Commodities Trading: How To Trade Commodities and Its Benefits For Investors

Investing in commodities has never been the number one option for many Australian stock investors. However, many financial experts are now recommending individuals to take up commodities trading to smoothen out the portfolio in case of any unmitigated risks. From a wide range of precious metals like gold and silver to agricultural products like meat and milk, investing in commodities provides shareholders with a new way to diversify their portfolios without worrying too much about the market’s supply and demand. Take a look at some of the advantages of investing in commodities:

  1. Protection Against Inflation:The period of inflation in Australia is always followed by a rise in prices for most goods and services. As inflation rates rise, investors who staked money in various stocks and shares will receive lower returns as there is a drop in value. Commodities on the other hand will stand unfazed as the rise in prices will always lead to an increased demand overall. The increased demand will create an uptick in production which in turn raises the prices for the said commodities. Commodities, as well as it’s futures, are the best way for investors to cushion the blows of inflation.
  2. Gain An Edge During Conflicts and Other Major Events: Major events such as calamities or riots will always lead to a shortage of resources. This shortage will affect various supply chains and ultimately the factories and manufacturing hubs. This scarcity will lead to increased demand, raising the prices of commodities in the Australian market accordingly. Plus, it’ll also help with the dwindling stock prices as it is directly affected by calamities and disaster events.
  3. Diversifying One’s Portfolio: Diversifying one’s portfolio is always a great way to balance out the losses and risks involved in trading. Through the use of commodities trading, investors can even out the losses faced as a result of lower stock prices as stocks and commodities always move opposite to each other. Dwindling stock prices usually raise the prices for commodities in the Australian market and in most cases, the prices for commodities will have no relation with the changing stock prices. Investors can always leverage both of these possibilities for their profit as long as they keep an eye on the market.
  4. Exploiting High Leverage Facilities: Commodity trading in terms of futures or through options can provide a high degree of leverage for investors. Even a small change in the price margin can lead to significant gains and investors need only pay a small percentage upfront. With small margin rates compared to stocks and the right prices, investors can make a humongous profit on a small initial payment.
  5. What is the Definition of an accredited investor? They could be an individual or entity that is allowed to trade unregulated securities.

Commodity markets in Australia are ruled by the basic supply and demand of the consumers and producers. This is unlike most stocks and a rise in demand or shortage of supply can raise prices to a great extent. Even though the market gravitates towards lower prices, most of the spikes in prices or volatility is only present in the short term time scale.

Trading In Commodities:

There are many ways investors can trade commodities to even out their portfolios. Have a look at the different ways of investment below:

  1. Futures: One of the most common ways of commodity trading done in Australia. Futures are contracts agreed upon by both the buyers and the sellers with the price set according to future market predictions.
  2. Buying The Commodity Itself: Futures are usually bought by those looking to turn a profit. However, purchasing the futures doesn’t ensure the purchase of the commodities themselves. While futures are based on price changes and contractual agreements, buying the commodities themselves ensures the physical possession of said commodities by the investors. Common examples would be that of gold, silver bars and platinum pellets.
  3. Buying The Stocks Of A Company Dealing With A Particular Commodity: Companies that deal with commodities sell their stocks which can be bought by investors. In this way, investors can indirectly buy the commodity without incurring a higher risk by buying the commodities directly. Other ways of investment or trading include mutual funds, ETNs or ETFs.

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