Unlocking Opportunities: Leveraging Commodity Trading for Business Growth

BizAge News Team
Wheat field

For many business owners, commodity trading offers a real opportunity for growth. It can also be used to help manage risk and make supply chains more resilient, while also highlighting market opportunities. With the help of a reputable trading platform with strong analysis functions that support commodity trading to get started, there is plenty to get stuck into from up from a business point of view.

As with any type of trading, there are risks involved, so it’s important to gain a well-rounded overview of how you can leverage commodity trading in a way that works for you and your business. Here’s what you need to know.

Understanding Commodity Markets

A commodity is considered a basic good, while commodity trading refers to the trading of these goods in large volumes. The four main categories are: metal, energy, agricultural products, and livestock and meat.

Examples of commodities that can be traded include:

  • Wheat
  • Copper
  • Sugar
  • Gold
  • Corn
  • Tea
  • Gas
  • Cotton
  • Aluminium

Factors that can influence commodity prices include supply and demand, as well as macroeconomic trends, geopolitical affairs, natural disasters and more. The supply and demand of commodities can be hard to predict due to the unpredictable factors and events that determine their availability.

Take gold for example – it’s considered a safe asset to invest in during times of economic recession. Between 2007 and 2011, gold doubled in value due to the stock market collapsing. Recent reports indicate that in Egypt, people are buying gold to stay afloat as the buying power of the country’s currency reduces in value against the dollar.

Although some suggest that commodity trading is outdated, don’t let this sway how you shape your own personal commodity trading journey for business growth. Remember, the more that people think prices will fall, the more they are set to rise.

Businesses should stay up to date with international reports and market developments to spot potential opportunities for commodity investing.

Hedging and Risk Management

Hedging is something commonly adopted in commodity trading. It involves using financial instruments called derivatives.

Large companies tend to hedge commodity price risk – and this can be done with commodity futures and options contracts, which are examples of derivatives. They’re generally traded on major stock exchanges and the end result is that they reduce the concern over price ambiguity. This can therefore help to protect profit margins. When implemented strategically, businesses can gain in derivatives where an investment undergoes a loss.

Examples of this in action include gas companies hedging against the price of gas. People view this approach as a safety blanket to avoid losses.

Supply Chain Optimisation

Commodity trading can also be used to help businesses enhance their supply chains. At the end of the day, securing a good price for raw materials is key. A good commodity trading strategy can reduce inventory holding costs and make supply chains more robust.

Supply chain handlers could embark on commodity trading to get better pricing or hedge against price risks when sourcing raw materials.

Written by
BizAge News Team
From our newsroom
April 16, 2024
Written by
April 16, 2024