Commodity trading is an exciting and fascinating type of investment. This is similar to stock trading in many respects. The basic difference in both types of trading is in the quality of assets which are traded. In stock trading or equity trading, the current or futuristic intrinsic value of intangible assets like share or bond is transferred or exchanged.
On the other hand, in the commodity market, the values of tangible items like hand commodities like, metals, oil, or energy resources are traded. Similarly, the soft commodities like wheat pulses, soybean or food grains are traded for current or future contracts. In this type of trading, investors work as a team to purchase trade products with the aim to earn profit from the fluctuating market prices or because they might need the product for their own consumption.
Any commodity both hand and soft is either grown or produced in the national environment. They are traded both in domestic and international market places similarly as that in stock exchanges. The prices of these commodities are primarily based on their demand and supply. Traditionally large businesses have been the main participants in the commodity market. However, there are many investors and individuals also participate in the market process with the help of internet.
With the help of the internet and online booking system, the individual traders can access this market with the purpose of generating profit depending upon the increase or decrease in the price.
There are several methods that investors can use to trade in the commodity market. The commodities can be purchased or sold at spot prices or can also trade with options to purchase them at future prices on future dates.
Many investors treat investment in the commodity market, risky due to its complexity and volatility. But a well-planned commodity investment, as advised by professional financial advisers can be beneficial for individual investors. The investment in commodity market protects against the event risk such as natural disaster, wars & economic crises. Such an event can lead to depreciation of investor assets they affect financial assets like stocks and bonds negatively. For example, supply disruptions due to wars may raise the price of a commodity like oil. So these commodities may act as a potential hedge against some event risk or as a buffer against possible losses.
Unlike investments in assets like real estate, investment in commodities future offers high liquidity. It is easy to buy and sell commodity futures. An investor can liquidate his position whenever required.