Indian markets opens new avenues for retail investors and traders to participate in commodity trading. For those who want to diversify their portfolios away from shares, real estate and bonds, commodities is considered the best option.
As per an estimate, 10 percent of retail investors occupied in equity trading have now moved to commodity trading. On account of increase in rate of inflation, there is growing insight among people with regard to the prices of commodities, which has resulted in growing interest of traders and investors towards commodity market.
Following are some parameters for investing or trading in commodity on large level:
Since commodity futures trading are done on margins, the investor deposits a portion of the value of the futures contract with the broker to cover the margin requirements of the exchange. This gives the investor greater leverage whereby the ability to generate higher returns sounds more.
Investments in commodity futures offer high liquidity and it is easy for investors to buy and sell futures and can liquidate their position, if so desire. Further, there is an additional advantage of being able to utilize the profits from a trade to a different place, without having to close the position.
Also commodities markets investments are an exceptional means of portfolio diversification. For instance, the price of gold has historically shown a low correlation with most other asset prices, and thus offers an excellent means for portfolio diversification.
Commodities offers vast potential to become a separate asset class for market-friendly investors, speculators and arbitrageurs. Retail investors, who claim to appreciate the equity markets may find commodities a profound market. Retail investors should recognize the advantages and risks of trading in commodities futures before taking a leap.
The other benefit for commodities traders in India is Risk management. Futures market widely helps in price discovery process and risk management. Exchanges have prudent risk management practices and structured settlement procedures, which restores confidence to an investor. Commodities futures exchanges have an electronic trading platform which helps creating a transparent price detection mechanism driven by market fundamentals and the risk factor without any intervention by sellers or buyers.
The above parameters pronounce fact that commodities have emerged as an alternative investment class and commodity markets across the world are keeping momentum by the latest technological innovations and up-gradations which has made information flow from one market to another very fast.