WHAT IS COMMODITIES TRADING?
Commodities Trading involves trading in every kind of movable property other than
actionable claims, money and securities. These include gold, silver and other metals
and select agricultural commodities such as grains, pulses, spices, oils and oilseeds.
It usually involves trading of commodities futures contracts.
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
- Predictability:Commodities pricing is largely based on the demand
and supply fundamentals for the commodity, and hence, becomes relatively easier
- 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.