Looking for opportunities to invest your money? Want to see your money grow? Finding the right investment option is half the battle won! Bank deposits, postal savings, life insurance policies and investment in shares are traditional choices. But changing times have introduced new investment avenues – mutual funds, commodities, futures and so on.
Here’s a look at a new form of investment – commodity trading.
A commodity is any physical item that can be bought or sold. Traditionally, commodities traded included agricultural produce like wheat, cotton, rice, etc. The commodity market today, however, includes livestock, minerals, and metals. Any item that has physical existence and a reasonable life can be traded as a commodity.
Just like trading in shares is facilitated by a stock market, commodity markets have been developed for trading in commodities. Any commodity that can be produced on a large scale can be traded on a commodity exchange. Trading activity is based on the price mechanism; that means the market demand and supply decide the price. The actual commodity may not physically exist in the market. Only a contract is entered into for delivery at a later date. The New York Mercantile Exchange and London Metal Exchange are examples of regularized commodity markets.
Commodities are categorized as soft commodities and hard commodities. Items like cotton, coffee, sugar, and meat that can be grown or produced are soft commodities. Hard commodities include items that are mined, like metals and precious stones. Commodity futures are also traded in commodity markets. These allow you to trade in a particular commodity at a pre-decided price and time. Futures contracts are mostly for soft commodities.
Strictly speaking, the commodities market is not a new concept. It has been in existence for a long time. The bullish growth of the commodity markets in recent times has made it a lucrative investment option. A few years ago the prices of onions had soared and the merchants trading in them made huge profits. Similarly, if you had made investments in oil, gold, silver, uranium, and timber a few years ago you would reap good returns today (as prices are on the rise today). Gas prices have also been rising and are a high-paying commodity!
For long, commodity trading has been looked upon as an investment avenue for traders or other business entities. Do you think individuals can profit from investments in commodities? Give us your opinion!
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