Whether its commodity trading or trading in stocks , every investment or concept indeed has its own advantages and disadvantages . We discussed the advantages or points favouring commodity market . Now we are discussing some points against commodity market , which can clear the picture and help you in deciding more appropriately .
Here are some reasons against the investing in commodities:
– Daily Price Limit can prevent the investor from exiting a position if prices have reaches the day’s maximum price rise or decline allowed. This is especially difficult when his position is in a loss. Many times, margin calls will automatically exit the position. However, the account can be in the negative where the investor must fund additional money to the account to get back in black.
– There is lack of research materials covered in the media or in print compared to those covering stocks. The most popular financial books mainly use stocks as examples. Most brokerages and investment banks whose analysts cover industries and stocks. Investors like to see easily available and up-to-the-minute information which can be made available but not in a wide variety.
– The leverage is high, so small losses can make a big impact on the equity. This is a common scenario where the uninitiated and unprepared will see the account being wiped out.
– Future contracts constantly expire. If it’s a long-term holding, contracts must be managed properly changing to forward contracts. This can be tricky because premiums change from one forward contract to the next. Acute attention must be given in doing so.
If the investor is risk-averse in which he is content with small return year to year, then commodities might not be the right investment.