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Many people like to invest in commodities and like to make this investment as a part of their portfolio. But for investment in the same you have to be very careful about the recent changes in the market. You also need to be well versed with all the methods that will allow you to invest in commodities and then you can choose the one that will best suit you and your requirement. Below listed are some of the methods that allow you to invest in commodities.
- Spot Trading
- Futures Trading
- Commodity Index Funds
- Commodity Unit Trusts
- Commodity Stocks
The first method that allows you to invest in the commodities is – Spot Trading. Under this method, you can purchase the commodities right away. As and when you make a transaction by purchasing the commodities and making the payment for the same, the order gets confirmed and the delivery of the commodity takes place within 2-5 business days. You are able to check the status of the same under your online portfolio account. This is a method under which only few people have the courage to buy commodities at the spot price as it involves a huge risk of investment. You never know the price of the commodity will increase or decrease in the future.
The next method that allows you to make this investment is through – Futures Trading. This is the most popular way of trading in the commodities. Thousands of buyers and sellers trade in the commodities at future exchanges in an efficient and transparent way. They make a deal on buying or selling a commodity at a particular price. As soon as it hits that price or the deal reaches the day of the contract the trading is done right away.
Futures Trading is done in two ways –
This method of futures trading involves a great risk. The main reason behind this risk is the volatility of the commodity prices. If you want to invest in commodities through this method, then you need to have a correct knowledge of the methodology involved in it. Also, you need to be dedicated to this market so as to follow the commodities you might be interested in. Also, you have to be alert about the working of large commodity trading houses and financial institutions.
Commodity Index Funds is the third way to invest in the commodities. Commodity Index Funds is a less risky method when we compare it with the Futures Trading. This method allows the investors to have diversity in their portfolio. Since you do not need to trade directly into the futures market, this is the safe game that you can play. Commodity Index Funds is a good alternative to Futures Trading. The Dow-Jones-AIG Commodity Index, the Reuters/Jefferies CRB Index, the Goldman Sachs Commodities Index (GSCI), and the Rogers International Commodities Index (RICI) are some of the commodity indices that are specifically tracked by some funds.
Commodity Unit Trust – The next name/ method in commodity investment – This method is especially suitable for the people who love unit trusts. Retail investors have the opportunity to invest in number of unit trusts options available in the market. There are various kinds of unit trusts that may focus on specific or general categories of commodities. Commodity Unit trusts are a good option for long term investments. You can keep them in your portfolio if you have the ability to hold the investment for a long term.
The last way to invest in commodities is Commodity Stocks – Investors can play safe under this category. They can simply buy commodities that are linked directly to major components such as light crude, palm oil, iron, copper, ore and energy. These stocks generally enjoy a fast increase in their prices because of their price appreciation. Other stocks that may enjoy the same kind of increase may be related to producers of diamonds, coal, iron ore, aluminum, oil and natural gas.
The choice of investing in the commodities rests in the hands of the investors. It’s better to study the market and the methodology carefully to avoid any loss in the investments.
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