4 Reasons to Invest in the Commodity Market
Commodities are naturally available materials that are either directly consumed or further processed for human use or consumption. Earth is the chief source of commodities as most of them get mined, drilled, or tilled. Base metals or industrial metals like iron ore, bauxite, copper, etc., are mined. But crude oil or gas get drilled, and food grains, cotton, etc., get tilled.
Commodities Market are broadly classified into two categories: hard and soft.
- Industrial metals: Aluminium, copper, nickel, zinc, etc.
- Energy: Oil, gas
- Agricultural produce
- Tea & coffee etc.,
- Hogs and their products
Commodities price dynamics
The commodity price dynamics are purely driven by demand and supply. On the other hand, they are governed by many factors like economic growth, inflation, interest rates, geopolitical risks, weather conditions, climate change, inventory availability, production planning, etc.
The Commodities Market is like the Stock Market where the natural materials mentioned are bought and sold. The market function like any other market.
How to invest in them?
Invest either directly by buying a physical commodity or buying a future instrument or indirectly through commodity-producing companies or Mutual Funds that invest in such companies or Exchange-Traded Funds like Gold ETF.
Physical form: Buy commodities physically for cash. It is called the Spot Market. Buying gold or silver physical is one such instance
Futures: The commodities’ most common or popular form gets listed on exchanges. Being a derivative, you need to open a Margin Market. One prominent advantage in trading in futures is a low margin
Mutual funds: Invest in Mutual Funds that produce essential commodities or products.
Exchange-Traded Funds: ETFs are Investment Funds that get listed on the stock exchanges. These are more cost-effective than buying commodities physically.
Also, Check – 5 Financial Planning Tips for You and Your Family
Reasons to invest
Portfolio diversification: Commodities Market usually has a low or negative correlation compared to Equities. This means rising commodity prices result in falling stock prices and vice versa
Hedge for inflation: Commodities are inputs for finished goods. An increase in input prices results in falling profits for companies. Therefore, investing in them is like hedging.
Exposure to global economic growth: Investment in local equities provides regional economic growth, while exposure to commodities offers an opportunity to ride the boom of global growth.
Better risk-reward profile: The risk-reward profile of commodities has no link to the Bond of Equity Market, making commodities an independent asset class.
Margin trading: A commodity trader, a hedger, or a speculator benefits from a low margin for trading as they get larger exposure for a smaller amount.
The Commodities Market is highly volatile as it gets exposed to global variables. Any change in government regulations or policies, or economic conditions has a bearing on the market. Stay abreast of international events, geopolitical matters, currency, and trade matters to take quick corrective actions. Trade with extreme caution in the commodity market.
The Importance of Cybersecurity and how to protect your business
4 Reasons To Prefer Buying Alcoholic Beverages Online
What To Look Out For When Hiring CBD Manufacturers
- The Importance of Cybersecurity and how to protect your business
- 4 Reasons To Prefer Buying Alcoholic Beverages Online
- What To Look Out For When Hiring CBD Manufacturers
- Let’s Know Interesting Facts About Ildaura Murillo-Rohde: Biography, Career, Age, Relationship, Net Worth
- Biography of Neena Gupta – Early Life, Education, Career And More
Business2 years ago
How to Do Long-Distance Moves with Children
Travel6 months ago
Quick Guide: Moving To Santa Rosa?
Real Estate2 years ago
Your Guide To Home Buying: Maximizing Your Investment
Real Estate1 year ago
Why Dubai Festival City is a Great Neighbourhood for Young Learners
Biography3 years ago
Sydney Brooke Simpson Bio, Weight, Height, Net Worth, Business
Lifestyle1 year ago
How Do You Shade A Sunny Patio?
Social Media3 years ago
Hiring From Tiktok – I Am Not Kidding
Biography3 years ago
Dorýs Madden (Julius Erving Wife) Age, Bio, Children, Wiki, & Net Worth
Can Help Diversify Your Portfolio