There are a number of advantages to trading commodities.
Here are some of the main advantages:
1. Plenty of trading opportunities
Commodity prices tend to be quite volatile which is an advantage for traders as it means that there are always plenty of trading opportunities.
Traders can trade in both directions too, meaning it’s possible to capitalise on both upward price movements and downward price movements.
2. Leverage can boost gains:
When trading commodities it’s possible to use ‘leverage’ to control a large amount of money with just a small deposit. This is an advantage because it can potentially magnify your gains.
On the downside, however, leverage can also increase your losses, so it’s important to be aware of the risks. eToro offers leverage of up to x10 (meaning you can trade $1,000 with a deposit of $100) on most commodities and up to x20 on gold.
3. Around the clock trading:
Commodity markets are open for a large part of the week. This means that you can trade on your own schedule.
4. Portfolio diversification:
Commodities tend to have low correlations to traditional asset classes such as stocks and bonds.
For example, gold, which is seen as a ‘safe-haven’ asset, often rises during periods of economic uncertainty when stocks are falling.
This means that commodities can add diversification to a portfolio and potentially help traders and investors lower their overall portfolio risk.
5. A hedge against inflation:
In the long run, traditional currencies tend to lose their purchasing power due to inflation (the increases in the prices of goods and services over time).
Commodities can protect investors against inflation because commodity prices often rise during periods of high inflation.
Reprinted from eToro, the copyright all reserved by the original author.
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