tokyo	11:00 PM – 6:00 AM
London	7:00 AM – 4:00 PM
New York	12:00 PM – 9:00 PM

Best volatility: London–New York overlap session.

Is Forex Trading Safe for Beginners?

Forex trading involves significant risk and is not suitable for everyone. Beginners should focus on education, risk management, and start with small capital.

Disclaimer: Forex trading involves risk. This content is for educational purposes only and should not be considered financial advice. Please consult a qualified financial advisor before trading.

Derivatives Futures and Options

Introduction to Derivatives

Introduction

In the stock market, not everyone buys or sells shares directly. Many traders, investors, and businesses use advanced financial instruments to manage risk or benefit from price movements without owning the actual asset.

These financial instruments are known as Derivatives.

Derivatives play a crucial role in modern financial markets, but they can also be risky if not understood properly. In this article, we will understand what derivatives are, their types, how they work, advantages, risks, and who should trade them.

What Are Derivatives?

A derivative is a financial contract whose value is derived from an underlying asset.

Underlying assets can be:

• Stocks (Reliance, TCS)
• Indices (Nifty 50, Bank Nifty)
• Commodities (Gold, Silver, Crude Oil)
• Currencies (USD/INR)
• Interest rates or bonds

The price of a derivative changes based on the price movement of its underlying asset.

Why Are Derivatives Used?

• To hedge risk and protect capital
• To speculate on price movements
• To manage uncertainty
• To gain leverage with lower capital

What Are the 4 Main Types of Derivatives?

1. Futures Contracts

A futures contract is an agreement to buy or sell an asset at a fixed price on a future date.

• Traded on NSE & BSE
• Standardized contracts
• Margin required
• Daily mark-to-market settlement

Example:

If you believe Nifty 50 will rise, you can buy Nifty Futures. If the index rises, you profit; if it falls, you incur losses.

2. Forward Contracts

Forward contracts are private agreements between two parties. They are traded over-the-counter (OTC).

• Customizable terms
• No exchange involvement
• Higher counterparty risk

Example:

An exporter agrees to sell USD at ₹83 after 3 months to avoid currency risk.

3. Options Contracts

Options give the buyer the right, but not the obligation, to buy or sell an asset.

• Call Option: Right to buy
• Put Option: Right to sell
• Buyer pays premium
• Loss limited to premium

Options are popular because they allow limited risk with high profit potential.

4. Swaps

Swaps are derivative contracts where two parties exchange financial obligations.

• Interest rate swaps
• Currency swaps
• Mainly used by institutions

How Do Derivatives Work?

Exchange-Traded Derivatives

• Standardized contracts
• Transparent pricing
• Low counterparty risk
• Regulated by SEBI

OTC Derivatives

• Private contracts
• Flexible terms
• Higher risk

Advantages of Derivatives

• Risk hedging
• High leverage
• Low capital requirement
• Profit in rising or falling markets

Risks of Derivatives

• High volatility
• Leverage can magnify losses
• Emotional pressure
• Not suitable for beginners

Derivatives vs Cash Market

Factor	Derivatives	Cash Market
Leverage	High	Low
Risk	High	Moderate
Capital	Lower	Higher
Holding Period	Short-term	Long-term

Who Should Trade in Derivatives?

• Experienced traders
• Investors with strong risk management
• Hedgers such as businesses and institutions

Beginners should first learn cash market basics and practice paper trading before entering derivatives.

Conclusion

Derivatives are powerful financial instruments used for hedging and speculation. They offer high profit potential but involve significant risk.

Success in derivatives trading requires proper education, discipline, risk management, and emotional control.

“Protect capital first. Profits will follow.”

Disclaimer: Derivatives trading involves high risk. This content is for educational purposes only and should not be considered financial advice.

What Is a Share?

What Is a Share? Meaning, Types & How Shares Work in the Stock Market

Shares are one of the fundamental building blocks of the stock market. Whether you are looking to invest long-term or explore trading opportunities, understanding shares is essential. A share represents a small portion of ownership in a company. Companies divide their ownership into shares to raise funds for expansion, business operations, or new projects. When you buy a share, you become a shareholder and own a fraction of that company.

Why Shares Are Important

Shares are crucial for both companies and investors. For companies, issuing shares allows them to raise capital without taking loans or paying interest. For investors, shares offer the potential to earn profits through dividends and capital appreciation. Moreover, shares contribute to economic growth by funding businesses, creating jobs, and expanding industries.

What Is a Share?

A share is essentially a unit of ownership in a company. For example, if a company has issued 1,00,000 shares and you own 1,000 shares, you own 1% of that company. Shares allow investors to participate in a company’s profits and decision-making, depending on the type of share held.

Key Features of Shares

Ownership

Owning shares means you have a stake in the company. The more shares you own, the greater your claim on company profits and assets.

Raising Funds

Companies raise money through:

• Initial Public Offerings (IPOs)
• Public share issues
• Private placements

Rights of Shareholders

• Dividends: Shareholders may receive a share of profits, known as dividends.
• Voting Rights: Some shares allow you to vote on company decisions like appointing directors.
• Capital Appreciation: Share prices may increase over time, allowing potential profit on selling.
• Limited Liability: Loss is limited to your investment, protecting personal assets.
• Liquidity: Shares listed on exchanges like NSE and BSE can be easily bought and sold.

Types of Shares in India

1. Equity (Common) Shares

• Provide real ownership in the company
• Offer voting rights (usually one vote per share)
• Dividends depend on company performance
• Higher risk, but potential for higher returns

2. Preference (Preferred) Shares

• Usually no voting rights
• Fixed dividend is paid before equity shareholders
• Lower risk compared to equity shares
• Higher priority during liquidation

3. Bonus Shares

Bonus shares are issued free to existing shareholders, often to reward loyalty. They increase the number of shares owned without additional investment.

4. Right Shares

Right shares are offered at a discounted price to existing shareholders before being offered to the public, allowing them to maintain ownership percentages.

5. Employee Stock Options (ESOPs)

ESOPs are shares given to employees as incentives or rewards, aligning employee performance with company growth.

Example of Share Ownership

Suppose a company has 1,00,000 shares. You buy 1,000 shares at ₹100 each:

• Ownership = 1,000 / 1,00,000 = 1%
• Annual Dividend = ₹5/share → 1,000 × 5 = ₹5,000/year

This example demonstrates how both ownership and dividends provide financial benefits.

How Share Trading Works

Share trading is the process of buying and selling shares on stock exchanges to make profits from price movements. Trading can be short-term (intraday, weekly) or long-term (holding shares for months or years).

Requirements for Trading

• Demat Account – Holds shares digitally
• Trading Account – Places buy/sell orders
• Bank Account – Transfers funds

Benefits of Buying Shares

• Ownership in a company
• Potential for long-term capital growth
• Dividend income
• Easy buying and selling through NSE/BSE
• Regulated by SEBI

Risks of Investing in Shares

• Market price fluctuations
• Company performance risk
• Economic and global market factors

Risk Reduction Tips

• Diversify your investments across industries and companies
• Avoid emotional decisions; follow a plan
• Learn fundamentals before investing
• Invest gradually instead of lump sums

How to Evaluate a Share

Before buying, evaluate a company using basic fundamentals:

• Revenue and profit growth
• Debt and cash flow analysis
• Market position and competition
• Dividend history

For advanced traders, technical analysis like trendlines and chart patterns can help identify buying and selling opportunities.

Dividend Types and Calculation

• Interim Dividend – Declared before the annual financial statement
• Final Dividend – Declared after annual profits are finalized
• Special Dividend – One-time dividend for exceptional profits

Dividend Yield: Annual Dividend / Share Price × 100 Example: Dividend ₹50, Share Price ₹1500 → Yield = 3.33%

Beginner Mistakes to Avoid

• Buying shares without research
• Chasing hype or market rumors
• Ignoring long-term potential for short-term gains
• Not diversifying investments

Comparison Table: Share Types

Share Type	Voting Rights	Dividend	Risk	Best For
Equity	Yes	Variable	High	Investors seeking growth
Preference	No	Fixed	Low	Risk-averse investors
Bonus	Yes	Free shares	Low	Existing shareholders
Right	Yes	Discounted price	Medium	Existing shareholders
ESOP	Yes	Incentive-based	Medium	Employees

Quick Insights

Shares provide ownership, profit-sharing through dividends, and growth potential. Understanding different types of shares, their risks, and how they work is essential before investing.

Conclusion

• Shares represent company ownership and provide opportunities for growth and dividends.
• Equity shares carry higher risk and higher potential returns; preference shares are safer but limited growth.
• Always research and diversify before investing.
• Understand your goals and risk tolerance to choose the right share types.

Disclaimer: This content is for educational purposes only. We are not SEBI-registered investment advisors. Investments are subject to market risks. Consult a qualified financial advisor before investing.

Common Myths About Trading in India – Truth Every Trader Should Understand

Introduction

Trading in India is often misunderstood. Many people believe trading is gambling, while others assume it is an easy way to make quick money. These misconceptions stop beginners from learning trading properly or push them into the market with unrealistic expectations.

In this article, we will break down the most common myths about trading in India and explain the reality behind each one. Understanding these truths can help new traders avoid costly mistakes and build the right mindset from the beginning.

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Myth 1: Trading Is Gambling

Reality: Trading is not gambling when done with knowledge, strategy, and risk management. Gambling depends purely on luck, while trading is based on analysis, probability, and discipline.

Professional traders follow predefined rules for entry, exit, stop-loss, and position sizing.

Example: A trader analyzing Reliance Industries may enter a trade only after identifying support and resistance levels, rather than guessing randomly.

Beginner Tip: Start with paper trading before risking real money.

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Myth 2: You Need a Lot of Money to Start Trading

Reality: Trading does not require huge capital. Many Indian brokers allow traders to start with as little as ₹500–₹1,000.

The real focus should be on risk control, not capital size. Even experienced traders protect their capital carefully.

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Myth 3: Trading Gives Quick and Easy Money

Reality: Trading is not a shortcut to wealth. Consistent profits come only with patience, learning, and emotional control.

Some beginners may earn profits initially, but long-term success takes time and experience.

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Myth 4: Only Experts Can Do Trading

Reality: Anyone can learn trading with proper education and practice. Beginners should start with market basics and gradually improve their skills.

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Myth 5: Intraday Trading Is Extremely Risky

Reality: Intraday trading itself is not dangerous. Risk increases when traders ignore stop-losses, overtrade, or trade emotionally.

With proper planning and discipline, intraday trading risk can be controlled.

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Myth 6: Stock Tips Guarantee Profits

Reality: No stock tip guarantees profit. Blindly following tips from WhatsApp, Telegram, or social media often leads to losses.

Example: A tip saying “Buy TCS at ₹3,200” without market context may fail if the market trend turns negative.

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Myth 7: More Trades Mean More Profit

Reality: Overtrading usually results in losses. Profitable traders focus on quality setups rather than frequent trades.

Patience is one of the most important skills in trading.

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Myth 8: Losses Mean You Are Bad at Trading

Reality: Losses are part of trading. Even professional traders face losing trades regularly.

Success depends on how well losses are managed, not on avoiding them completely.

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Myth 9: Long-Term Investing Is Always Better Than Trading

Reality: Trading and investing serve different purposes. Trading suits active participants, while investing suits long-term wealth builders.

The right choice depends on personal goals, time availability, and risk tolerance.

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Myth 10: Trading Is Illegal in India

Reality: Trading in India is completely legal and regulated by SEBI. NSE and BSE operate under strict rules to protect investors.

Ethical trading follows market regulations and uses lawful strategies.

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Additional Tips for Beginners

• Start with small capital
• Learn technical and fundamental analysis
• Maintain a trading journal
• Use stop-loss and proper position sizing
• Focus on discipline, not excitement

“Trading rewards discipline and patience, not emotions.”

Conclusion

Most myths about trading in India exist because of lack of education and unrealistic expectations. Trading is not gambling, nor is it guaranteed income.

It is a skill-based activity that requires learning, discipline, and strong risk management. With the right mindset, traders can build consistency over time.

Disclaimer: This content is for educational purposes only. Trading and investing involve market risk. The author is not a SEBI-registered financial advisor. Readers should consult a qualified professional before making investment decisions.