What is Commodity Trading?

Some one got in touch me and asked me whether I am interested to open a commodity trading account and performed some research to learn more of what is this and what is expected of me if I want to perform Commodity training.  Here are my learning’s.

You want to buy gold because you believe that the price of gold will rise.  You could then buy gold, store them, wait for the prices to go up and then sell them at a profit.  But you need to make sure that the gold you buy is pure, you have to find a place to store it, you have to provide the security, transport it to vault and other such hassles.  A better way to invest in gold is to buy gold futures from the commodities exchange.  When you buy a Gold Futures contract, you undertake to do three things.

1. Buy the amount of gold specified in the contract.
2. Buy it at the price specified in the contract.
3. Buy it on the expiry of the contract. This could be after one month, two months, three months and so on. Of course, if you sell the Gold Futures contract before it expires, then you don’t have to worry about actually buying the gold.

When you buy a Futures, you don’t have to pay the entire amount, just a fixed percentage of the cost. This is known as the margin. The low margin means that you can buy futures representing a large amount of gold by paying only a fraction of the price. Any increase or decrease in the price of gold would result in money credited or debited in your account depending whether the price of gold increases or decreases.

Compared to stocks, there are no balance sheets, no complicated financial statements, but you need to follow the supply and demand position of the commodities you trade in very closely.  This means that I need to track them on daily basis across work hours compared to stocks where i could perform analysis at midnight.. Would I be able to do that?