About Commodities

Commodity trading is a high-risk, high-reward endeavour and is considered as a profitable venture like many investors trade in stocks through stock exchanges. Commodities are emerging markets with huge potential to make financial gains. Investment in commodities allows hedging against inflation and social risks. Commodity returns have tended to pick up when inflation has been rising and decline when inflation has been falling, in contrast to both equities and bonds.

A commodity futures contract is an agreement to buy an underlying commodity for a certain price in the future.

Investing in commodities can help to diversify your investment portfolio across a range of different assets. Commodities may also produce superior returns to share-based investments when stock markets are volatile.

Commodities are bought and sold on exchanges, the same as stocks and shares on Stock Exchanges. The largest exchanges include:

• London Metal Exchange (LME),
• Intercontinental Exchange (ICE) in Europe,
• Chicago Mercantile Exchange (CME),
• Singapore Commodity Exchange Ltd,
• New York Mercantile Exchange (NYMEX).

Commodities are typically raw or unprocessed materials, often mined or pumped out of the ground in the case of metals, crude oil, and natural gas, or grown on farms, such as corn, cotton, soybeans, and wheat.

Why Should You Invest in Commodities?

The following points highlight the significance of commodity market investing:

• Portfolio Diversification
• A hedge against inflation
• Trading on Margin
• Returns on Investment

Pakistan Mercantile Exchange Limited (PMEX)

Pakistan Mercantile Exchange Limited (PMEX) is the country’s commodity futures exchange. It is regulated by the Securities and Exchange Commission of Pakistan (SECP). PMEX was formed in 2002 and started its operations in May 2007 offering a diverse range of domestic and international products.

PMEX has its corporate office in Karachi and branch offices in Lahore and Islamabad.

How to Start with Pakistan Mercantile Exchange Limited

Selection of Broker

Always do business with a broker who is registered with SECP as a licensed futures broker. The verification can be done from the list of PMEX registered brokers available on PMEX website. https://portal.pmex.com.pk . The Exchange is only responsible for brokers that are registered on its website. While selecting a broker you must also check out the cost of their services.

Account Opening

Open an account with PMEX registered broker. Accounts can be online or conventional depending on customer preferences.

Funds Deposit

It is the guideline of PMEX that funds must be paid directly to PMEX and not to the broker or to the broker’s bank account so it’s very safe that all funds go to PMEX. This can be done through

• Online Transactions
• Over-The-Counter (OTC) Transactions

Start Trading

After completing all required processes and once the customer deposits the funds, he will log onto the MT5 trading platform and start trading.

PRODUCTS offered by PMEX

The products offered by the Exchange can be broadly classified into the following two categories:

• Global products
• Local products

These products can be categorized below:

1. Metals,
2. Agriculture,
3. Energy, and
4. Financials

Further details about these four categories are:

1. Metals

Gold

Gold: Gold has been perceived as a secure and profitable investment since ages.

It’s an excellent inflation hedge because it holds or increases its value under inflationary pressure

Gold futures is available at PMEX in the following contract sizes:-

• 1 ounce (oz)
• 10 ounce (oz)
• 100 ounce (oz)

Silver

Silver can be traded in the following 4 contract sizes:-

• 10 Ounce (oz)
• 100 Ounce (oz)
• 500 Ounce (oz)
• 5,000 Ounce (oz)

Other metals are Copper, Platinum, and Palladium.

2. Agriculture

These include Sugar, Wheat, Rice, etc.

3. ENERGY

Brent Crude Oil (10 barrels) Contract
Brent Crude Oil (100 barrels) Contract
Brent Crude Oil (1,000 barrels) Contract

CRUDE OIL

Crude Oil is the key indicator of demand in the economy. This commodity strongly reacts to global demand and supply fluctuations. So, when demand increases and supply is low, prices rise.

Crude Oil (10 barrels) Futures
Crude Oil (100 barrels) Futures
Crude Oil (1,000 barrels) Futures

NATURAL GAS

Natural gas investing is an incredibly popular and active sector of the commodity world,

PMEX Natural Gas (1000 MmBtu) Contract
PMEX Natural Gas (10,000 MmBtu) Contract

4. FINANCIALS

These include Indices and Currencies.

The Bottom Line

We all consume commodities every day, whether by ordering a cup of tea, or buying clothes. Commodities offer a fascinating window into the global economy but they also carry unique risks, so need a detailed study and always proceed with caution.

Recommended Reading:  https://accountingblogger.com/what-is-cryptocurrency-bitcoin/

Humayun Atif | CMA, CPA, CA (FIN), MS-IT, CA Articles from Big 4, Certified Forensic Accountant (USA), Six Sigma & Oracle Certified.

Atif is passionate about Business, Tech, and the written word. He is also a published author of the book ‘IFRS Made Easy’. Atif has worked with some of the world’s largest brands in Canada and Dubai. He is a tax and IFRS coach and the founder of accountingblogger.com