Advantages of Commodity Trading

The role of commodities in our reality is tremendous. We cannot imagine a single day of our lives without the usage of commodities. As it is known commodities are the raw materials of almost everything we use in our daily routine such as coffee, which we use as an energetic drink, sugar, which we use to sweeten our meals and drinks, orange, which we use as a food, gas, which we use for heating purposes, etc. But there is a certain category of people, who use commodities not only for living, but also for making profits. In other words, these people are those, who are engaged in commodity trading.

Commodity trading is considered to be a very exciting and risky type of investment. It has become very popular among traders and investors in the last few years. Those, who are actively taking part in trading can assure that commodity trading has a number of similarities with stock trading. However, it should be pointed out that the main thing that differentiates commodity trading from stock trading is the asset that is traded.

Commodities are divided into the following three categories:

• Agricultural Commodities (coffee, cotton, corn, rice, sugar, orange, live cattle, feeder cattle, lean hog, etc.)
• Metal Commodities (copper, gold, silver, platinum)
• Energy Commodities (oil, brent, natural gas, heating oil)

Obviously, each category includes various commodities which are all very popular and which are widely traded in the market. Actually, as it was mentioned above commodity trading has gained much popularity and this is due to the number of advantages that differentiate commodity trading from the other types of investment.

Now let us see what the main advantages of trading commodities are.

• Leverage

One of the main advantages of trading commodities is leverage, which gives traders and investors a unique opportunity of generating high returns.

• Diversification

Another important advantage of investing in commodities is the opportunity to create diversified portfolio. With a well-diversified portfolio, traders and investors can make big profits from any possible economic scenario.

• Liquidity

For each investor and trader liquidity plays an important role, as it gives the possibility to trade with any volume. Investments in commodities offer high liquidity, which in its turn means that traders can easily buy and sell commodity futures without facing any difficulties.

Commodity trading has the same objective as other types of investment that is to buy low and sell high. Commodity trading is considered to be risky, that is why it is highly recommended to make good research, examine the market, develop a well-planned trading strategy and only after that get engaged in commodity trading.