Commodity trading involves buying and selling raw materials like metals, energy, and agricultural products through spot or derivative markets. It supports global supply chains, hedging strategies, and speculative opportunities.
Traders use instruments such as futures, options, ETFs, and ETCs across regulated exchanges or OTC platforms
Each trade follows a structured process, order placement, execution, clearing, and settlement, governed by margin rules and contract specifications.
Market participants include institutional investors, producers, and retail entities. Platforms like MetaTrader and TradingView assist in analysis and execution.
Effective risk management, regulatory awareness, and product knowledge are essential for navigating price volatility and market complexity.
What Is Commodity Trading & Why It Matters?
Commodity trading enables the exchange of raw materials through standardized contracts across global markets. It drives price discovery, liquidity, and portfolio diversification. By linking producers and consumers, it stabilizes supply chains and supports macroeconomic balance.
Its significance extends across asset allocation, inflation hedging, and institutional strategies, forming a core function of modern financial infrastructure and market efficiency.
Global Price Discovery & Inflation Hedging
Commodity trading facilitates real-time price discovery for raw materials, directly impacting global trade and macroeconomic indicators. These markets act as benchmarks for inflation-sensitive sectors such as manufacturing, agriculture, and energy.
Central banks and industries monitor commodity trends to assess cost-push inflation risks and currency pressures.
Speculation vs Hedging: Core Functions
Participants engage in commodity markets for two primary reasons: hedging and speculation.
Hedgers use futures and options to offset risks tied to price volatility in physical goods.
Speculators seek profit from directional movements without holding the underlying assets.
Both roles contribute to liquidity, volume, and efficient pricing in these markets.
Key Commodities & Units of Measurement
Commodity markets classify assets into three primary segments: energy, metals, and agriculture. Each is traded using standardized units to ensure price transparency and execution efficiency.
Gold and silver trade in ounces, crude oil in barrels, natural gas in million BTUs, wheat in bushels, and cotton in pounds. These units form the basis for futures, spot, and derivative pricing.
Global commodity markets classify tradable assets into three primary categories: Energy, Metals, and Agriculture. Each operates under standard measurement units critical for pricing, trading volume, and futures contract specifications.
These units directly influence tick sizes, margin requirements, and price volatility calculations in both spot and derivatives markets. Inaccurate interpretation of quantity can lead to misjudged exposure or incorrect position sizing.
Commodity Measurement Table
| Commodity | Category | Standard Unit |
| Crude Oil | Energy | Barrels |
| Natural Gas | Energy | MMBtu |
| Gold | Metals | Ounces (oz) |
| Silver | Metals | Ounces (oz) |
| Copper | Metals | Pounds |
| Wheat | Agriculture | Bushels |
| Soybeans | Agriculture | Bushels |
| Coffee | Agriculture | Pounds |
Understanding these unit conventions is foundational for analyzing price movements, executing trades, and reading market reports across platforms.
Economic Impact
Commodities influence everything from food prices to interest rates. Understanding their economic impact reveals why markets move.
Commodity markets serve as a foundation for global supply chains. Price movements in energy, metals, and agricultural products directly affect input costs across manufacturing, logistics, and consumer goods.
As key drivers of inflation and deflation, commodities impact central bank policy, trade balances, and GDP growth. Sharp price fluctuations in oil or grain, for example, ripple through economies via transportation costs, production margins, and consumer prices.
Commodities also enable efficient price discovery, linking physical goods to macroeconomic indicators. This transmission mechanism makes them critical in fiscal modeling, monetary policy decisions, and institutional forecasting frameworks.
Understanding Market Structures
Commodity market structures define how assets are traded, priced, and settled.
Spot markets enable immediate transactions, while futures markets operate on contracts with delayed delivery.
OTC markets offer custom, bilateral deals, whereas exchange-traded platforms ensure standardization and transparency.
Structural understanding is essential for aligning risk, liquidity needs, and regulatory exposure.
Spot Market vs Futures Market
The spot market involves immediate settlement and physical delivery, used for current consumption or inventory needs.
The futures market operates through standardized contracts for forward delivery, offering risk management and price discovery. While spot trades suit short-term supply, futures enable hedging, speculation, and arbitrage.
Structural differences define volatility exposure, margin usage, and regulatory oversight across both formats.
Spot Market: Immediate Settlement
The spot market facilitates real-time exchange of commodities for immediate delivery. Pricing reflects current market value, with transactions settled “on the spot” or within two working days. It is commonly used for physical commodity procurement, arbitrage, and short-term supply-demand balancing.
Volatility is often higher due to geopolitical events, supply disruptions, or seasonality. Liquidity varies by commodity type and region. Traders must manage storage, transport, and quality verification. No margin is required, and price is paid in full upon settlement.
Futures Market: Contract-Based Exposure
Futures markets operate on standardized contracts that obligate delivery at a future date. Contracts specify lot size, expiry, margin requirements, and tick movement.
They are central to hedging strategies, enabling producers and consumers to lock prices and reduce uncertainty.
Futures introduce leverage, allowing large positions with small margin deposits. This amplifies both profit potential and risk.
Most contracts are not held to delivery but are squared off or cash-settled before expiration. The market is regulated, highly liquid, and often cash-settled through clearinghouses.
Comparison Table
| Feature | Spot Market | Futures Market |
| Delivery | Immediate | At contract expiry |
| Usage | Physical settlement | Speculation or hedging |
| Risk Profile | Price volatility, no margin | Leverage, margin calls |
| Horizon | Short-term | Mid- to long-term |
OTC vs Exchange-Traded
Over-the-counter (OTC) markets operate without centralized exchanges, exposing participants to counterparty risk, limited transparency, and bespoke contract terms.
Exchange-traded platforms enforce standardization, margin controls, and regulatory supervision.
Financial instruments such as ETFs and mutual funds mitigate OTC risks by pooling capital and executing trades through regulated clearing mechanisms, offering liquidity, compliance, and reduced default exposure.
OTC Markets: Flexibility with Risk
Over-the-counter (OTC) commodity trades occur directly between parties without centralized oversight. These contracts are customizable in size, terms, and delivery, offering flexibility suited to institutional hedging or bespoke exposures. However, this structure lacks real-time price discovery and regulatory uniformity.
High counterparty risk, limited liquidity, and pricing opacity make OTC markets more vulnerable to default or manipulation. Settlement terms are negotiated privately, raising operational risk.
Exchange-Traded: Regulation and Transparency
Exchange-traded contracts, such as those on CME or MCX, operate under regulatory frameworks that enforce standardization, centralized clearing, and margin protocols. This reduces counterparty risk and enhances price transparency.
Liquidity is deeper due to high participation volume, while real-time quotes and oversight from exchanges increase market efficiency. Instruments like ETFs and Mutual Funds typically avoid OTC exposure by relying on listed, regulated markets.
| Feature | OTC Markets | Exchange-Traded Markets |
| Regulation | Low | High |
| Pricing Transparency | Limited | Real-Time |
| Counterparty Risk | High | Centralized Clearing |
| Liquidity | Variable | High |
How Commodity Trading Works
Commodity trading operates through a structured process, order initiation, trade execution, clearing, and settlement. Orders are routed via brokers or platforms to exchanges, where they match bids and offers.
Clearinghouses manage counterparty risk and margin compliance. Settlement occurs either physically or through cash differences, depending on contract type.
Mechanics of a Trade
Commodity trades begin with order placement via a trading platform, specifying contract type, size, and execution parameters. Upon matching, the trade enters the clearing phase, where a clearinghouse guarantees settlement by managing margin requirements and netting exposures.
The final stage, settlement, ensures delivery or cash adjustment based on contract terms, securing transactional integrity in volatile market environments.
Order Placement & Execution
Commodity trading begins with placing a buy or sell order, executed through brokers or trading platforms. Orders can be market, limit, or stop, each with predefined conditions. Exchanges match orders using electronic systems that prioritize price and time.
Execution involves transmitting the order to the appropriate exchange. Once matched, the trade is confirmed and logged with a timestamp. Factors such as slippage, liquidity, and volatility affect execution quality.
Clearing & Margin Process
After execution, clearing houses validate and settle the transaction. This ensures counterparties fulfill obligations. Margins are deposits that act as collateral against potential losses, calculated as a percentage of the trade value.
Daily mark-to-market processes adjust margin accounts based on price fluctuations. If the margin falls below the maintenance level, a margin call is triggered. Clearing also includes netting positions and managing delivery or cash settlement procedures.
Anatomy of a Futures Contract
Understanding a futures contract involves decoding its symbol, lot size, tick value, margin requirement, and expiry date. These elements define pricing precision, capital exposure, and delivery timelines.
Clarity on contract anatomy ensures accurate order placement, position sizing, and compliance with exchange rules.
Key Specifications
A futures contract includes standardized terms that define tradability. The symbol represents the underlying asset. Expiry indicates the final trading date. Tick size is the minimum price fluctuation allowed.
Margin refers to the initial and maintenance capital required to open and hold a position.
Contract specifications vary by exchange but follow regulatory norms to ensure transparency, price uniformity, and capital efficiency across traders and clearing members.
Example: Gold Futures
Gold futures on MCX use the symbol GOLD with a contract size of 1 kg. Tick size is ₹1, and the expiry occurs on the 5th of the contract month. Initial margin is approximately 5% of the notional value. Settlement is typically cash-based unless physical delivery is specified by the trader before expiry.
Standardized terms reduce ambiguity and increase operational efficiency.
Settlement Mechanisms: Physical vs Cash
Settlement format affects exposure, cost efficiency, and delivery obligations in commodity trading.
Physical Settlement
Physical settlement involves the actual delivery of the underlying commodity. It requires warehousing infrastructure, quality certification, and compliance with delivery location protocols. Exchanges like MCX and LME enable delivery through accredited warehouses under strict logistics supervision.
This model ensures inventory transparency and facilitates supply-demand alignment in industrial markets. It is used where real asset transfer is essential, such as in metals and agricultural contracts.
Cash Settlement
Cash settlement offsets gains and losses based on price differentials at contract expiry. No commodity is delivered. Instead, parties receive or pay the net monetary difference, often marked to market.
This mechanism is common in ETF structures and index-linked instruments. It reduces storage, transport, and certification risks while enhancing liquidity and trade execution speed, particularly in financialized commodities like crude oil benchmarks and index-tracked futures.
Choose the Right Instrument
Instrument choice must reflect time horizon, liquidity needs, and risk capacity. Traders benefit from futures, options, and CFDs for short-term exposure and tactical strategies. Investors require ETFs, mutual funds, or ETCs for passive allocation and inflation hedging.
Clear segmentation between speculative and long-hold profiles ensures efficient execution, proper margin use, and reduced drawdown risk.
Identify Your Role
| Profile | Best Instruments |
| Trader | Futures, Options, Contracts for Difference (CFDs) |
| Investor | Exchange-Traded Funds (ETFs), Mutual Funds, ETCs |
Trader-Focused Instruments
Trader-focused instruments are designed for active market participation, short-term positioning, and volatility management.
Futures and options allow directional exposure with leverage, while contracts for difference (CFDs), swaps, and forwards offer flexible strategies outside exchanges. Each tool carries unique risk profiles—such as expiry constraints, margin requirements, or counterparty exposure—requiring disciplined execution and continuous monitoring.
Futures & Options
Futures and options offer leveraged access to directional market moves. Futures represent standardized contracts for future delivery or settlement, while Options grant the right, not obligation, to buy or sell the underlying asset within a fixed term.
They are deployed for short-term speculation, volatility strategies, and hedging positions.
Key risks include time decay, price fluctuation, margin calls, and forced liquidation in adverse market swings.
These contracts require precise execution and risk tolerance due to expiry constraints and high exposure.
Synthetic Instruments: CFDs, Swaps, Forwards
Synthetic instruments offer exposure outside formal exchanges. CFDs mirror asset price movements without ownership. Swaps involve the exchange of cash flows, while forwards are private contracts for future settlement.
These are typically over-the-counter instruments with flexible structures. However, they carry high counterparty risk, reduced transparency, and limited regulatory oversight. Used for hedging or speculative purposes in niche markets, they demand professional-grade risk assessment due to the lack of standardized clearing mechanisms.
Investor-Focused Commodity Instruments
ETFs offer real-time pricing, lower expense ratios, and ease of trading.
Mutual funds provide active management but may lack transparency and impose exit loads. ETCs enable direct exposure to physical or synthetic commodities with inflation hedging potential. Instrument structure affects tax efficiency, liquidity, and portfolio alignment.
Proper selection optimizes long-term commodity exposure while minimizing structural inefficiencies.
ETFs vs Mutual Funds
Commodity ETFs offer real-time pricing, trade on exchanges, and generally carry lower fees due to their passive structure. They disclose holdings daily, improving transparency for investors and enabling more efficient tax planning under in-kind redemption mechanisms.
Mutual funds are priced at end-of-day NAV, and may involve higher management costs. Their disclosure is periodic, and redemptions are processed by fund houses, introducing delays in liquidity. Taxation structures also differ based on jurisdiction, with ETFs typically offering more favorable capital gains treatment in certain markets.
| Feature | ETFs | Mutual Funds |
| Liquidity | Intraday | End-of-day NAV |
| Fees | Lower (passive) | Higher (active) |
| Transparency | Daily holdings | Periodic reports |
| Tax Efficiency | Higher (in some markets) | Lower |
Understanding ETCs (Exchange-Traded Commodities)
ETCs provide direct exposure to individual commodities. These may be physically backed (holding actual assets like gold bars) or synthetic, using swaps or futures. Both allow diversification within passive portfolios without managing contracts directly.
Physically backed ETCs enhance inflation protection by mirroring real asset prices. Synthetic ETCs offer flexibility but carry counterparty risk. ETCs are commonly used for portfolio hedging or as inflation-linked strategic allocations in institutional and retail frameworks.
Trading Platforms & Tools
MetaTrader 4 vs MetaTrader 5
MetaTrader 4 supports forex and CFDs with simpler scripting and lower system demands. MetaTrader 5 expands access to commodities, futures, and equities with enhanced order types, faster execution, and multi-threaded strategy testing.
Feature alignment with trading scope, analytical depth, and automation needs determines platform suitability across asset classes and trader profiles.
Feature Comparison: MT4 vs MT5
| Feature | MetaTrader 4 | MetaTrader 5 |
| Asset Access | Forex only | Forex, Stocks, Commodities |
| Indicators | 30 built-in | 38 built-in |
| Timeframes | 9 | 21 |
| Order Types | 4 | 6 |
| Scripting | MQL4 | MQL5 (object-oriented) |
| Strategy Tester | Single-threaded | Multi-threaded |
| Depth of Market | Not supported | Supported |
MT4 is lightweight, stable, and optimized for forex trading.
MT5 expands access to multi-asset markets, supports hedging and netting, and introduces improved backtesting tools. Its scripting flexibility also enhances custom algorithm deployment.
Best Fit by Trader Profile
Retail Forex Traders
Pros: Minimal system load, faster installation, extensive community support.
Cons: Limited timeframes, fewer indicators, no market depth.
Algorithmic/Systemic Traders
Pros: MT5 supports multithreading, advanced backtesting, and OOP scripting.
Cons: Requires higher technical proficiency and more system resources.
Multi-Asset Investors
Pros: MT5 enables access to equities and commodities, broader portfolio testing.
Cons: Higher complexity, legacy script incompatibility.
MT4 remains ideal for basic forex execution and simple technical strategies.
MT5 suits institutional-grade models and traders needing deeper analytics, asset diversity, or integration with modern infrastructure.
Other Tools for Traders
Supplementary tools sharpen trade entries, sentiment analysis, and risk alerts, especially in volatile commodity markets.
Sentiment & Charting Utilities
TradingView provides real-time commodity charting with advanced indicators and custom scripts. It supports multi-timeframe analysis, trend detection, and price pattern projections.
COT (Commitment of Traders) Reports offer insights into institutional and commercial positions. These reports assist in identifying market sentiment extremes and potential reversals.
Screening & Risk Management
Price Alerts automate risk triggers and breakout notifications. They reduce manual monitoring and help manage entries and exits during high volatility.
Screeners filter tradable assets based on technical or fundamental criteria. Traders use them to scan for volume shifts, momentum signals, or price divergence setups.
Each tool enhances different phases of the trade process, setup, confirmation, and execution, supporting precision in commodity trading strategies.
Risk Management Essentials
Risk management in commodities involves margin control, hedging techniques, and exposure sizing.
Long and short hedges protect against price fluctuations in inventory or future purchases. Arbitrage exploits price differentials without directional bets. Leverage increases returns but magnifies losses, requiring strict margin monitoring.
Effective risk protocols preserve capital, prevent liquidation, and stabilize long-term trading outcomes.
Hedging Strategy
Long vs Short Hedge
A long hedge involves buying futures to lock in purchase prices, shielding against rising costs. This is typically used by manufacturers or consumers of a commodity.
A short hedge involves selling futures to secure current selling prices, used by producers or inventory holders.
Hedging Flow
- Long Hedge (for buyers / consumers):
- Identify exposure to rising prices
- → Buy futures contract
- → Lock in current price
- → Protect against price increase
- Identify exposure to rising prices
- Short Hedge (for sellers / producers):
- Identify exposure to falling prices
- → Sell futures contract
- → Lock in current selling price
- → Protect against price drop
- Identify exposure to falling prices
Who Hedges and Why
- Producers hedge to ensure predictable revenue despite falling spot prices.
- Consumers hedge to stabilize procurement costs.
- Investors use hedging to reduce portfolio volatility tied to commodity exposure.
This aligns financial outcomes with real-world production or consumption needs, limiting margin shocks.
Arbitrage vs Hedging
Comparative Differences
| Aspect | Hedging | Arbitrage |
| Objective | Reduce risk | Exploit price inefficiencies |
| Tools | Futures, options | Spot vs futures, cross-exchange trades |
| Time Horizon | Medium to long-term | Short-term |
Hedging focuses on stabilizing income or cost flows, whereas arbitrage seeks profit from pricing gaps across markets. The functions are distinct but may operate simultaneously in liquid environments.
Margin and Leverage in Commodity Trading
Real-World Example
A ₹1,00,000 position in gold futures with a 5% margin requires ₹5,000 as initial capital. This enables traders to control large exposures with limited funds. Exchanges set margin rates based on volatility, underlying asset, and regulatory frameworks.
Margin Calls and Liquidation Triggers
If the position moves against the trader and the account falls below the maintenance margin, a margin call is triggered. Failure to deposit additional funds leads to automatic liquidation. High leverage increases sensitivity to price swings, raising exposure to sharp drawdowns.
Who Trades Commodities?
Institutional participation in commodities includes hedge funds, pension funds, and high-net-worth entities. These participants engage for inflation protection, portfolio decorrelation, and speculative opportunities.
Exposure is gained via futures, options, ETFs, or OTC instruments. Their trading activity impacts liquidity, price discovery, and market depth, shaping commodity flows across global financial ecosystems.
Institutional Investors: Hedge Funds, HNIs, Pension Funds
Hedge funds actively speculate in commodity markets to exploit price volatility using long-short, spread, or arbitrage strategies.
High-net-worth individuals (HNIs) allocate to commodities through managed accounts or derivative exposures to hedge inflation and seek non-correlated returns.
Pension funds, constrained by mandates, use commodities through structured instruments for inflation-linked liabilities or as part of real asset portfolios.
Institutional entities typically access commodities via futures, options, commodity ETFs, and over-the-counter contracts. Their trades are often large, algorithm-driven, and influence price discovery across global exchanges.
Why Institutions Allocate to Commodities
Commodities act as a hedge against currency depreciation and input cost shocks. In multi-asset strategies, they provide negative or low correlation with equities and bonds, enhancing risk-adjusted returns.
Exposure is either direct (via derivatives) or indirect (via commodity-linked securities or infrastructure funds).
Institutional presence adds liquidity and depth to markets, but also contributes to systemic risk during leverage unwinds or risk-off events.
Major Commodity Exchanges
Understanding exchange structure enables selection of the appropriate platform, delivery model, and trading access based on product and region.
Global vs Regional Access
Commodity exchanges serve different geographies and asset classes. CME (U.S.) and LME (U.K.) offer broad international exposure, while MCX (India) and DGCX (UAE) provide region-specific contracts aligned with domestic trading needs. Each exchange functions under its jurisdiction’s regulatory and operational framework.
Delivery Models & Trade Access
CME offers both cash-settled and physically-delivered contracts across energy, agriculture, and metals. LME specializes in physical delivery of base metals. MCX predominantly uses cash settlement. DGCX offers financial delivery with multi-asset options. These delivery protocols affect margin, liquidity, and hedging suitability.
Exchange Comparison Table:
| Exchange | Region | Asset Focus | Delivery Type | Trader Profile |
| CME | U.S. | Energy, Agri, Metals | Cash & Physical | Global institutions, retail |
| LME | U.K. | Base Metals | Physical | Industrial, institutional |
| MCX | India | Bullion, Agri, Energy | Cash | Domestic traders |
| DGCX | UAE | Multi-asset | Financial | Gulf & Asia access |
Learn & Improve as a Trader
Continuous learning enhances strategic decision-making in commodity markets. Access to curated literature, simulation tools, back-testing platforms, and certified courses builds technical competency.
Reliable forums and institutional-grade resources further support skill development, enabling consistent performance across market cycles.
Top 10 Must-Reads
Reading foundational literature builds the conceptual and strategic depth required for commodity market participation. These titles cover pricing dynamics, risk systems, technical analysis, and market psychology.
- Trading Commodities and Financial Futures – G. Kleinman
→ Insight on hedging mechanics and speculative frameworks. - Hot Commodities – J. Rogers
→ Macro perspective on commodity supercycles and scarcity themes. - Option Volatility & Pricing – S. Natenberg
→ Detailed breakdown of volatility-based derivatives trading. - The New Market Wizards – J. Schwager
→ Real-world insights from top commodities and futures traders. - Technical Analysis of the Futures Markets – J. Murphy
→ Key charting tools and patterns specific to commodity futures. - The Art and Science of Technical Analysis – A. Harris
→ Deep dive into trend behavior and order flow in futures. - Fundamentals of Futures and Options Markets – J. Hull
→ Core academic principles of derivatives and trading strategies. - The Little Book of Commodity Investing – J. Idzorek
→ Overview of asset allocation using commodities. - The Economist Guide to Commodities – C. Aldrick
→ Explains global supply chains, production, and logistics. - Beyond Greed and Fear – H. Shefrin
→ Behavioral finance applied to speculative trading behavior.
Learning Tools & Courses
Knowledge acceleration requires access to structured programs, real-time simulators, and peer-reviewed platforms. These learning mechanisms enable risk-free skill acquisition and strategy refinement.
- MOOCs:
Courses on Coursera, edX, and NPTEL offer modules in commodity markets, risk management, and financial derivatives. - Demo Platforms:
MetaTrader, TradingView, and Thinkorswim provide simulated commodity trading environments for hands-on exposure. - Back-testing Tools:
Platforms like Amibroker, QuantConnect, and TradingBlox enable validation of rule-based commodity strategies using historical data. - Content Hubs & Forums:
Investopedia (for concept clarity), Bionic Turtle (for FRM-aligned risk training), and Elite Trader (for real-time peer analysis) provide access to structured insights, case studies, and market threads.
These resources ensure continual learning, decision-making precision, and informed risk application in real-world trades.
Final Thoughts: Choose Your Path
Commodity market participation requires strategy alignment based on intent, risk profile, and time horizon. The trader route demands active monitoring, technical execution, and leverage control. The investor route focuses on passive exposure, diversification, and inflation hedging.
Traders
Start with a MetaTrader 5 demo. Practice with futures and CFDs, follow risk-reward ratios, and apply margin discipline. Calibrate exposure using defined stop-loss strategies and understand volatility-adjusted position sizing.
Investors
Use the ETF selector checklist to evaluate fund structure, underlying assets, management fees, and taxation. Prioritize liquidity, tracking accuracy, and issuer reliability for long-term commodity allocation.
FAQs
Q1. What happens if I get a margin call?
A margin call occurs when account equity falls below the exchange’s maintenance requirement. The trader must deposit additional funds or liquidate positions. Failure to act results in forced liquidation of open contracts at prevailing market prices.
Q2. Can I buy gold ETFs through my brokerage account?
Yes. Gold ETFs are listed on exchanges and can be bought or sold like stocks using any SEBI-registered broker platform. They offer exposure to physical gold prices without direct ownership or storage responsibilities.
Q3. What if I don’t close my futures position before expiry?
Unclosed futures positions at expiry are subject to cash settlement or physical delivery, depending on the asset and exchange. This can lead to unexpected financial obligations if not managed proactively.
Q4. Are CFDs legal and regulated in India?
No. Contract for Difference (CFD) trading is not permitted by Indian regulators such as SEBI. Retail traders in India are restricted from using offshore CFD platforms for derivatives trading.
Q5. How do Exchange-Traded Commodities (ETCs) differ from ETFs?
ETCs are single-asset instruments, often backed by physical commodities or synthetic replication. Unlike diversified ETFs, ETCs provide direct commodity exposure with higher concentration risk and are typically used for inflation hedging or tactical allocation.
Q6. What’s the main risk in using leverage?
Leverage magnifies both gains and losses. High leverage can trigger margin calls, account drawdowns, or forced liquidation, especially in volatile markets. Risk control mechanisms such as stop-losses and position sizing are essential.
Q7. Do mutual funds give actual commodity exposure?
No. Mutual funds in India typically offer indirect exposure via commodity-linked stocks, indices, or derivatives. They do not hold physical commodities or direct futures contracts under SEBI regulations.
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