What are the advantages of commodity trading?
All financial products have inherent advantages and disadvantages. Let's take a look at some of the advantages of commodity futures trading.
1. Can buy (go long) or sell (go short) commodity futures contracts
Commodity future's trading allows the trader to either buy or sell the contract. If the trader thinks the price of the commodity will go up, they buy the contract and hope to sell it back in the future at a higher price for a profit. Conversely, a trader who thinks the price of the commodity will decrease can sell the contract and buy it back later hopefully for a profit.
2. Can trade with a small amount of capital
Since commodity trading utilizes leverage, it is possible to trade without a lot of upfront capital. Additionally, there is no interest charged for the use of leverage as there is for margin trading in stocks.
3. Volatility in some markets offers potential for quick profits
Some contracts on TOCOM such as platinum, gasoline and kerosene offer large price fluctuations at times. This makes for a dynamic market where quick profits can be made.