What is Commodity Trading?
Commodity trading is an activity which involves investing in anything which is categorized under commodity. The process of commodity trading is directly or indirectly affected by the demand and supply in the market. Commodity trading is often confused with stock trading simply because the process of trading is very similar. Then what is the difference between them? The major difference has to do with the difference between what is traded. Commodity trading is something which is not limited to a particular exchange. Investors are free to trade on various exchanges if they desire to do so. In simple terms, the commodity trading is a financial trading that deals with raw materials (also known as a primary economic sector). Investors can access various type of commodity trading, commonly divided into hard commodity and soft commodity.
Why Commodity Trading?
The most important benefit of commodity trading is liquidity. The involvement of speculators means that the future contracts are reasonably liquid. However, how liquid they are completely depends on the actual contract being traded. Apart from liquidity another important benefit of commodity trading is leverage. Leverage ensures Commodity futures operate on margin, meaning that to take a position only a fraction of the total value needs to be available in cash in the trading account. Futures contracts can be sold as easily as they are bought enabling them a speculator profit from falling markets as well as rising ones. There is no rule like there is with stocks.
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