Commodities, or marketable goods within sectors such as energy, metals and agriculture, are traded worldwide through various companies and are an option in which individuals may consider investing money. Though buying and trading commodities has the potential to result in significant financial gains, the volatile nature of this practice in general can easily cause investors to lose money and go into debt. If you are interested in expanding your market portfolio to include commodities and wish to take every precaution to avoid a big loss, then consider utilizing the six strategies detailed below.
Dedicate a Small Percentage of Your Portfolio to Commodities
Diversifying your investment portfolio is always a wise idea, and due to the fact that commodities can be a risky venture, experts recommend allocating between 5% and 10% of your portfolio toward shares of your commodity of choice. This allows you to participate in this type of market without the worry of financial peril should a trade not go in your favor.
Invest in Stocks
Trading commodities through the stock market is a basic, straightforward and relatively low-risk method of investment, per MarketWatch . When buying shares of stock that relate to commodities, your options are not tied to the product’s price itself but rather the performance of a company that deals in the commodity.
Focus on Physical Commodities When Investing in Exchange Traded Funds
Exchange traded funds (ETFs) are increasingly available for all types of commodities, but investors who purchase shares in this manner are best served by choosing physical commodities such as gold, says Daily Finance . Physical commodities tend to be simple to invest in and are more resilient against economic fluctuations.
Deal Only With Legitimate Brokerages
Unfortunately, con artists who claim to be legitimate commodities brokers but who are really out to take your money do exist. The easiest way to determine whether a brokerage is on the up-and-up is to verify its registration with the National Futures Association. This organization’s website provides general information on each registered firm that deals in commodities and also documents any sanctions that may have been taken against a firm so that investors can make sound financial judgments.
Stay Proactive When Trading
In order to minimize your chances of losing big on commodities investments and finding yourself on the path toward Debt Collection, you should always try to stay engaged and proactive in regard to your shares’ performances on the market. Do thorough research about trading commodities so that you know how and when to adjust your investments to give you the biggest potential reward. You will want to avoid getting blindsided by a badly-performing commodity at all costs.
Be Cautious of Futures Contracts and Exchange Traded Notes
Though large profits are possible if you invest in a futures contract, this strategy is not recommended for people who are new to the commodities market as gambling on a product’s future performance is a highly unpredictable practice. Similarly, exchange traded notes are risky because they are classified as unsecured debt that can affect your credit.