Most investors know about tradable commodities, but not as many take advantage of them. Commodities are a great addition to any portfolio, as long as you invest prudently. Below, you'll find everything you need to know about commodity trading. Commodities are the perfect addition for investors looking to diversify and solidify their portfolio. Here are some of the biggest benefits of commodity trading: Most commodity trading is done through futures contracts.
These contracts are agreements that you will pay or sell a specific commodity at an agreed-upon price. This way, you don't have to make room for physical items, like hundreds of barrels of crude oil or living livestock. The best way to dip your toe into the commodities market is by starting off with a tried-and-true strategy. Here are some of the most common strategies used by commodity traders: It's risky to fill a portfolio up with only commodities, but they're an integral asset for many investors.
Portfolios filled with stocks , for example, would greatly benefit from commodities. Stocks are closely tied to the economy, so commodities provide protection against inflation. Frequent short-term traders would also do well to speculate a bit in commodities.
Since commissions are so low, you won't pay nearly as much for each transaction. The volatility of the market makes this a riskier proposition, however. Certain industries also trade in commodities as a way to hedge their risk. Airlines, for example, require an incredible amount of fuel in order to operate. If they had to pay the market price for fuel, their costs would fluctuate wildly and their finances would be impossible to predict.
They purchase forward contracts that lock in the price of these commodities to stabilize their business. Finally, commodities are a great option for a low-risk portfolio that needs a bit more upside. The enormous variance of commodities provides the potential for huge gains. In small doses, this gives a solid portfolio some home-run potential.
If you're ready to start trading commodities, make sure to sign-up for a real account by clicking here. Password must be 6 to 15 characters long, and must contain at least 2 or 4 character types: The user name or password provided is incorrect. Open an account now start trading!More...