In the market, there is
a huge increase
in the demand for products and services. This rise in demand will increase the prices. In such an
inflationary environment.
Hedge against risky geopolitical events :
There might
some events that
might occur like conflicts, riots, etc that can disturb the supply chain and further lead to the
scarcity of resources.
High leverage facility :
The commodity derivatives like
futures and
options will provide a high degree of leverage. The person can control a big position by paying only
5% to 10% of the contract value as an upfront margin.
Diversifications :
The commodities have a negative
correlation with
stocks. The rising prices of the commodities will increase the cost of products and it will lead to a
reduction in profits. This profit will ultimately reduce the price of the share. Due to inflation, the
present value of the future cash inflow declines and there will be lesser buyers of goods and
services
Transparency :
Commodity trading provides transparency
in the overall
process. All the trades are done through online trading platforms that will represent fair prices.
This will eliminate the risk of any manipulation at any point in the process.