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Why you Need to Trade in Commodities

Wondering whether investing in commodities is the right option for you? Or Perhaps you are already investing in other assets but would like to add one more to your cart.

Whatever it is, if you need to know why you need to trade in commodities, you are at the right place!

Commodities are a good option for investors and traders who are looking to diversify their portfolios. That being said, let us elaborate on the points further.

Why Trade in Commodities:

Trading Opportunities

Commodity prices are usually volatile. Because of this, they favour the traders by providing many trading opportunities. So, traders have the chance to gain profits off both upward and downward price movements.

Leverage

Leverage is a double-edged sword in the trading arena. With leverage, you have a substantial amount of control over money with small deposits. You pay a small amount of money in the form of an initial margin and get greater leverage.

For example, if the price of gold is 40,000 per 10 grams and you want to buy 1 kilo of gold from the spot market, you will have to pay 40,00,000 in advance to the sellers. While taking a position in the future market, you will only be paying 10% of the total value of the product instead of paying the full amount.

Following the same example, you will be paying 4,00,000 and holding 40,00,000 worth of buy position.

This way, you get to increase your gains but you must remember there is an equal chance of increasing your losses as well.

Diversification

One of the best ways to diversify your portfolio is through commodities as commodity prices move individually more than other asset classes. Commodities have little to do with the traditional class of assets such as stocks or bonds.

During an economic turmoil, you will notice a fall in stocks and bonds. On the other hand, commodity might be the saving grace that helps you lower your portfolio risk.

For example, in such a situation, gold appears as a safe harbour for traders.

Flexible Trading Schedules

The Commodity Market lets you trade at a time that is convenient for you as the markets are open for most of the week. While different commodities might follow different timings, all will fall under the same standard time set by exchanges:

➤ Standard Market Opening Time: 9.00 A.M.

➤ Standard Market Closing Time: 11.00 P.M.

Hedge against Inflation

As mentioned earlier, the value of commodities can rise during economic crises, natural disasters, wars and so on. This can affect the economy adversely: a sharp rise in prices of goods can strip away the purchasing power of citizens.

Commodities can help protect the trader by serving as a shield or barrier against such scenarios. Once more, gold has been and is seen as a safety net for investors and traders. So, they turn towards gold during economic troubles and see it as valuable.

Conclusion

Investing in commodities has many benefits and the ones stated above are just for your surface level of understanding.

Whether it is for diversifying purposes or beating inflation, commodities have got your investments safely covered! On top of this, you can easily open an online commodity trading account in India with Goodwill.

You can also avail Goodwill's own exclusive brokerage calculator that will help you plan your trades in advance.

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