With growing digitalisation, trading has broken open the limits among merchants and tradespeople! Today, anyone and everyone can trade- buy, sell and exchange products to gain profits. Moreover, trading has turned versatile, with diverse types and endless opportunities for all. From crypto exchange to commodity trading, you have all the freedom to choose your best suiting genre. If you are wondering ‘what is commodities trading ?’ and if it still has life, dive in to read more about its limitless benefits. Similar to trading stocks, where you buy and sell shares of corporations, commodity trading allows you to purchase and sell commodities. Commodities are exchanged on specific exchanges, and traders purchase and sell them to benefit from fluctuations in the commodity market.
What is commodities trading?- Commodities are still traded throughout the world in current times. A commodities exchange is a physical site where commodities get traded and legal entities established to enforce the regulations governing the trading of standardised commodity agreements and related financial products. The cause for that was the intrinsic risk associated with commodity trading. You can purchase a futures position that will gain a specific sum of cash if the cost goes up and forfeit one certain proportion if the price falls. Commodity traders use margin accounts to boost their leverage and profit potential from deals.
When people with an aptitude for finance did get involved and created new trading like long system, commodity markets became more intriguing. Commodity trading has the edge over illiquid investments like property investment since any income in your account that isn’t being used to margin position in the market you’re holding is immediately available.
A trader’s principal responsibility is to control price risk. Physicals trading’s goal should always be to swap items around, but because products are purchased ahead and the trade moves swiftly, it’s critical to hedge your price risk. Understanding the top commodities at a given point is significant! A futures contract is one way of investing in commodities. A future contract is another legally binding agreement to acquire or sell a commodities item at a defined price at a future date. Here is a list of benefits to enjoy from investing in commodities,
Commodity dealers charge a lower margin for trading than stock market transactions. Hedgers and speculators might benefit from the transactions by trading on borrowed funds. Speculators benefit more from bulk orders than commodities traders who receive physical delivery with the possibility of reimbursement later. As a trader, you must place 5 to 10% of the contract’s entire value as a balance with your operator, which is a small amount compared to other risky assets. Because of the low margins, an individual may invest and take greater positions with less money.
2. Protectiveness against regular fluctuations and inflation
When compared to a country’s rising inflation rate, the prices of premier commodities like gold tend to climb quicker than normal, allowing investors to profit from a rise in the actual value of their capital investment. If the rupee depreciates, you’ll need more currency to acquire commodities from around the world. During periods of inflation, investors sell their bonds and stocks to invest in goods, causing commodity prices to rise. In other words, you can only benefit from commodities that operate as a hedge versus market risks.
3.No more doubts on returns!
Demand has risen in recent years due to substantial global infrastructure initiatives, which has influenced commodities prices. While certain products are known for constancy, many commodities are incredibly volatile when socioeconomic and capital market conditions change. Investors invest in goods to turn a profit from price fluctuations, and they might take a more extended/short-term perspective based on their market projection.
Also read this My Investment Playbook