What is commodity market?

A commodity is either the raw or unrefined product like corn, oil, gold/food, energy, metal or the financial instrument like bonds, FOREX or financial indexes like Standard 500. A market that deals businesses with these commodities is the commodity market.

Years back people hardly invest in commodity market as it needs time, money and expertise. It was mainly associated with the agricultural trade in local markets. But in recent years with the globalization, industrialization and technological advancement, investor’s interest in commodity market has dramatically become positive.
Commodity market by breaking cross boundary barrier has now become a significant investment proposal.

Reason why you should invest in commodity market

Commodity vs. stocks
Commodities are real assets while bonds or stocks are financial asset. As a result commodities behave differently in changing economic conditions than stocks and bonds. During inflation or financial crisis commodity asset class prices rises while stocks and bonds show a negative impact in the same market scenario.
Reduced Risks

Investors risk are very less if and when invested in commodities. As a result the positive gain from commodity investing helps in balancing other losses due to other financial portfolio. The risks are lower as commodity asset deals with diversified items. Moreover care can be taken to see that the chances of risks get reduced or nil in future.

The Potential In Attractive Return

The emerging market of India, china needs oil, steel and other commodities to support manufacturing and infrastructural development. These markets are in high demand of commodities of different form. As a result the prices of commodity assets have gone high.
Moreover the supply chain suffering from lack of investment has created a bottleneck which in turn will add insurance premium and /or convenience yield to the return of commodity futures.

These factors may create continuous gain in commodity return index.

Strong Leverage
Leverage is very significant to the commodities markets. While investing in stocks etc one may have to invest thousand dollars to leverage thousand dollars while a commodity trader can leverage thousands of dollars for pennies. So commodities having intrinsic values will not go bankrupt.

Portfolio Diversification

With commodity asset , the investor can participate virtually in all sectors of the world economy . Hence they have the potential to produce returns which is independent of other markets. So portfolio that uses commodity investment lowers the risk by diversification.

Conclusion
The recent dot com bubble, low equity returns and bull has made the commodity as the genuine asset. So investment in commodity market will grow making it highly lucrative options for the investors to invest in commodity market