Commodity trading is an investing strategy that involves buying and selling of commodities. Commodities are defined as something that is considered to be of value, has a quality that is standardized, and is produced in large amounts. When people invest in commodities, they usually think in terms of ‘commodities’ that are resources that may be purchased for a wide range of uses. For example, metals whether precious or non-precious, are considered a commodity and traded on the basis of the wide range of goods that can be produced using them as a key ingredient.

Who invests in Commodity Trading?

Commercials: Entities involved in the production, processing or merchandising of a commodity. In commodity trading, both the farmer and the company for example ITC (a leading FMCG firm), which procures wheat from the farmers, could be termed as entities.

Investors: A group of investors that pool their money together to reduce risk and increase gain.

Retail Investors: Individual commodity traders who trade on their own accounts or through a commodity broker so as to take advantage of the price fluctuations.

Why Commodities Trading?

Commodities is the only asset class that is negatively correlated to bonds, making them an essential tool for diversification. Generally speaking, bonds are only minimally correlated with stocks, but commodities have actually been negatively correlated to both stocks and bonds historically. In other words, when stocks and bonds increase, commodities tend to decrease.

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