InvestorQ : If I have the required funds, should I buy the commodity in the spot market or should I buy it in the futures market?
Rishita Das made post

If I have the required funds, should I buy the commodity in the spot market or should I buy it in the futures market?

Answer
image
shrinidhi Rajan answered.
3 years ago
Follow

The big difference between the commodity spot market and the commodity futures market is that in commodity futures you can actually trade on margin. That means by paying a margin of 8-10% of the notional value of the commodity contract, you can take a much larger position than you can afford. This is extremely useful for someone who is looking to hedge their position. For example, if you are looking to receive a consignment of Zinc after 3 months and are looking to protect against the risk of a rise in prices then you can buy 3-months Zinc futures today by paying a small margin and the contract can be reversed when the actual consignment is received. That way by paying a small margin you can protect against the price risk of Zinc. So depending upon you requirement, time-frame and your expectation of the commodity you want to buy, act accordingly.

0 Views