Benefits of commodity markets

1. A safe investment during crisis – Investing in precious metals like silver, gold & platinum offer a clear protection during inflation and times of economic uncertainty.
2. Diversified investment portfolio – An ideal asset allocation plan means having a diversified portfolio. Thus an investor who has invested in stocks is suggested to invest in commodities so that in case of a stock crash he has some safety from commodity sector.
3. Transparencies in the process – Trading in commodity is a transparent process. The course of action leads to fair price discovery which is controlled by large scale participation.
4. Profitable returns – Commodities have huge swing in prices which can provide profitable returns in investments are planned correctly and calculated risks are taken.
5. Protection against inflation – the price of commodities usually go up during high inflation, accordingly price of raw materials also sees an upward trend, which will help those who have invested in such commodities.
6. Trading on lower margin – Commodity traders need to deposit a margin with broker which can be close to 5-10% of the total value of the contract, which is much lower considering other asset classes. Such low margins allow traders to take larger positions at a lesser capital.
7. Managing the risk – Exchanges have well-structured settlement procedures and prudent risk management practices, which reassures an investor. The absence of counter party risk and existence of clearing house as a legal counter party increases the faith of investors and risk is managed well.
8. Beneficial to farmers – India is a traditionally agricultural economy and price fluctuations during harvest season has always been a major concern for the farming community. Thus futures trading has emerged as a beneficial option for providing a greater degree of assurance on the price front. Also, using the futures platform farmers can store their produce in the exchange provided warehouse till the time that their produce fetches reasonable returns.

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