Among the various types of investments, many traders find it lucrative and easier to invest their money in commodities. If you wish to invest your money in commodities, the very first thing is to decide which commodities to choose for investing money in.
Commodity itself is a broad term. It includes anything starting from raw materials to finished products. They include metals, silver, gold, copper, grains, soybeans, and much more. Instead of purchasing materials, investors find it attractive to participate in commodity markets for purchasing stocks and investing their money in the exchange traded funds.
Smart traders always strive to make their portfolio diversified. This means that if one part of the portfolio goes down, the other part will make up for the loss from the profit the investor has earned. Therefore, many traders don’t hesitate to invest their money in commodities.
One way of investing in commodities is spot trading. This is the type of commodities trading in which you can do trading within a few business days. The commodities are bought in large quantities where buyers are ready to pay the spot price, and then the commodities are sold right on spot.
There are two types of commodities, I.e. future and option. In a future contract for the commodity, you enter into the agreement of buying the commodity at a set price and the date for the purchase is set too. On the other hand, for options, the trader buys and sells the commodity himself. There is no locking up of dates for buying and selling commodities.
For future commodities, the trader has to place a minimum deposit with his broker. Even with a small amount of money, you can take control of a large quantity of a commodity you wish to trade. If the value of the future contract falls, you have to cover the loss yourself, otherwise you might lose the position. The value of commodities can keep on changing over time.
An options investment can let you buy a mini option contract, which is a fraction of the actual contract. When you invest your money in options, it allows you to offset the investment cost by letting you sell the options to another investor while you buy options for a future date.
When you are investing in commodities, it means that you are investing either in futures or in options. Many professional traders in the financial industry say that investing your money in commodities can be a great diversification technique to save your portfolio and to make it profitable.
Other types of commodities you can invest in include index funds, unit trusts, and commodity stock. Index funds can let you invest into a commodity futures contract directly. They are less risky. There are many investors, who love to invest money in unit trusts. They can let you invest in a broad range of categories like gold, silver, agriculture, and metal. Commodity stocks can also be a nice investment. You can buy stocks of crude oil, copper, energy, etc. and make your portfolio diversified.