Trading itself means the sale and purchase of different things in the market. So, commodity trading is the trade of various commodities and derivatives products that are sold and purchased. The commodity can include any type of raw material like wheat, gold, crude oil, etc that can be bought or sold in the market. Whenever the person is engaging in commodity trading, he needs to have a diversified asset portfolio.

Different traders in the market like to trade in physical commodities but there will be some that will deal in the future contracts to hedge against the prices of the commodity. This will minimize the risk of any financial loss to the person. There are many benefits of commodity trading. Let’s have a look at them.

  • Protection against inflation: In the market, there is a huge increase in the demand for products and services. This rise in demand will increase the prices. In such an inflationary environment. The interest rate of borrowing also increases and this might reduce the net income of the company, to lower the impact of inflation, commodity trading is done. Investing in the commodity futures will help in protecting the impact of inflation and maintain the value.
  • Hedge against risky geopolitical events: There might some events that might occur like conflicts, riots, etc that can disturb the supply chain and further lead to the scarcity of resources. The transportation process will be difficult, so the raw materials will not be converted into finished products. This will cause a proper mismatch of the demand and supply in the market. So, to control such situations in the market, commodity trading plays an important role and can help to stem the losses in an investment portfolio.
  • High leverage facility: The commodity derivatives like futures and options will provide a high degree of leverage. The person can control a big position by paying only 5% to 10% of the contract value as an upfront margin. The insignificant moves in the prices of the commodities can result in exponential gains.
  • Diversifications: The commodities have a negative correlation with stocks. The rising prices of the commodities will increase the cost of products and it will lead to a reduction in profits. This profit will ultimately reduce the price of the share. Due to inflation, the present value of the future cash inflow declines and there will be lesser buyers of goods and services. This will tend to the decrease in the price of the commodity so that it can grab the attention of the customers, this is commodity performs better when the rate of inflation is rising.
  • Transparency: Commodity trading provides transparency in the overall process. All the trades are done through online trading platforms that will represent fair prices. This will eliminate the risk of any manipulation at any point in the process.

So, the person can enjoy commodity trading with 5paisa, one of the leading online trading platforms. The team of experts will recommend their clients to take real-time actions to be in a profitable state.