Electronic trading in commodities makes it easier for individuals and small investors to trade in commodities. The commodity prices move based on the demand supply scenario in the global markets. Therefore, there are various factors that influence and play a key role in deciding the prices of various commodities, like rainfall, sowing-harvesting cycle, government polices etc.
These are some of the ways an investor can invest in commodities:
1) Stocks
Investing in commodity based stocks is one way. You can invest in commodity based stocks like sugar companies, metal companies etc for an indirect exposure to commodities. The stocks performance in the markets depends on many factors like order book, management team, cash flows and overall market sentiments.
2) Mutual funds
The commodity-based mutual funds invest in companies which are in a commodity-related business - oil and gas, metals etc. Therefore, investors with a medium to low risk profile and looking for portfolio diversification can indirectly invest in commodities this way that is relatively safe. These are also safer as the funds are managed by experienced fund managers and backed by the team of the fund house that analyses demand and supply conditions in various commodity markets before taking investment decisions.
3) Commodity futures
Investing in the commodity future market is another way to trade in commodities. However, it is much riskier than other alternatives. Traders and investors can trade in future contracts of more than 50 commodities. Some of them are highly liquid and volatile in nature like gold, silver and crude oil.
Wednesday, May 5, 2010
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