What makes commodity trading attractive?

What makes commodity trading attractive?

A good low-risk portfolio diversifier

A highly liquid asset class, acting as a counterweight to stocks, bonds and real estate

Less volatile, compared with, say, equities

Investors can leverage their investments and multiply potential earnings

Upfront margin requirement low

Better risk- adjusted returns

A good hedge against any downturn in equities or bonds as there is little correlation with equity and bond markets

High correlation with changes in inflation

No securities transaction tax levied.

Why commodities preferred to stocks?

Prices predictable to their cyclical and seasonal patterns

Less risk

Small margin requirement

Lesser investment requirement

No insider trading

Entry and exit guaranteed at any point of time

Cash settlement according to Mark to Market Position

Relatively small commission charges

Higher returns

The commodity market is a market where forwards, futures and options contracts are traded on commodities. Commodity markets have registered a remarkable growth in recent years. The stage is now set for banks to trade in commodity futures. This could help producers of agricultural products bankers and other participants of the commodity markets. Banks have started acknowledging the commodity derivatives market. In this context the Punjab National Bank and the Corporation Bank have sanctioned loans worth Rs 50 crore to commodity futures traders over the past six months. However, the loans are not given to pure speculators. A precondition for the loans is that the futures contract must result in the delivery of the commodity.