InvestorQ : What advantage do you get from commodity trading?
Mahima Roy made post

What advantage do you get from commodity trading?

Answer
user profile image
Anamika Sodhani answered.
1 year ago


For investors and traders it offers a low-cost method the risk of commodity price movements. Futures are symmetric in the sense that profits and losses can be unlimited. However, options are asymmetric. For the option buyer the losses are limited to the premium paid but the profits can be unlimited. Thus for more conservative players in the commodity markets, options can be a better choice. A farmer looking to hedge risk in the commodity market can now use options to hedge with lower downside risk. For commodity traders, there is an added advantage. They can create specific risk products like covered calls and protective puts to make the best of price movements with limited risks. Lastly, for large prop desks, institutions and even for HNIs; the option writing can become an additional source of fixed earnings.