What is commodity trading?
Do you remember your childhood days when you exchanged your books or video games with your friend for his toys or games? That is a form of commodity trading. It has been in existence from the advent of the civilisation. Wheat and rice were widely used as a medium of exchange initially. Nowadays, precious metals like gold and silver are traded using commodity trading.
Commodities trading is nothing but performing trades with the commodities. It is a great option to diversify your portfolio. During times of crisis and inflation, it will serve as a helping hand.
How to invest in commodities trading?
You can invest in commodities through a lot of methods.
•You can invest in it through a futures contract. It is nothing but a contract which specifies the date and time to perform the transactions. The investors who opt for this are mostly speculators and hedgers. You can get higher returns if you know to channelise the trade. Even though it has its benefits, this kind of trading is pretty volatile as well.
•Exchange traded funds are another option to invest in commodities trading. It serves as a hedge against risk. They are the most traded product. The price of the shares depends on supply and demand. The costs are economical. The profits or losses obtained is proportional to the movement of the shares.
•Mutual funds are another option to invest in commodities. Even though you cannot invest directly in the commodities, you can invest in companies handling these commodities. It is a great option for diversification and obtaining liquidity. The management costs are on the higher side. With the abundance of advantages it provides, the costs won’t be an issue.
Why should you invest in commodities trading?
Even when the values of the stocks take a dip, the value of the commodities remains the same. It helps to manage volatility. The parameters affecting the price of stocks don’t affect the value of the commodities. It also offers risk-adjusted returns.
What is the one term that causes a tremor in the minds of economists and the common people? Inflation. It is the increase in the price of goods leading to a decrease in the value of the currency. During periods of high inflation, commodities tend to perform better. They can be the knight in the shining armour to protect against risks.
You can obtain higher returns by smart and a well-thought investment. During times of crisis, the value of a particular commodity might increase. An investor with foresight will be able to sense this and will invest in it.
Since it offers a high degree of liquidity, it is advisable to invest in commodities. The commodity which offers the highest degree of liquidity is gold. To determine the liquid nature of any asset, keep a watch on the daily movement of shares and open interest. This will help in fixating on the commodity to be traded.
The benefits of investing in commodities are plenty. Still, if you feel confused and doubtful, you can contact Goodwill one of the leading online trading companies in India for further assistance. You can give a call to +91 – 44 – 4020 5050 or send a mail to firstname.lastname@example.org for further queries.