COMDEX and the Commodity Market
A commodity is a tangible good used in social dealings between people, and it is often interchangeable with other goods of the same type. Commodities can also be used as inputs in the production of other tangible goods,with slight differences in quality, however they are essentially uniform across different manufacturers or producers.
Commodities can be traded on an exchange, and as such commodities listed to be traded on exchanges must meet specified minimum standards, called the basis grade.
Examples of commodities are Gold, Crude oil, Maize, etc. One thing that is noticeable amongst commodities is that there are very common in our day to today activities.
Types of Commodities
There are very many types of commodities. They are grouped into three major categories: agriculture, energy, and metals.
The major three categories can either fall under soft or hard commodities as listed below:
- Agricultural products: this category of products is seen as soft and it includes crops like cotton, corn, wheat, coffee, soybeans etc.
- Livestock and meat: the category of products are seen as soft and they include live cattle, beef, milk etc.
- Energy products: Hard commodities. They include crude oil, natural gas, propane, ethanol, coal etc.
- Metals: metals fall under hard commodities and they include precious and industrial metals such gold, silver, copper, aluminium etc.
Commodities as a Safe Haven
Investors and traders can buy and sell commodities directly in the cash market or via derivatives such as futures and synthetics. Commodities are also a necessary input in our daily activities as such they are seen as a hedge against inflation by investors.
Investment in Commodities
Investing in commodities can take any of these forms :
- Invest in commodity stocks
- Invest in commodity ETFs and mutual funds
- Invest in futures contracts
- Invest directly in the commodity.
commodity ETF is an exchange traded fund (ETF) invested in physical commodities, such as agricultural goods, natural resources, and precious metals. A commodity ETF can either be focused on a single commodity held in physical storage or investments in commodities futures contracts.
A futures contract is a legal agreement to buy or sell a particular commodity asset, or security at a predetermined price at a specified time in the future. Futures contracts are standardized for quality and quantity to facilitate trading on a futures exchange.
Commodities and its Investment Opportunities
Commodity trading is often associated with futures contracts, but there are also stocks and ETFs that give traders exposure to commodities
Investing directly in commodities most times involves physically buying a commodity but there's a problem associated with storage.
For instance an investor might choose to buy physical gold but might encounter difficulties finding a good place to store it.
To make up for this an investor can invest directly in the companies by buying shares of the company he wishes to invest in. This form of investment will be termed investing in commodity stocks.
Commodities and the Asset Class
The commodities market has a market capitalization of $17 Trillion but with the current surge in prices of commodities such as energy and metals we’re expecting a gain in the market capitalization.
Commodities are seen as inflation resistant thanks to their relatively low default rates, historically low and safe debt, finite supply and an ever-growing demand.
The Risks Involved with Commodity Trading
Well at this point it’s clear that commodities are very important to our survival because they inherently possess intrinsic and tangible value. it’s safe to think that investors would want to invest in them as a hedge over other investment types however there are limitations to commodity trading and they include :
- KYC/AML checks
- Confiscation risk
- Insolvency Risk
- Theft Risk
- Costs, etc.
How Does COMDEX Mitigate These Risks
With commodities seen as an asset class that helps investors fulfill their needs for long term preservation of capital in an inflationary environment,
Comdex aids in fulfilling the dream of democratizing the commodity industry by merging the concept of synthetic assets with decentralized technology which in turn creates a solution that has a positive impact on investors by giving them access to an asset class they previously couldn’t access.
In providing a solution to the problems concerned with democratization of the commodity industry, Comdex has built a Decentralized Synthetics Exchange that allows its users to mint, trade & provide liquidity with Synthetic assets of commodities (known as cAssets). This completely eliminates the risks and hurdles associated with traditional exposure to these assets.
CAssets and the Larger Population
Comdex and its product CAssets appeal to a larger population of investors since it aids them to gain exposure to Commodity price action without the infrastructure needed to handle the physical goods.
Through cAssets, investors can gain exposure to various commodities in a decentralized way while mitigating the logistical and centralization issues experienced.
COMDEX’s synthetics protocol unlocks access to a vast set of commodity debt assets and liquidity, making the flow of capital from DeFi to CeFi seamless.
For more information and to stay connected with Comdex, you can use the links below.