Commodity trading involves trading in commodity derivatives and spots. Commodity trading is very volatile and so investors should take relevant precautions before they enter into it.
Commodity trading can help an investor to diversify their portfolio. It is an ideal investment that can significantly hedge you against the risk of inflation. Commodities traded mostly include agricultural products, minerals, and fossils.
Commodity trading is usually done in the form of derivatives like futures and thus involves a lot of speculation which involves high levels of uncertainty and risks. The commodity trading market is not as controlled as the equity market and hence investors are exposed to a lot of trade manipulative behaviors.
The commodity market is influenced by the forces of demand and supply and by inventory particularly when it comes to perishable commodities such as the agricultural produce and the high-demand products like crude oil.
The 4 best commodities to invest in include:
1. Crude Oil
Prices of gasoline are rising progressively with each passing day. Crude demand is high while supply is low and so the demand for oil goes beyond just gasoline to products made from petroleum such as plastics, medicines, shingles, synthetic fibers, fertilizers, solvents, ink, and cosmetics among others. This has caused the cost of a barrel of oil to increase gradually. Crude oil is, therefore, a good commodity to speculate in.
2. Base Metals
Base metals are metals such as copper, aluminum, and zinc among others. Copper, in particular, is one of the best base metals to invest in. It is a reddish metal that is used in almost every industry around the world. The demand for copper is raising every day as more economies around the world are becoming industrialized.
Copper is being used by industry for components of plumbing, motors, heating, air conditioning, wiring, computers, mobile phones, lighting, roofing and many more. It is very popular because of its flexibility, good electrical conductor and its corrosion resistant. Countries are building new airports, buildings, industrial equipment, transportation system and more. The supply of copper has diminished in the last century and so demand will soon go up and prices will subsequently increase. Copper is thus a commodity to watch.
Demand for gold keeps increasing while its supply is still very low. Most demands of gold come from the central banks, governments, mutual funds, hedge funds, and private investors. Gold is viewed as a form of insurance against world inflation, war & unrests, and natural calamities. It is, therefore, a good investment to make.
4. Agricultural Commodities
It is perceived that in the next half a decade year to come, the world population will have approximately 2.2 Billion extra mouths to feed. To meet that rising demand, farmers will need to grow more food commodities. Inflation surge signals a rise in the prices of the commodities. It is thus prudent to invest in agricultural commodities or in companies that deal with agribusinesses like Mosaic co., Agrium (AGU), and Monsanto Co. (MON). Wheat and corn are the leading agricultural commodities demanded in the world.
To determine whether to invest in commodities, always check the current levels of the world’s production, supply sources, and supply sources that are undergoing exploration. That can be a good hint to help you decide on the best commodity to invest in.