Why Trade in Commodities?

Why Trade in Commodities?

Commodities prices are relatively less affected by factors influencing the stock markets, and hence, offer an excellent avenue of portfolio diversification for investors. Along with diversification and predictability, an investor can also take advantage of the leverage and the liquidity that the market offers.

Commodities' trading offers the following benefits:-

Diversification of portfolio: Commodity trading offers a means for diversification of portfolio for the investors, by offering exposure to an asset class different from stock markets instruments such as equities, mutual funds and bonds.
Predictability: Commodities pricing is largely based on the demand and supply fundamentals for the commodity, and hence, becomes relatively easier to predict.
Leverage: Trading in commodities futures involves use of leverage through margin which is maintained with the broker. Hence, large transactions can be executed with lesser amount of cash in hand.
Liquidity: Futures contracts in commonly traded commodities such as gold, silver, crude oil and grains offer a high level of liquidity in the market.

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