Benefits of Commodity Markets

A Safe Refuge during Crisis

Often investors do not feel confident about investing in commodities but think about precious metals like silver, gold, and platinum; they offer a clear protection during inflation and times of economic uncertainty. They are a good source of investment even during tough times.

Diversified Investment Portfolio

An ideal asset allocation plan means having a diversified portfolio. Commodities are an important component of having a diversified investment portfolio. If you are already investing in stocks and bonds, it is suggested that you consider investing in raw materials simultaneously. This way, whenever there is a stock market crash, you are not putting all your eggs in a single basket.

Often, the values of commodities see a downfall just like stock market shares. They react differently in various geo-political and economic scenarios. Diversification, thus, is more likely to improve risk-adjusted returns and reduce volatility.

Transparency in the Process

Trading in commodity futures is a transparent process. The course of action leads you to fair price discovery which is controlled by large-scale participation. Such a huge participation also reflects different perspectives and outlook of a wider section of people who are dealing with that commodity.

Profitable Returns

Commodities are riskier form of investments with huge swings in prices. Companies either hit it right on a resource discovery or experience heavy losses. This opens up opportunities for you to make profits in the commodity market provided you plan your investments right.

Hedging

Whenever the rupee becomes less valuable, you need more money to buy commodity goods from different parts of the world. Especially during inflation, the prices of commodity goods go up as other investors sell off their stocks and bonds to invest in commodities. Therefore, you can be benefit from some commodities in your portfolio that act as a potential hedge against risks.

Protection against Inflation

When the economy is dipping, money is worth less inflation occurs. The prices for commodities usually go up during high inflation; accordingly the price of raw materials also sees an upward trend. Therefore, a few commodities in your portfolio will help you benefit from this upswing.

Trading on Lower Margin

As a trader, you need to deposit a margin with your broker which can be close to 5 to 10% of the total value of contract, which is much lower considering other asset classes. Such a low margin allows you to take larger positions at a lesser capital.