Insights into Commodities Trading

Insights into Commodities Trading

One of the most preferred trading options today is investing in commodities. Commodities trading results in portfolio diversification, shifting from the conventional investing in stocks. Over a period of time, like equity, commodities can get you great returns. However, some traders new to commodity investment may wonder which commodity is good to trade in and whether it's the right time to trade at all. Before you start trading in the markets of commodities, it is worth getting some insight into what commodities comprise of and how their prices and overall value is affected. 

What Commodities Comprise Of

Like every other kind of trading activity, commodities trading takes place online. Although you may have heard of the word “commodity”, you may be a little confused as to its correct representation as far as trading goes. Commodities are goods or products, but not necessarily representative of finished goods. In simple terms, commodities are goods in the form of raw material used to make finished products, like energy, oil, natural gas, metals, etc. Commodities are natural resources that are used to manufacture goods we use in our daily lives. 

You can directly invest in companies that are involved in the processing of commodities by purchasing stocks. You will have to open a demat account for this. On the other hand, you can invest in commodity futures and options, with any commodity as the underlying asset. In the case of certain commodities like gold, you can even buy ETFs and digital gold. 

Important Commodities and Insights

By gaining knowledge about commodities markets overall and understanding the kinds of commodities that are available for online commodity trading, investors can make investment decisions that are smart based on liquidity, volumes traded, the effects of demand and supply, and the general price fluctuations involved. After attaining some insights into commodities, you will acknowledge that investing in commodities may prove a little more complex than subscribing to any upcoming IPO. Here are some top commodities in the world and some insights while you trade in them: 

  • Gold - One of the most valuable and oldest commodities, gold is an integral part of commodities trading today. In India, it is always in demand as it is a metal that is viewed with importance for religion/festivals and as an investment. With a high degree of liquidity, gold is a hedge to combat inflation, and physical gold is hoarded in India. The largest gold-producing countries are Canada, China and Australia, and considering its characteristic as a safe haven, commodities trading in this metal will always have a value by Indian standards. 
  • Crude Oil - Among the commodities that is most in-demand, crude oil is naturally-occurring as unrefined petroleum. It is also a fossil fuel. It has a constitution of materials of an organic nature with deposits of hydrocarbons. With its refining, products like diesel, gasoline and kerosene are manufactured. Crude oil is representative of a fossil fuel that is not renewable and hence, it cannot be replaced. 

The Middle East is one of the largest producers of crude oil. Russia also produces crude oil and the current crisis in Ukraine has led to the shunning of Russian crude oil exports to Europe with sanctions against Moscow by most nations. The demand for the commodity thus rose and prices of crude oil soared. However, African suppliers have now stepped in to meet the demand for the commodity in Europe. Besides this, in general, commodities trading in crude oil could be adversely affected by natural disasters, causing severe price shifts. 

  • Natural Gas - Natural gas is an environment-friendly resource. It is used by the Government of India primarily in the power industry. The demand for natural gas is expected to rise in the future as its price is lower than that of oil. However, the value of natural gas is affected by prices of oil, economic growth, exports, etc. 

Commodities Trading

Commodities are an attractive draw for investors who are long used to having to open a demat account, and trade in the traditional equity that has been popular for years. To build a portfolio that is well-balanced, investing in commodities can help investors and you can throw in an upcoming IPO as well. 

 

Related Articles: Can the commodity markets provide cues for equity trading | Beginners Guide to Agri Commodity Trading | 5 Successful Commodity Trading Strategies | Role of Commodity Markets In India 

 

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