Whether you have a significant investment portfolio, or you are in the process of creating one, there are several basics to wealth creation you should carefully consider. While everyone has their own list of principles in this field, there are two that should always be at the top:
- Greater Risk Demands Greater Reward
- Diversification of investments is Essential to Long-Term Success
When it comes to the issue of risks, it is important to understand that the “safer” an investment seems to be, the less interest or appreciation you can expect. That is why government bonds today often earn less than one percent in interest. At the same time, this concept explains why someone investing in a startup may make many multiples on the money they put up.
The idea of risk also comes into play with the principle of diversification. It is now a proven fact that if you spread your investment capital over several asset classes you get a safer, higher long-term return.
How Commodities Fit Most Strategies
Unless you are already retired or in an unusual situation, at least a small percentage of your assets should be used to participate in higher-yield investments. As the above point illustrates, you will have more risk in those choices, but also more chance to make exceptional returns.
For certain individuals, playing the commodities market is an enjoyable and profitable enterprise. The very nature of trading commodities includes the ability to leverage a relatively small amount of your funds to produce larger profits – and, of course, potentially losses.
To make the most of trading commodities, you have to have a solid knowledge of what affects market prices in the different markets. While all markets are ultimately controlled by supply and demand, commodity trading has its own special considerations. Since most commodities trading is short-term in nature, that means understanding what factors will affect the prices during the period you are trading.
Selecting the Commodity
To start understanding your best trading strategies, you have to select the commodity you are going to trade. If you are new to the game, it is important to pick those products that have a large following and offer easy access to information. That gives you a leveller playing field as a smaller trader.
Four such markets are:
- Oil. As the core of the global energy market, oil also presents an active and liquid market. It is vital to understand the many factors that drive the price of oil, as it also offers substantial volatility in daily trading opportunities.
- Gold. The precious metals market is a popular with commodity traders because it is so large and offers a lot of action. With trillions of gold involved in hundreds of thousands of contracts, the gold market offers a lot of volatility and action for quick trades.
- Silver. While this market is also active and follows the same general trends as gold, many traders like to work both commodities as form of in-class diversification. They can also use much of the same news and insights they gain in trading gold.
- Pork bellies. As an agricultural product, this is a commodity that has many different market factors from those of the first three choices. Pork bellies trade in a highly seasonal environment and also have enough volume to provide full liquidity.
If you are seeking a higher return and have the personality to take a little more risk, it is worth your time to check out these four options for commodity trading.
