Trading in Commodities for Beginners

Trading in commodities can be a worthwhile alternative to the unpredictable nature of investing in a business.

What is Commodity Trading?

Commodity trading is a type of investment that is increasing in popularity in the United States. When you see stock market quotes running across the bottom of your local news station, you are seeing the estimation of the value of stock in businesses and economies. However, there is a whole other world of investments that has nothing to do with the success or failure of a business. Commodity trading involves an estimation of the value of limited resources like precious metals and fuel. Those who trade in commodities are trading in the future of oil, gold, and other tangible resources.

Trading in the Future, Not the Product

A common misconception regarding commodity trading is that this type of trading requires you to actually purchase the commodity. This is not true. When you trade in commodities like gold, other precious metals, or even oil, you aren’t actually purchasing the commodity. You will not own gold or oil with this type of trade. Instead, you are trading in the future of the commodity. You are trading in your prediction of the increasing value of the commodity. This makes the trade a little more liquid, a little more afffordable and a little more profitable.

The Benefits of Commodities Trading

Many consumers prefer to trade in commodities because they feel that the success or failure of their trade relies less on the actions of individuals. When you invest in a business, you are putting your trust in the executive organization of that business. You trust the CEO and his or her associates to make wise business decisions, to never over-extend themselves, to provide a reliable and valuable product or service, and to grow the company so that you can get paid.

However, this requires an investor to place a large amount of trust in an equally large number of people. The more working parts there are in a machine, the more likely it is that something will malfunction. The same holds true for investing in a business. With so many working parts, there is a greater chance that someone will make a mistake and the business will suffer. Trading in the future of commodities, on the other hand, doesn’t require you to place your trust in any group of people.

Instead, you simply have to be good at predicting the trends of mankind. When you trade in the future of commodities like gold or oil, you are making an estimation of the value of that commodity over time. Because resources like oil or gold are finite, you can prudently estimate that the value of these products will steadily increase.

Long Term Growth

Many consumers like commodity trading better than stock market investing because trading in commodities requires a longer-term vision in your investment. Instead of monitoring investments on a daily basis and being fearful of every tiny fluctuation, you can invest in a commodity for years and see steadily rising growth.