Commodities



A commodity market (spot or derivates) facilitates trading in various commodities. In a spot market, commodities are bought and sold for immediate delivery, while in a derivatives market, various financial instruments based on commodities (such as futures) are traded in exchanges. Basic commodities that are traded could be classified as soft commodities (agricultural products) and energies (crude oil, metals, natural gas).



Commodities trading offer benefits that include risk mitigation or hedging options, transparency in dealings, no risk of insider-trading, trading on lower margins, and availability of options for both short and long term investors. Commodity investments are considered defensive because during inflation, when the performance of stocks and bonds are adversely affected, commodities offer risk mitigation to investors, maintaining the performance of their portfolios.

A commodity futures contract is an agreement between two parties to buy or sell the commodity at a future date at a specified price. They are standardized and traded on the exchange.

Investors looking to benefit from price changes in the market and wanting to diversify their portfolios could invest in commodities. Since the investment is done based on predictions of future profits, it involves a certain amount of uncertainty. It is crucial to note that investing without fully assessing the market could lead to losses if the market becomes volatile. Since the prices are influenced by the basic economics of demand and supply, investors need to monitor external factors that might influence the prices of commodities in the future.

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