Why Are Commodities Worth Investing In?
You may have heard of individuals investing in or trading commodities, but what exactly does this involve? There are several factors to consider when shaping your commodity trading strategy, from using the right tools to understand how the market conditions can influence share prices. And most importantly, working out whether they are worth investing in in the first place. Here’s what you need to know.
What are commodities?
Commodities come in different shapes and sizes and are widely reported on due to the role they play in our everyday lives. In short, a commodity is a good that can be bought and sold. These can be agricultural products or other raw materials. Examples of commodities include:
Meanwhile, a stock refers to company ownership. Stocks and commodities are frequently traded or invested in by traders. Commodity trading can be done through reliable trading platforms, where you can use market analysis functions to bring your strategies to life.
Like stocks, their price can fluctuate with changes in market conditions. For example, gold in particular is regularly used to combat poor economic conditions. Its share price rose to an all-time high during the pandemic. It’s also highly liquid as it can be bought in its physical form.
Most successful traders build diverse portfolios. It can be beneficial in many ways, allowing for more security as opposed to putting your eggs in one basket with a single asset class. Combining stocks with commodities and other asset classes will help to strengthen your portfolio, giving you a better opportunity to steadily build wealth.
The role of AI
Recently, AI has been used to aid commodity trading and investment. It can be used to help analyse historical data and make predictions off the back of this about how the market could be expected to perform. Some traders and investors also use packages where automated trades are made on their behalf. While this is controversial to some, others believe it can make trading more accessible for those who don’t have the time or knowledge for it.
Benefits of investing in commodities
A key benefit is that investing in commodities is a great way to diversify your portfolio. Certain commodities, such as gold, can be advantageous and used as a hedge against inflation. Investing in several commodities means that when one dips, the others should help you maintain an overall balance and steady growth over time.
Investors also have the option to trade in several ways – you can trade commodity-based futures, mutual funds, or ETFs, for example. You also have the option to hold physical commodities such as gold in its various forms.