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Rediff.com  » Business » Forex versus commodity trading

Forex versus commodity trading

Last updated on: October 23, 2009 18:30 IST
Nitin is an enthusiastic investor. He has tried to keep abreast with every development in the financial market and is always on the lookout for new investment option which can maximize his returns and increase his wealth.

However, with the plethora of investment options available, Nitin is a little confused in what he would like to invest in. He has homed in to good investment avenues - Forex trading and commodity trading. He has found that Commodity trading and Forex trading are two of the most popular ways to invest and two of the markets which are easiest to make money in. He has also found that most traders have turned to commodities and Forex over stocks due to the overall decreasing value of stocks in the stock market and that many people are making their fortunes using these methods.

However, since his confusion was not readily resolved, he decided to analyze both the options so that he could determine which would be easiest for him to trade in, which would be most profitable and which would be most consistent. Here's what he found.

Ease of trading

Commodities can be fairly easy to trade because their value is usually based directly on supply and demand. When anything being traded is directly based on supply and demand, it's trend will be more predictable.

Forex can be rather easy to trade if you are using the right trading system or strategy, however, Forex can also be very complex if you are unsure about the system or strategy you are using.

Profitability

Commodity trading can be very profitable; however it depends on the amount of money you initially invest.

Currency trading can also be extremely profitable. With an average daily turnover of over $1.3 trillion, millions of people are earning their fortunes by trading in the forex market. Traders also have the option of trading with leverage. While trading with leverage is risky, it increases your potential to make money.

Consistency

Trading commodities can be consistent; however one of the only ways to predict future values is by utilizing market news and analytics.

The Forex market is overall more consistent than commodities. Forex trends can be predicted using set techniques. There are many trading strategies available on forums which can be learned and, best of all, proven Forex signal services offer traders the opportunity to trade with automated signals which tell them what to trade & when to trade it.

Predictability

Commodity prices can jump all around the board depending on demand, weather, crop percentages planted, oil found or not found, etc. This decreases the amount of change you can predict.

Forex markets are more predictable. Sure, currency prices can fluctuate and become volatile at times, but there is more of a pattern involved with Forex. There are more trends created in Forex that can be followed compared to the commodity market. This can make it easier to be consistent when trading Forex.

Finding Information

Information about trading commodities can be fairly difficult to find, especially information which is free. There is an ample amount of information available, but a lot of it is costly to obtain.

Forex information is much more accessible and most of it is free. You can also sign up for practice accounts at many forex sites and actually try your hand at forex trading without risking your capital. This makes for a great introduction to forex trading and lets you know what the possibilities are. These practice accounts in forex trading are typically not available in the commodities arena.

In conclusion

Owing to the above mentioned factors it is easy to see that the balance tips in the favour of forex trading. However, you must always make decisions based on your investment plans and goals. Reading up on more information would always help in taking the right decision.


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Tags: Forex