Commodity trading refers to the various commodities and derivatives products that are bought and sold. It is a very common term in the investment market. Apart from the gold futures trading system, various commodities are being traded in the market which helps to diversify the portfolio. If you can invest in the right commodities you can expect a good return in the long run.
What Are The Commodities?
Commodities are the basic raw materials that are used on a daily basis. These are the building blocks of the global economy and commodities including items like oil, sugar, metals, and more.
Types of Commodities:
Before investing in commodity trading, you should learn about the different types of commodities available for trading. The common categories are:
• Agriculture
• Metals
• Energy
How to Start Trading In Commodities?
To start with commodity trading the first step is to know the different types of commodity.
Open A Demat Account: just like trading in stocks, you need to start by opening a Demat account to trade in commodities. However, it is very crucial to go with a reputed firm to have better guidance and navigate the commodity market maze.
Deposit an Initial Amount: once you open an account you need to deposit the initial amount. It should be around 5% to 10% of the contract value based on the commodity you want to trade.
What Are The Different Ways To Trade In Commodities?
You will find different ways to trade in commodities. It includes:
Direct Investment
Undoubtedly, it is the most common way to invest in commodities. You can directly purchase items like gold or silver in the form of coins or jewelry. However, it involves high transaction costs. In addition, you might have different issues with storage and purity.
Invest On Stocks
It is another great way to trade in commodities. If you decide to trade in energy you can start looking for the best energy companies. The stock of the company will revolve around the price of the energy. If you want to invest in commodities by purchasing direct stocks there are more chances of having a better profit scale even if the commodity is not doing pretty well.
In case you have invested in an established energy company and the price of the energy is going down you will still have the opportunity to make sound profit out of it.
Commodity ETFs and Mutual Fund
You will find many ETFs and mutual funds based on commodities. If you want exposure in gold and silver you can invest in gold and silver ETFs. In that case, you will have no issue with storage and purity as you will have the unit electronically in the Demat account.
Bottom Line
Commodity trading is of course beneficial for its diversification. If you understand the basics and estimate the risks appropriately you are likely to execute the right plan of action. To derive the maximum value from commodity trading you need to understand the strategy of diversification and geopolitical risks.
Commodities trading is now on the top of all investments, and also an On-going trading now.
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The reason behind many investors prefer to use this form of blockchain-based asset ownership is because of the many advantages attached to it.
This is because of the following factors:Immutability: Once a record is entered on the blockchain network, it is almost impossible to modify.
This helps to safeguard the interests of the investors as nobody can change their ownership status by altering the records.Transparency: Since all records are stored in an orderly fashion on the blockchain, the whole exercise of transferring assets becomes a hassle-free one.Divisibility: It helps break down large assets into smaller fragments digitally.
These digital tokens can then be traded, thereby transferring ownership proportionally.Cost-saving: Compared to traditional methods, this form of ownership is inexpensive as it eliminates additional costs by circumventing middlemen and uses smart contracts to execute processes.Accessibility: Unlike paper documentation, digital tokens are not tied down to any physical location.
Hence, it is possible for an investor to organize trade from any place and at any time.Security: Through the use of cryptography, the details of different transactions that are stored on the blockchain are protected from external threats such as hacks and attacks.Of late, tokenization is finding applications in different fields such as real estate, business, art, commodities trading, and other asset-based industries.
Presently, there are several accredited platforms that allow the trade and exchange of tokens in a seamless fashion.
