Commodity trading is a good option for those who can afford to hold positions for a longer period of time. It is also recommended for diversification and balancing of portfolios. Trading in commodities is considered a risky venture. But at the same time, they offer quite a few benefits when compared to stocks. Let us take a look at some of these benefits offered by trading in commodities.
- Better returns There are huge swings of prices in the commodity segment and making the right investments can help you convert these into spectacular profits. Understandably, the risks are also higher, but will not be a hindrance to a knowledgeable trader.
- Security against inflationWhen there is inflation, the value of the rupee falls. This leads to an increase in the prices of commodity goods, which can translate into profits for you. Commodity prices also increase during such times because many traders liquidate their equity positions to purchase commodities.
- Lower margin thresholdsThe fact that commodity trading has lower margin thresholds makes it more lucrative to many. Margin refers to the money that has to be deposited with the broker before you can carry out trades. This is usually somewhere between 5 to 10 percent, which is much lower than that of other asset classes. This means that you can trade in larger volumes while putting up very little money.
- Greater liquidityPoor liquidity in the equity market costs many traders when attempting to enter or exit positions. There are more options available when trading in the major contracts like sugar, gold, oil, and natural gas. The availability of online commodity tradinghas added to its sheen.
Ensure that your trading in the commodity market does not turn into mere speculation or gambling. There is a danger of this happening when the trader does not have adequate information or knowledge about what they are doing. Just remember that a good mix of stocks and commodities is considered a good portfolio by analysts especially when it comes to turning a profit. Facilities like MCX live make it easy to track commodity prices.