5 Reasons Why You Should be Trading Commodities

When looking for investment opportunities, commodities trading is one option you can’t miss. While it’s not as popular as forex and stocks trading, it’s still one good investment for your portfolio. Commodity trading has been in existence for centuries, even before the introduction of money.

However, trading it online is a relatively new venture. With many people shunning commodities, there’s a ton of opportunities you can enjoy from trading commodities.

Here are a few reasons why you should be trading commodities.

1.     Diversification

The goal for any investor is to increase their diversification and reduce the risks of the investments. So, even if your stocks or bonds are doing well in the market, trading commodities spread the risks in case the stock market crashes.

Whether you trade oil, agriculture commodities like wheat and corn, or metals like gold and silver, these products are always in demand. As such, the commodities market can easily survive any financial market downfalls.

Commodities are among the best ways to cushion your asset against inflation in the stock market.

2.     Increasing demand for commodities

Another reason to trade commodities is the demand they attract in the market. As the world’s population continues to increase, the demand for agricultural and energy commodities also increases.  This means that the commodities market is always opening up and opening up more investment opportunities.

The increase in demand for these commodities also means that their prices will go higher – equating to more profitability for Singapore traders in the futures market.

With the future markets active each day of the week, including weekends, commodity traders have access to the market 24/7.

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3.     Higher liquidity and returns

Compared to other securities, commodities are known to be more volatile. This is both good news for traders because the high volatility making huge profits is faster and easier. This is perfect for short-position traders and scalpers who can take advantage of the big market moves to take their profits.

So, when trading commodities like gold and oil, traders stand to earn a lot more.

Additionally, due to the high number of orders placed in the market, trading commodities reduce huge market moves when a large contract expires. This reduces the risk of enormous losses and increases your earning potential.

4.     High leverage

The access to margin trading is also one big reason why you should trade commodities. As with trading currencies, commodity brokers offer different leverage ratios to traders allowing them to manage more market orders without investing considerable sums in the market.  The higher the leverage a broker offers, the greater the potential returns for traders.

As such, the trader’s ability to make more profits is significantly magnified. You, therefore, need to get a good commodities broker to enjoy this benefit.

We recommend Saxo brokers for Singapore traders. They offer high leverage and relatively charges and transaction fees.

Pro tip: Although high leverage offers fast and higher returns, it’s also as easy to lose more and quickly — especially on highly volatile commodities. Luckily, stop-loss orders can easily help reduce this risk.

5.     You can short commodities

Being a CFD-based market, commodity trading allows you to sell the commodities for a profit when the prices are going down. Since commodities are affected by so many factors, including natural disasters, short selling is a good strategy for speculative traders.

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You can do this through spread bets and CFDs, taking advantage of the declining commodity prices. Moreover, commodities trading doesn’t use an uptick rule as with stocks.

Final thoughts

Trading commodities is one of the best investment opportunities for Singapore traders. It helps manage the risks of inflations, helps increase your portfolio diversity, and promises higher liquidity and returns.

Nevertheless, it’s still as risky as any other investment. The high leverage means increased potential losses, and going short may not always work in your favor. With these facts in mind, it’s up to you to make a decision that might change your investing experience!

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Cory Weinberg

About the Author: Cory Weinberg

Cory Weinberg covers the intersection of tech and cities. That means digging into how startups and big tech companies are trying to reshape real estate, transportation, urban planning, and travel. Previously, he reported on Bay Area housing and commercial real estate for the San Francisco Business Times. He received a "best young journalist" award from the National Association of Real Estate Editors.

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