Why trade and invest in Commodities?


A commodity is a physical good whose quality remains unchanged regardless of where you buy it. You can also interchange it with other goods of the same kind. Common examples include oil, natural gas, gold, grains, pulses, etc. Commodity Trading was complex and limited only to professional traders earlier. They were considered risky in the most basic sense because their market depends too much on unpredictable patterns like the weather and epidemics.

However, Commodity Investment and Trading have slowly gathered steam in Indian markets, including among retail investors. Here, we explore why one should trade and invest in Commodities.

The reasons to consider the Commodities Market are: 

  1. Hedge against inflation: One primary reason to invest in Commodities is that they are a hedge against inflation. If the demand for a product rise, its price rises, and so does the price of the raw material used to produce them. Commodity prices rise even when inflation increases, thus offering protection that many assets cannot. 
  1. Higher returns: Another reason is that Commodities provide returns that stocks and bonds cannot over time. Rising demand due to globalisation and global infrastructure projects have greatly influenced commodity prices. This demand is expected to increase only in the next couple of years. 
  1. Diversification: It also diversifies your portfolio and lets you manage volatility easily. A diversified portfolio also enables you to manage the unsystematic risk related to specific factors you cannot control. 
  1. Leverage: Commodity Market Trading in derivate markets offer more leverage to investors, allowing them to take both sells and buy positions. Investors must pay a margin of as little as 10% of the total contract value to gain leverage on a commodity of greater value. 
  1. Liquidity: Commodity Trading is usually done in Futures, and Futures Marketis more liquid than Spot Markets. Besides, most investors in such markets are often hedgers and arbitrageurs looking to make a quick profit. 

However, Commodity Market is too much risky to dive in headlong. You should consider risks such as broad market exposure, high volatility, and principal risks, among others. You often bet on emerging markets fraught with wars and economic stability with Commodities. There are also chances that such factors affect the commodities so much that you lose your principal amount. 

Disclaimer: ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. – ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai – 400025, India, Tel No : 022 – 2288 2460, 022 – 2288 2470. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730) and BSE Ltd (Member Code :103) and having SEBI registration no. INZ000183631. Name of the Compliance officer (broking): Mr. Anoop Goyal, Contact number: 022-40701000, E-mail address: [email protected]. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Composite Corporate Agent License No.CA0113, AMFI Regn. No.: ARN-0845. PFRDA registration numbers:  POP no -05092018. We are distributors of Insurance and Mutual funds, Corporate Fixed Deposits, NCDs, PMS and AIF products. We act as a Syndicate, Sub -syndicate member for IPO, FPO. Please note that Mutual Fund Investments are subject to market risks, read the scheme related documents carefully before investing for full understanding and detail. . ICICI Securities Ltd. acts as a referral agent to ICICI Bank Ltd., ICICI Home Finance Company Limited  and various other banks / NBFC for personal finance, housing related services etc. & the loan facility is subjective to fulfilment of eligibility criteria, terms and conditions etc. NPS is a defined contribution plan and the benefits would depend upon the amounts of contributions invested and the investment growth up to the point of exit from NPS. Insurance is the subject matter of solicitation. ICICI Securities Ltd. does not underwrite the risk or act as an insurer. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.

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