Why Should You Invest In Commodities?


It is important for everyone to save some money every month for a better tomorrow. But the question is why should you consider investing in Commodities? The reason is because there are several benefits to be derived in trading in this particular domain. You need to research and evaluate the options to make the right decision.

Benefits Derived from Trading in Commodities

1. Hedge against certain unwanted geopolitical events:

The supply chain could get disrupted by certain geopolitical events like wars, riots and conflicts. This may result in scarcity of resources, since factories are not able to procure the desired raw materials to create and supply finished products. With raw material supplies getting affected, there is noticed a mismatch in demand and supply. This, in turn, results in sharp increase in commodity prices. Stock prices, during such conditions falls sharply due to pessimism behaviour by investors in the market. Commodity investing helps steam such investment portfolio losses.

2. Protection against inflation:

With rise in demand for services and goods, there is noticed sharp increase in their prices, since commodity (raw material) prices increase. Interest rates tend to rise in this inflationary environment. The Stock Market also appears to be highly volatile at this time. Stock prices during inflation fall significantly. But commodity prices essential to manufacturer finished goods tend to rise substantially. This is because of growing demand, thereby resulting in increasing final good prices. Commodity future can be a great investment as it protects capital from inflation while maintaining its value.

3. Diversification:

When stocks are concerned, commodity is found to have low or negative correlation. With commodity prices increasing, production cost also increases, thus diminishing profits. It reduces per share earnings of the shareholders, thus resulting in sharp decline in stock prices. Even stock paid future cash flow declines, since future cash helps buy lesser services and goods than today. Stock price drop reflects well this value depreciation. Getting to know Cloud computing trends can help to adopt and diversify. Commodity is found to perform better with rising inflation.

4. High leverage facility:

Options and Futures do offer exceptional Market capitalization. With just 5–10 percent payment as upfront margin of contract value can help control a major position. Insignificant move in commodity prices may help derive exponential gains. Leveraging commodity trading can ensure humongous returns. For commodity futures, minimum margin might vary. However, it will be much lower when compared to stocks.

5. Potential returns:

Market capitalization is possible if you are better equipped with how the commodity market works. Several factors may fluctuate individual commodity prices. It includes exchange rates, demand/supply, economy’s overall health and inflation. Massive infrastructure projects on a global scale have been witnessing increased demand in recent years. This has influenced significantly commodity and Stock Market Increase in prices of commodity is witnessed t have positive impact upon company stocks in certain industries.

6. Transparency:

These days, commodity trading is performed on electronic trading platform that is accessible to every market participant. This platform enables fair price with greater participation. There is no seller or buyer intervention. Price determination is mostly determined by demand and supply, thus doing away with manipulations in all forms. Cloud computing trends can help match perfectly buyer and seller quoted price. Seller/buyer remains anonymous during entire trade, thereby ensuring transparent price discovery. There is also no room for manipulations to take place.

Hence, when financial investing is concerned, you should include commodity investing in your portfolio. With industries slowly opening up after the pandemic and the recent war has led to growing demand for various types of products. Hence, commodity investing can bring in great wealth.

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