2 Things a Beginner Should Understand about Commodity Markets

Commodity markets operate in a manner different from stock or bond markets. When you invest, you are not buying a piece of a company whose performance relies mostly on personal choices. Instead, you are buying a piece of an entire marketplace, where the weather in Florida can affect the shipment in India. 

#1 They Are Innately High Risk

Because your investment in the commodity market relies on so many unreliable and unpredictable factors, the commodities markets are innately high risk. Even the best analysts using superior modeling can fail to predict random events like wars, storms and heat waves. When you enter into commodities markets, you have to be prepared for short-term losses due to these outlying events. 

#2 You Can Mitigate the Risk

Even though the commodities markets are unpredictable, you can mitigate the actual risk you expose yourself to when you begin investing. Start slow and consider beginning with something like a gold bond. You will be invested in gold, a commodity, but you will also be holding a bond, a very low-risk security. As you become more familiar with the market, you can still mitigate your risk by spreading your investments between these safe choices and the higher-reward options. 

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