![]() Given the importance of commodities in daily life, commodity trading began long before modern financial markets evolved as ancient empires developed trade routes for exchanging their goods. If they think the price of a commodity will go up, they buy certain futures-or go long-and if they think price the commodity will fall, they sell off other futures-or go short. With the buying or selling of these futures contracts, investors make bets on the expected future value of a given commodity. “The real advantages to commodity trading are differentiated exposures from the stock market and the potential for inflation protection,” says Ryan Giannotto, chartered financial analyst ( CFA) and director of research at GraniteShares, an ETF issuer based in New York City.Ĭommodity trading is the exchange of different assets, typically futures contracts, that are based on the price of an underlying physical commodity. Investors in the commodity market aim to profit from supply and demand trends or reduce risk through diversification by adding different asset classes to their portfolios. War in Ukraine could lead to higher grain prices while climbing oil production in the Middle East could depress the global price of oil. The prices of commodities shift constantly as patterns of supply and demand change throughout the world economy. Livestock includes all live animals, such as cattle and hogs. Agriculture covers edible goods, such as cocoa, grain, sugar and wheat, as well as nonedible products, such as cotton, palm oil and rubber. Commodity metals include precious metals, like gold, silver, palladium and platinum, as well as industrial metals, like iron ore, tin, copper, aluminum and zinc. Energy also includes forms of renewable energy, like wind power and solar power. The energy market includes oil, natural gas, coal and ethanol-even uranium. There are four main types of commodities: In terms of financial markets, commodities are physical goods that are bought, sold and traded in markets, distinct from securities such as stocks and bonds that exist only as financial contracts. What Are Commodities?Ĭommodities are raw materials that are used to produce finished goods, including agricultural products, mineral ores and fossil fuels. They offer unique opportunities for smart investors to profit from their ever-changing prices, but investing in commodities requires specialized knowledge and may carry more risk than conventional assets like stocks and bonds. Commodities like iron ore, crude oil and precious metals are the raw materials that power the global economy.
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