Disadvantages of Commodity Trading

While the terms stock trading and commodity trading are used interchangeably they are not the same thing. Either way you are investing in the future of a company and are purchasing an interest in the long term survivability of the company commodity trading is more concerned with purchasing a contract from the company that is essentially an amount of physical products that are offered or manufactured by the company. You can then go and sell the products to a supplier or retailer in order to make money. It is a much more complicated method of investing in a company than share trading – however, you are still buying stock (so to speak).

Commodity Trading Commodity trading requires a little more finesse than share trading – you need a means to sell your commodities (whether they are in futures or physical form). This means you need some sort of connection to a means that can actually sell the product. Your stock (in the form of commodities) is an actual physical product – even if you never see the product you have a contract that stipulates your ownership of the product. This is where commodity trading becomes a hazy territory for new comers. They believe that they are selling a non-physical product when in fact they are.

Therein lays the main disadvantage that applies to commodity trading. Finding a buyer for your commodities may not be easy – it also may end up costing you money if the buyer is unwilling to pay more than a certain amount. If the commodity is fairly low demand because it was part of a fad (i.e. the shoes called ‘Crocs’) you may end up with a product that nobody wants to buy eventually. That is why it is not worth the risk investing in something that is likely to fall out of fashion relatively quick.