Commodity
Candlefocus EditorCommodities can be divided into two categories – hard and soft. Hard commodities refer to energy products such as oil and gas, and metals such as gold and silver. Soft commodities are oftentimes agricultural products such as wheat, corn, soybeans, and sugar. Investors and traders can buy and sell commodities directly in the spot (cash) market or via derivatives such as futures and options. The spot market is the market for the current delivery of physical commodities while futures are contracts to buy or sell a commodity at a predetermined price at a future date.
Owning commodities as part of a broader portfolio has numerous advantages. They provide investors with long-term returns that have the potential to be higher than the returns on stocks and bonds. The prices of commodities are usually less volatile than those of stocks and bonds, making them less risky for investors. Additionally, commodities are seen as a hedge against inflation and provide protection from potential currency devaluations.
In general, commodities provide substantial long-term return potential and can help diversify any portfolio. They also provide robust protection against inflation that other investments may not. While there are many different strategies to investing in commodities, understanding the fundamentals of commodities is key in order to effectively incorporate this asset class into a portfolio.