Introduction

There are several types of intraday trading and all of them have their advantages and disadvantages. One of these types of intraday trading is trading in commodities. When the question of “What is commodity trading?” is brought up, then it is important to understand that it is the trading of physical commodities like agricultural products, precious metals, raw materials, energy resources, etc, on a designated commodity exchange. 

There are several reasons why you should opt for commodity intraday trading and here we will look at some of these reasons. 

Greater Investment Potential Returns

• Many factors affect commodity prices.

• This includes factors like inflation, supply and demand, and the health of the country’s economy. 

• In recent years the price of commodities has also gone up.

• This is due to the building of large-scale international infrastructure projects, which have led to increased demand for commodities.

• This is in line with the increase in the price of corporate stocks of allied sectors.

Possible Protection Against Inflation

• Inflation has a great effect on the market.

• This includes a rise in the price of commodities too.

• Inflation also affects stock and bond prices.

• There is no doubt that more often than not, commodities tend to perform better during inflation. 

• However, traders need to remember that commodities are also more volatile when compared to many other investments. 

Wide Investment Portfolio

• Investors and traders are always advised to have a diverse investment portfolio.

• With a diverse portfolio, a trader is able to reduce risk potential to a great extent solely because different securities have different risk levels, and most of the time the losses from one are offset by the profits made by others.

• Among the many securities one can invest in to diversify their portfolio, investing in commodities can also add greater value to a portfolio.

• Commodities respond very differently to different geopolitical and economic circumstances thus adding an extra layer of security to the portfolio. 

Openness to the Process

• The great thing about commodity futures trading is that it is a very transparent process.

• How a trader trades affects the price they receive. 

• To add to this, the commodity market sees the participation of numerous individuals.

• This gives access to the various viewpoints of a greater group.

Effective Returns

• A higher risk in trading with commodities comes with greater liquidity in the market. 

• In such cases, it can either result in a significant profit or a significant loss. 

• This is why it is important to have a good strategy in place when placing commodity orders to reap the rewards.

Protection from Market Turbulence

• Whenever the value of the rupee drops, more cash is needed to purchase commodities from across the globe.

• Sometimes the reason why the price of commodities goes up is because investors sell equities and bonds and invest in commodities, especially during inflation. 

• In such cases, the commodities that will prove to be beneficial for traders would be the ones that act as a hedge against market risks.

Best for Pricing Certainty

• During inflation when the economy is weak, commodity prices more often than not increase.

• This leads to an increase in the price of raw materials as well as making a handful of commodities for you.

Conclusion

When you need to answer the question “What is commodity trading?”, it is important to remember what it stands for and the reasons why it can be a profitable investment option, when compared to a lot of other securities available in the market. From being a great option to help diversify your portfolio to offering protection from inflation, when done right, commodity trading can prove to be truly beneficial.