Nov 23

Pro’s and Con’s of Investing in the Commodities Markets

Posted in Commodities, Investing

As the world economy comes crumbling down, and the fever of bankruptcy continues to threaten, the urge of combating this impetuous condition has forced people to start considering other sources of income apart from the initial income avenue. For this reason a group of financial professionals and other experts alike put forward the dictum of “different sources of income” with commodity investment taking the lead. Is commodity investment proficient in wiping out the inglorious insolvency? To answer this question the pros and cons to investing in the commodities market will be examined.

Overview of the Commodities Markets

Commodity is an opposite version of a service. In a business environment two forces dominate the index of commerce and they are product and services. Commodity happens to belong to the product genre and unlike traditional products like consumer products it has what economics call inelastic demand, which means no matter the condition of the market, there will always be a demand for it, for example: precious metals, crude oil, etc. Commodity markets are a place where commodities are sold to willing consumers, and like the regular market condition, it is determined by the forces of demand and supply operated under regulated commodity exchanges. It consists of direct and derivative trading. The performance of commodities markets have a good share of robust trading in the past 5 years till 2007 with over 17% upturn in trading volumes, while over the counter derivatives experienced an equally robust trading of over 500%. No doubt, commodity markets have had a great share of profitable trading, which directly boils down to good business for buyers and suppliers. However, like all other human invention, commodities market has its own advantage and disadvantages, or pros and cons, they are:

Pros

Flexibility of the Commodities Markets

Trading under the auspices of a well established market creates an adaptable operating condition for buyers and suppliers. The two forces are given a stable business environment to operate on; the right trading resources, information (very vital), and multiple trading opportunities. For instance there is an opportunity of trading spot trading, forward contracts, future contracts, and hedging.

Security of the Commodities Markets

The possibility of becoming a victim of fraudsters is limited, as all stakeholders or investors undergoes strident security checks and due diligence before they are allowed to trade on the platform.

Gaining Information on Commodities Markets

Lack of information is tantamount to deformity. An uninformed business man is likened to a farmer that goes to farm without basic farming tools and experiences the consequence: failure! The world of commodity trading is very vast, filled with rickety bumps all the way. So, there are faceless opportunists waiting to ride on ones intelligence and foolishness, but with commodity market, ample information is provided to ward off such possibilities.

Cons of the Commodities Markets

  • Insensitivity: The major players (buyers and suppliers) are deprived of the power of choice as they are bound to obey already laid down faceless rules and regulations whether they like it or not.
  • Bureaucracy:In case of complaints, disagreements, and any other relevant possible future challenges, the road the buyers and suppliers have to travel, to have their issues tabled not be able to talk of considerations by the operators in the commodity market is long and windy.

The advantages to investing in commodity market far outweigh the disadvantages; this therefore means that commodity trading in the commodity market is a good idea.

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