What are commodities, anyway?
Finance can be abstract: shares and debt aren’t especially tangible purchases. For those of you that prefer actual things – welcome to commodities!
What are commodities? Commodities are the raw materials that run the world. We can split them into four categories. Energy commodities keep the lights on – think oil and gas. Precious metals like gold, silver, and platinum store value; while industrial metals like copper, aluminum, and steel are essential to manufacturers. Finally, agricultural commodities keep our bellies full – whether pigs and cows or corn, soybeans, wheat, and sugar.
What am I gonna do with soybeans?Buy and sell them – commodities have a vital purpose in the economy and folks trade these materials every day. There’s a vibrant market, with prices fluctuating as farmers and miners negotiate with wholesalers and factories.
These people need their fix and you had better give it to them. Commodity markets are wide open to individual investors like you to trade these goods yourself. And you needn’t ever touch a soybean. Clever financial products let you bet on their price from afar.
Why should I invest?Historically, commodities have had a low correlation to other assets – meaning they can diversify your portfolio and help guard against a collapse in the stock or bond markets. Commodities can also protect you from the worst of inflation. Gains in the cost of living on pumped-up fuel prices, for example, won’t sting so much if you’re already invested in oil.
It’s not all plain-sailing: commodities are very volatile, with big falls in price common. But that volatility brings the prospect of high returns too – it’s a gamble, but you could win.
In this pack, we’ve dug out everything you need to know about commodities trading: from what drives prices, to the nitty-gritty of how to get invested. First off, let’s look at exactly how this market works.
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