Understanding the commodities market.
Imagine a market for every physical object.
There is a name for that in the investment world, and it’s called commodities.
Commodities tend to get split into five categories; metals, energy, livestock, agricultural, and other.
Think about the water we drink in the morning, to the electricity we use to power our vehicles.
Well, even the very same tires of our cars or the clothes we wear are commodities, like rubber and wool.
These universal raw materials which create almost everything we use are called commodities and can get traded in commodities markets across the world.
It is thus an exciting investment choice, moving billions of currencies globally every day.
Investors in commodities place their money, expecting a higher return on investment with time.
That is to say, they buy an asset expecting it to increase value over time (the buy low, sell high mindset).
Commodities have some differences when compared to traditional share exchanges.
They are usually a highly leveraged market, and they trade in contract sizes.
Commodities can be traded in real-time or using the futures market.
As previously stated, commodities usually get traded with contract sizes, that is, with the prospect of having to buy or sell on a specified date in the future for a previously agreed price.
If the investor is willing to take some risk, they will enjoy this market, as constant market fluctuations are the only constant thing to expect in commodities trading.
So, let’s take a look at some of the most common commodities in the world: gold, silver, crude oil, and cocoa.
Let’s begin with the king of all commodities:
Gold: Gold has a profound historical importance for the human race, with a directly attached image to royalty and higher status ever since the Ancient Times.
Considering it as an asset, Gold’s electrical conductivity and overall reliability has historically marked this commodity as an exciting option to invest, as it has not ran out of favour just yet.
However, Gold has cyclically come into, and out of favour, so only the future will tell how this commodity fares.
The best option with Gold is to see it as an insurance, rather than an investment – and act accordingly.
Silver, the younger sibling of Gold, also has an impressive array of purposes, and it could get used in many different settings.
Considered a hard asset and indispensable industrial metal, silver gets recognised as one of the most versatile materials available to the world.
Investing in Silver demands for a very astute investor, as demand and needs are continually changing as time goes by.
Crude Oil was until recently considered the ‘Golden’ currency of the Modern Era.
With all known advantages and disadvantages, Crude Oil is essential in the modern world; powering cars and many other applications.
However, things are changing fast with the rise of alternative energy, and Crude Oil could easily be less commercial by the year 2030.
At the time of writing, there is an over-abundance caused by fracking.
However, there is also concern regarding the damage caused to the climate caused by fossil fuel-related energy sources and their extraction methods.
As such, changes towards alternative sources over time could have the most positive impact on the world.
Last but not least, we have Cocoa.
Cocoa, unlike Gold, has been considered a royalty drink, and ever since, it got graded for mainstream use.
Its demand is overwhelming, with almost every country in the world wanting it, and yet, only a handful of countries can provide it.
This volatility is its most considerable appeal, or downfall, for the everyday investor.
Commodities are all around us – use them to your advantage, and for making this world a better place.
Disclaimer: The content on this page is for entertainment and informational purposes only. It should not get taken as advice, including for investments or anything else.