Myths about commodities trading that you should never follow
Experienced commodities traders know that analyzing chart patterns and studying indicators before making trades is one of the best commodity trading techniques to use to make more money in commodities investments.
New investors should know why some enthusiasts say commodities are unstable investments while others are winning in the commodities market.
Below, we discuss how commodities perform compared to the stock market to help new traders know when and where to invest. Finally, we debunk four myths about commodity investments.
What is Commodity Investment?
Commodity investments are securities that derive value from a commodity, such as oil, gold, or silver. Companies typically issue them, and investing in them may provide an investment return linked to price fluctuations of the underlying commodity.
How to Start Trading in Commodities
If you’re considering investing in the commodities market and want to be a successful commodities trader, contact a commodities broker near you to get started.
Traders should try to find the best commodities trading platform after comparing popular platforms and finding the one that suits their needs. The best commodities trading apps also offer low investment fees and step-by-step advice to walk new traders through the process.
Top US Commodities By Cash Receipts
According to the United States Department of Agriculture, USDA, the following are the top US commodities by cash receipts in 2021.
- Dairy products/milk
- Miscellaneous crops
- Chicken eggs
Now that you know more about the commodities market, let’s debunk the popular myths.
Myth #1 Commodities are Inflation Proof
Many new investors believe investing in commodities will guarantee protection from rising costs during inflation. However, commodities experts with years of experience say that stocks are better at saving investors from rising inflation. Commodities are more unpredictable as compared to stocks.
Stocks and bonds have historically outperformed commodities during times of inflation.
Myth #2 Commodities Markets, Stock Markets, and Bond Markets Yield the Same Earnings
New investors often make the mistake of assuming that investing in commodities and investing in stocks yield the same earnings or returns. But that’s not the case.
Stocks can generate short-term and long-term gains in dividends and interest income. On the other hand, commodities rely on an imbalanced system of supply and demand to generate profits.
Investing in the commodities market can often be more volatile than investing in the stock or bond market.
Myth #3 Commodities, Stocks, and Bonds Carry The Same Level of Risk
While many investors buy and hold a diverse portfolio of stocks and bonds that gain interest over time, commodities are much more volatile investments. Commodities markets can experience unpredictable downturns that can last indefinitely, making them riskier investments for new or inexperienced investors.
Stocks and bond markets are less risky investments than commodities markets.
Myth #4 Commodity Prices Will Always Be Volatile and Unstable
The price of commodities can be very volatile or relatively stable depending on the specific asset or currency involved. Market factors, inflation, and financial depression can also impact these fluctuations.
Experienced brokers and investors know how to leverage market imbalances to their advantage during times of volatility and downturns in the commodities market.
Commodities prices can stabilize for certain periods and be less volatile than some stocks or bonds.
Commodity investments often have a low correlation with other markets, making them more versatile for hedging purposes or trading across multiple asset classes.
If you are well-informed about how the commodities market works, you’ll be able to filter out the popular myths and make the right decisions.
Start slow and steady. As you gain experience and mature as an investor, your investments will fetch better returns.