Learning about commodity market

Learning about commodity market

All the commodities like energy, metal or food are quite important for people in their everyday life.  Any individual who drives a car will get affected by the increase in the price of crude oil. The drought impact on certain food items will have an impact on what you are planning for the next meal.  Also, commodities are a wise choice to diversify your portfolio either to invest in long-term or to safely invest your fund for a short period.

In earlier days, the average investors found it quite difficult to trade in the commodities market and it demanded more money, expertise and time. However, today, it has changed. Even a non-professional trader could take part in the commodity market.  Similarly, in the cryptocurrency market too one can trade in digital currency even if you don’t have any prior expertise in the field of trading.

Many people would be wondering where to invest in commodities. There are many commodities exchanges that work around the globe. Few of the markets will deal in a particular group while few others trade in different commodities.

Characteristics of commodities

The basic economic principles of demand and supply drive this market. Whenever the supply goes down, the demand will go up.  For instance, a health scare among the cattle’s will lower the demand for the livestock.  It will result in the abundant supply of the same. Global economic developments or the reduced oil outputs will lead to an increase in oil price as the investors keep weighing and assessing the limited supply of oil along with the ever-increasing demand for the energy.  The agricultural products have a highly active trading market. During summer months or during the months of weather transitions, these products will be highly volatile. Also, one needs to keep in mind that the commodity market might turn risky as it gets affected by natural calamities, epidemics, etc.

Different types of commodities

The commodities that are tradable fall into major 4 categories:

  • Metals (silver, gold, copper, platinum, etc)
  • Livestock and meat (pork bellies, lean hogs, feeder cattle, live cattle, etc)
  • Energy (heating oil, crude oil, gasoline, natural gas)
  • Agriculture (corn, wheat, rice, soybeans, cocoa, cotton, sugar, etc)

Many people are investing in precious metals like gold and it is considered as one of the dependable, reliable metal which has a conveyable value. The precious metals also can be used to hedge against the period of high inflation or currency devaluation.