What Are Commodities?
Commodities are goods that occur in nature and are collected to process for use. Commodities include sugar, precious metal, oils, and many more. These commodities form an economy’s base since raw materials are essential and required to produce clothing, energy, and food. They are mass-produced and then standardized for quantity and quality. This means they are priced the same irrespective of producing them. Just like stocks, commodities are also bought and sold on different trading platforms and exchanges.
What is commodity trading?
Commodity trading is buying and selling of various commodities and derivatives in the commodity market. Trading involves buying and selling any primary agricultural goods or raw materials such as crude oil, gold, wheat, etc. When a trader engages in commodity trading, the commodities can potentially diversify the asset portfolio of the trader.
Features of Commodity Market
One of the best characteristics of the commodity market is its performance. The performance of the commodity market demonstrates a negative relationship between bonds and stock markets. This means as the stock and bond prices drop, the overall price levels of the commodities increase in the economy.
The commodity market includes all kinds of raw materials, in addition to cattle and grain, and the commodity exchanges involve metals, sugar, coffee, gasoline, oil, and many other goods.
Types of Commodities
Investors have broken down the tradable commodities into two major categories – soft and hard. Soft commodities are those which are ranched or grown, whereas hard commodities require some kind of drilling or mining to find. The types of commodities have been divided into the following types –
Agricultural products – These are soft commodities, including corn, wheat, coffee, cotton, lumber, and soybeans.
Meat and Livestock – These are soft commodities that include beef, pork, cattle, and milk.
Energy products – These are hard commodities that include natural gas, gasoline, propane, crude oil, coal, and ethanol.
Metals – These are hard commodities, including precious metals such as silver and gold and other industrial metals like palladium, aluminum, and copper.
Should You Invest in Commodities?
Commodity investments can be quite profitable if done in the right way. The reasons why one should invest in commodities are given below –
Unlike the bond and stock market returns, commodity market returns are negative. This is because bond and stock market returns tend to falter when the market prices rise. Investing a percent of a trader’s investment portfolio in commodities helps individuals to earn high ROI or return on investment even when the stock market dips. This allows the traders to balance their negative or decreased capital returns.
Compared to rising rates of inflation, commodity prices tend to increase faster, thereby enabling investors to gain from the increase in their corpus investments.
Compared to bond and stock market transactions, commodities charge much lesser margins for trading. Essentially, it allows speculators and hedgers to gain from transactions and let them trade on borrowed money. Commodity traders who take the commodities through physical deliveries can profit from the bulk orders with the idea of reimbursing later, and the speculators can gain more from these bets.
ROI (Returns on Investment)
Many commodities are volatile based on the capital market and economic situations. One great example is crude oil which is extremely volatile and whose price frequently fluctuates due to fluctuations in its supply, socio-economic factors, and mining challenges. Traders invest in various commodities to gain from price volatility, which may take short or long positions based on the market forecast.
How can Banxso help you trade commodities?
Banxso offers commodity trading on its platform, and it is one of the greatest ways of leveling out its playing field in this industry. Banxso’s platform welcomes traders to invest in various kinds of commodities based on their trading style and preferences. Traders can trade energy, agricultural commodities, and metal. These commodities react to various market changes, and each of them offers opportunities for generating income through timely purchases and sales.
Commodity trading is the best performing investment, and at Banxso, commodities are great tradable assets with additional specific tools, educational markets, resources, and trading tools that ensure the traders are fully prepared when they are trading commodities.