What is an Exchange-Traded Commodity Derivative (ETDs)?
Exchange-Traded Derivatives (EDTs) of commodities are financial instruments that derive their value from an underlying product like gold, silver, crude oil, natural gas, or agricultural items.
Unlike traditional commodity trading, exchange-traded commodity derivatives allow you to participate in a commodity’s price movements without owning it or trading it indirectly. You can buy and sell exchange-traded commodities via MCX, NCDEX, NSE, and others. Each exchange and commodity has its own market timings and holidays:
Risks of Exchange-Traded Commodity Derivatives
We’ve discussed in depth the various benefits that exchange-traded commodity derivatives offer. Being financial instruments linked to the market, ETDs for commodities carry their own risks as well.
Knowing these risks can help you trade better.
- Volatility : While it is obvious that commodity derivatives are volatile, the price fluctuations can be above average in certain instances, at times being significant and sudden.
- Liquidity Risk : Although exchange-traded commodity derivatives are relatively liquid, there can be instances of illiquidity.
- Margin Call : Remember how we spoke about leverage? It can amplify your gains but… it can also amplify your loss.