Commodity Trading | Merits & Demerits

Want to learn about a commodity market? Commodity Trading is trading that happens in the economic sector rather than manufactured products.

Examples of such are Sugar, Fruit, Cocoa. In other words, a community trader is a trader that invests in substances i.e., oil, gold, agricultural products.

Generally, commodity trading consists of the purchase and sales of the same in futures, though physical trading and derivatives trading are also very popular.

Commodity Trading Overview

Mostly commodity trading consists of raw materials, basic resources, mining, or agricultural products such as ore, iron, grains like wheat and rice. Commodities also consist of semi-finished products which are further used in further final product production such as chemicals, computer parts like memory, motherboard, etc.

➤ How Many Types of Categories are in Commodity Market?

In general, commodities are of 4 categories:

  • Energy – such as heating oil, natural gas, gasoline, crude oil
  • Metals – such as copper, aluminum, platinum, silver, gold
  • Livestock and Meat – includes live cattle, feeder cattle, lean hogs.
  • Agricultural – includes coffee, tea, cotton, corn, soybeans, rice, wheat, cocoa, and sugar.

Advantages of Commodity Trading

  • It’s a pure-play of an underlying commodity
  • It can allow traders big profits if traded on the right side.
  • Get full-size contracts even in minimum deposit accounts that would not be affordable.
  • Option for goes short or long easily.

Disadvantages of Commodity Trading

  • Future markets can be very volatile and not recommended to inexperienced investors.
  • Leverage can result in both gains and losses.
  • In the future, trades can go against you very quickly and could result you losing initial deposits even before traders are able to close their position.

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