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The Advantages of Commodities Trading


Commodity trading relates to the buying and selling of a large range of instruments including oil and gas, metals and cocoa, coffee, wheat and sugar. Commodities are categorised as hard and soft commodities. Hard commodities are metals or energies such as gold and gas, and soft commodities are agricultural products like cocoa, wheat and sugar.

Commodity trading is appealing due to the higher risk/return ratio. Commodity trades are highly leveraged which means that the margin required for trading is quite low compared to the overall position.

Read on to learn all about investing in commodities.

A History of Commodities Trading

Trading commodities has a longer history than the trading of stocks and bonds. In the present-day, commodities are still exchanged throughout the world. A commodities exchange refers both to a physical location where the trading of commodities takes place and to legal entities that have been set up in order to enforce the rules for the trading of standardised commodity contracts and related investment products.

Commodity types

Supply and demand

Supply and demand drive the commodities markets. Changes in supply affect the demand. Low supply means higher prices. So, if there are major changes in the supply of a commodity, this can lead to higher prices.

Benefits of trading commodities

How to trade commodities

Commodity trading for beginners involves speculating on the value of a given commodity and gaining returns from volatility in the commodity markets. There are different ways to trade commodities and include the following:

Final thoughts

Both beginners and experienced traders have several different options for investing in financial instruments and gaining access to the commodity markets. Commodity futures contracts provide the most direct way to participate in the price movements of the industry, but there are other types of investments with less risk that also provide enough opportunities for commodities exposure.

However, commodities can be risky investments because they can be affected by uncertainties that are difficult to predict, such as unusual weather patterns, epidemics, and both natural and human-made disasters.

#source


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