How to invest in commodities?

How to trade?

Commodities take a wide range of forms. Initially, they were composed of material goods, such as gold, silver, timber, oil, and more. Nowadays, we can include digital coins, rare earth materials or others. For the sake of simplicity, we’ll include in this category the investments made on the monetary markets (US dollars, Euros, Renmimbi, etc.).

The investments can be made directly on the commodities, as buying and holding gold coin, gold bars, silver bars or even buying timber and oil. Despite that, the main form of investment in commodities are futures and options contracts, where the investor grants the right to buy or sell the underlying commodity on financial markets.

And, how to analyse?

The returns from the commodities markets take various forms. Capital gains refers to the variations in market price of the commodity held, be it realized when the it is sold or unrealized when it’s the difference between the market price and the acquisition price. Interest, when refering to monetary markets and digital coins. Profit, when the commodity is physical exchanged, as when an oil extractor sells the oil to and oil refinary plant.

In conclusion

Commodities take different forms of investing and receiving returns. Every investor should decide in which few markets they want to concentrate and specialize. Commodities can make part of a good portfolio as a form of diversifying or speculating.