Advantages and disadvantages of trading in commodities.
Investments in commodity refer to trading in such assets like grain, oil, gold and silver and other precious metal. There are various methods to invest in commodities like an investor can invest in futures contracts, commodity-based mutual funds, or can buy a physical asset, such as a bar of gold. Investing in commodities is different from other investment it is not like investing in normal stocks and bonds. Trading of commodities is usually carried out as futures contracts on a commodities exchange. Many investors refer quality commodity tips, gold and silver tips for earning a better return on investment.
Examples of commodities include gold, silver, wheat, rice, coffee beans, sugar, salt, etc. There are two types of commodity first Soft commodities that are goods that generally are grown, while hard commodities are extracted from mining.
There are many advantages and disadvantages of the commodities markets. At one side it provides better opportunity to earn a profit while it also considered as high-risk, high-reward investments. If you have too many commodity investments in your portfolio, sometimes it might be dangerous for you.
Advantages of commodity trading -
1. Higher growth opportunities. A rapidly increasing demand for a commodity can see increases in prices significantly time to time. It provides a lot of opportunities to make quick income through commodity investment.
2. Diversification — Diversification is when you invest in a variety of industries that give results differently to changes in the market. It will keep your annual profit stable and also avoid big losses. If you’re looking to hedge against your stock and bond investments, investing in commodities can be the right option for you manage risk in the stock market.
3.Provide security against inflation. Inflation is bad for regular trading. At the time of inflation, it down your stock and bond investment profit while commodities usually positive in the time of inflation. Because when the price of goods and services increase, the value of commodities needed to produce these goods and services will automatically rise. By keeping some commodities in your investment portfolio, you can take advantage of market upswing.
Disadvantages -
1. Highly volatile market — Commodities are most volatile security among other assets. According to one study commodities are almost double as stocks and four times as volatile as bonds. This volatility makes commodities very risky for some traders. This one is a negative point of commodity trading.
2. Sometimes no income generation. — Just like another asset as stock and bonds, Investment in commodities doesn’t generate large income for the investor.
Commodity trading is a good option and a trader can make money if he follows market tips and recommendations from experts. Choose a sebi registered investment advisor for you in order to gain huge profit.
