3. Advantages of Commodity Trading

Created OnJanuary 20, 2023

Last Updated OnFebruary 1, 2023

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Advantages of Commodity Trading

Diversification

Commodity returns have a low correlation with returns on other assets. As a single asset class, commodities can be considered to diversify your investment portfolio.

Inflation hedge

Commodities are considered good inflation hedges because their prices tend to rise during periods of high inflation. This helps maintain purchasing power parity.

Protects against event risk

supply disruptions during a natural disaster, economic crisis or war can increase commodity prices. However, stock trading can help you protect against losses by strategically leveraging prices. For example, to lock in the entry price of a commodity, a consumer can hedge long by buying a futures contract at today’s price of the commodity. At the same time, a producer targeting a high sales price may choose to sell a futures contract as a short hedge.

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