The Commodity Market — Why is it advantageous to traders?

The commodity market is sometimes overlooked, and more focus is given to the stock market. The awareness about the stock market that people have usually tended to come from movies, series and even education from school. However, the commodity market is not lesser than the share market.

Let’s dive into the benefits of trading in the commodity market.

1. Protection from inflation:

Inflation is not something that we’ve not seen throughout the years. It has crumbled the market and left all investors and businessmen in shambles.

As the demand for goods and services rises, it leads to an increase in the price of goods or services. When such situations occur, the interest rate shoots up which in turn affects companies and shareholders. The investments of these individuals get washed off and lead to several issues.

However, herein comes the utility of the Commodity market. The price of commodities required in manufacturing goods or even commodities like gold or silver rises due to the growing demand.

That’s why traders usually call it a ‘safe haven commodity’.

2. Hedge against geo-political events:

India or any country for that matter is not a stranger to the effect of war. The conflicts, riots and disputes affect the supply chain and increase the scarcity of resources. These resources can be anything from metals or even other types of commodities used for finishing goods.

Every economics student may know when supply decreases demand increases. In commodities that is the case because its rate rises exponentially. Hence if you want to protect your portfolio, the commodities market is definitely a good place for you.

3. Leverage margins:

We all like a good deal when it comes to money making. If it comes down to paying some money and the rest later, it’s a comfortable experience.

The same goes for the commodity market. Commodity derivatives such as futures and options provide an exceptionally high degree of leverage. Big positions can be controlled by only 5% to 10% of the contract value as an upfront margin. With commodities such as Gold Mini, the margin has become lesser.

Even the smallest of margins can create exponential gains for you. The plus point is that the margin is much lower than stocks.

4.Diversified portfolio:

Commodities and Stocks are totally different entities, due to which they have little to less correlation.

Stocks usually do well when the rate of inflation is stable or slowing. However, commodities are safe haven assets which give you good returns during inflation.

Hence, having the best of both worlds is an asset in your hand. When the market is giving good returns to you in stock, it may give good ones in commodities.

Final Note:

People tend to go to stocks as a trading option, however, they perceive it in a different sense. Stocks are for long-term investing purposes however, if you want to trade on a daily basis, it’s best to go for commodities.

The commodity market is filled with a sea of opportunities and it’s bound to get you to your financial goals, through a fluctuating market