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Advantages and Disadvantages of Commodity Investing

Advantages of Investing in Commodity market-

  1. Diversification is the first advantage that is considered for commodity investing because commodity stocks tend to provide returns that are different from other stocks and bonds but it is not necessary that diversification will give you or make sure of profitable returns.
  2. Next, advantage is that it provides potential returns as we know the single or individual commodity prices tend to fluctuate due to some factors such as supply and demand exchange rates overall economic health and and inflation in recent years increased demand has affected the or we can say influenced commodity prices.
  3. Third advantage is the potential hedge against Inflation in which we can erode the value of stocks and bonds can often meet up the higher prices for commodities while commodities have shown better performance in the periods of inflation these can be volatile than other types of investments.   

Disadvantages of Investing in Commodity Market-

  1. First one is the principal risk of investing in this segment because commodity prices can be extremely volatile and commodities industry can be significantly affected by world events import controls and world wide competition.
  2. Volatility is the second disadvantage in which exchange traded products track a single commodity which may exhibit higher than average volatility commodity may increase some volatility.
  3. Some other risks are the commodity focused stock funds may use futures contracts to track an underlying commodity or commodity index, trading in these types of securities is speculative and may cause extreme potentiality which causes the performance of fund to signify difference from the other underlying commodity. This can be positive or negative in difference to or depending on the market condition and fund investments strategy.  
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