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Commodities; A Short Profile

Commodities Market

Imagine a market for everything. There is a name for that in the investment world, and it’s called commodities. Think about the simple soda we drink in the morning, to the gas we use to power our vehicle. Well, even the very same tires of your car or the clothes you’re wearing have to use a commodity, like rubber and wool. These universal raw materials which create almost everything we use are called commodities, and can be traded as a worldwide currency. It is thus a very interesting 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 are usually traded with contract sizes, that is, with the prospect of having to buy or sell in a certain date in the future for a previously agreed price. If the investor is willing to have some risk on his side, he will enjoy this market, as constant market fluctuations are the only constant thing to expect in commodities trading.

So, let’s have a look at some of the commodities in the world: gold, silver, crude oil and cocoa.

Commodities

Let’s begin with the king of all commodities:

Gold: Gold has an impressive historical importance for the human race, with a directly attached image to royalty and higher status ever since Ancient Times. Considering it as an asset, Gold’s electrical conductivity and overall reliability will always mark this commodity as an interesting option to invest, as it will probably never run out of favour.

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 smaller brother of Gold, also has an impressive array of purposes and it can be used in many different settings. It is considered a hard asset and indispensable industrial metal, proving to be one of the most versatile materials available to the world. Investing in Silver demands for a very astute investor, as demand and needs are constantly 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 this article, there is an over-abundance caused by fracking. As such, abrupt changes in its value over time have the biggest impact in the world’s economies.

Last but not least, we have Cocoa. Cocoa, unlike Gold, has been considered a royalty drink, and ever since, it was 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 greatest appeal or downfall for the common investor. Commodities are all around us – use them to your advantage.

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