Trading volumes in the commodities market are picking up in India as the volatility and attractiveness of returns draws more and more investors. Investment in commodities can be done by day traders as well as medium to long-term position investors. Commodities are being used by global investors for hedging and hence is a good investment option for position investors.
Trading in commodities is especially attractive due to the higher risk/return ratio. Commodities trades are highly leveraged, which means that the margin requirement for trading in commodities futures is quite low in comparison to overall position holding.
Therefore, it magnifies the gains and losses of an investor. Commodities prices are seeing a lot of volatility in the recent times. Price fluctuation is due to turbulence in global markets, monsoon, demand-supply mismatch and high liquidity.
Some of the major categories traded in the markets, their outlook and ways an investor can invest in them are as follows:

Industrial metals
Industrial commodities include aluminum, copper, nickel, zinc, steel, etc. The price movement of industrial commodities depends on the macro-economic factors in the world economy, for example, financial turbulence in China, border tensions in Korea, etc. These commodities do well when investors are confident about consumption demand from large economies like China. Investors can invest in industrial commodities by taking speculative future positions through a commodities broker or investing in commodities-based stocks. Though there is no one-to-one co-relation between commodity prices and commodities stock price movement, if all other things are equal, commodity prices form the most important factor in the pricing of commodities-based stocks.

Precious metals
This category includes precious metals like gold, silver and platinum. Gold and silver are trading at all-time high levels and experts believe there is room for further appreciation in the medium term. Investment appetite in precious metals has gone up tremendously in recent years due to global economic uncertainties. Large global investors as well as central banks in some countries are investing in precious metals to hedge against global economic uncertainties.

Investments in precious metals have given very attractive returns over the last few years. Price fluctuations in precious metals have opened opportunities for traders. People can invest in precious metals in smaller quantities at regular intervals. Investment in precious metals can be done by taking physical positions or by investing through ETFs (Exchange Traded Funds).

Agricultural commodities
The agricultural commodities traded are mainly sugar, channa, chilli, pepper, soya, mustard oil, etc. The price fluctuation in agriculture-based commodities depends upon various local factors, production/supply, government policies and the availability of alternatives. Trading in agricultural commodities requires knowledge and understanding of the local situations and issues. Therefore, agricultural commodities are difficult investment avenues for the small investors. However, there is a lot of price volatility in agricultural commodities which generates speculative opportunities for investors with a high risk appetite.

Energy commodities
Energy commodities include crude oil and natural gas. The price movement of energy commodities is driven by demand in large developed nations like USA, China, and India. We are seeing a lot of volatility in the price of energy due to global turbulence and cross currency movements. Investors with high risk appetite can look for trading opportunities in the energy commodities.