Commodities Trading: How it can Help and Benefit Your Financial Goals

Commodities Trading: How it can Help and Benefit Your Financial Goals

When deciding on how, when, and in what to invest, it’s important to realise that a good investment strategy is based on risk reduction and the optimisation of profits. By spreading your capital and investing in a portfolio, you significantly reduce your risk. Investment experts all over the world recognise that putting your money into commodities is a great strategy, as commodities are a great hedge against inflation and produce safe and reliable returns. But what exactly is commodities trading, and how can it help and benefit your financial goals? Here is a quick list of its many advantages.

  1. Liquidity

When you trade commodities, you trade things that people need every day – think of soy beans, gold, rice, corn, iron, and so on. Of course, you don’t actually receive those commodities; you receive a certificate of ownership. Because those items are always in high demand and needed every day, it’s very easy to buy and sell them, whenever you want. Unlike investing in real estate, commodities can be turned into cash very quickly.

  1. Diversification

It’s very easy to diversify your portfolio – and this means you can easily reduce the risk of your investment. For example, you don’t just have to buy corn; you can invest in any number of commodities. For example, the price of gold has very little to do with the price of rice, so when the price of one goes down, the other probably won’t, offering you an excellent protection against price fluctuations. By diversifying, you significantly reduce risk.

  1. Market principles

Unlike company stocks or real estate, commodities are not very dependent on rumours or government policies and regulations – commodities are products the people need every day, and are therefore dependent on straightforward market principles and market principles alone; it’s a matter of supply and demand. Corruption scandals or disappointing company balance sheets rarely enter the picture.

  1. Leverage

Commodities futures are traded on margins; this means you actually pay only a certain amount of the real price (you don’t pay the whole value). Result: this creates leverage, because the less you pay, the higher your possible returns will be.

And there’s actually an added bonus to investing in commodities and engaging in commodities trading – one that may not seem so obvious: you are actually helping farmers. Thanks to commodities trading, farmers can sell their products, even before the harvest season (by selling futures), establishing a price and securing their income before any dangerous price fluctuations can set in. Commodities trading ensures a safety net for both the farmer and the investor. Knowing a lot about commodities trading and its benefits, as the specialists from CMC Markets will tell you, goes a long way to securing your financial future.

Image attributed to Boykung/

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