The commodity market is one of the most active financial markets in the world. Both traders and institutional investors use the price movement of various commodities like base metals, precious metals, and agricultural produce to generate returns. Of late, the popularity of the commodity market has been on the rise.
An increasing number of investors are turning to trading in a commodity online in addition to participating in the stock market. But why is the popularity of this particular financial market on the rise all of a sudden? There are multiple reasons for that. In this article, we’re going to be taking a look at a few of them.
Although there might be many reasons for the increasing popularity of commodity trading, there are 5 reasons that stand out. Here’s a more in depth overview of each one of them.
One of the main reasons for commodity trading gaining in popularity has to do with the huge influx of millennial investors over the past few years. Millennial investors are young, not afraid of taking risks or exploring new investment opportunities, tech-friendly, and are aware of the various financial concepts. As an increasing number of such investors enter the commodity trading space, the popularity of the financial market will increase further.
Portfolio diversification is a great way to reduce your overall investment risk. When you invest in multiple different assets, the chances of your investments losing value goes down. For instance, when one asset class underperforms, another asset class is likely to compensate for it, which should reduce the negative impact on your portfolio. And trading in a commodity online gives investors a great way to diversify their portfolio. Experts suggest investing around 15-20% of your total investment value in commodities for adequate diversification.
Usually when the inflation in an economy is on the rise, the prices of commodities will also increase. Precious metal commodities such as gold are known to perform well during periods of high inflation. Therefore, by intelligently leveraging commodity trading during such times, investors can enjoy returns that are on par or higher than inflation.
The concept of commodity trading is very easy to understand; more so than stocks. For instance, one of the primary factors that move commodities is demand and supply. Knowing the demand and supply metrics of a particular commodity can help you trade them in a more efficient manner.
Earlier, it was very tough for a retail investor to get into commodity trading, which meant that only large institutional investors were dominating the financial market. However, with the advent of electronic trading and simplified platforms of broking houses, almost any individual can participate in commodity trading as long as they open a demat account and a trading account.
With the increase in retail participation increasing year over year, commodity trading volumes are also likely to witness a rise in the near future. If you’re interested in trading in a commodity online or looking to try your hand in a few upcoming IPOs, visit Motilal Oswal today. You can quickly open a trading and demat account online and start your wealth creation journey in just a few days.
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