Retail investors in Commodity Trading--- No Stay Away

I read a report showing participation of retail investors is increasing in commodity trading and commodity exchanges are doing all they can to attract more investors. But I think it is a disaster in the making.

Retail investors are always at the receiving end of major downturns, their inability to react and understand global economic relations create huge losses when markets take a tumble. But these investors if patient and wise enough earn a very good return on the long term. But that is the point there is no long term in commodity trading.

Only commodity you will ever think of buying and holding is Gold and Silver. No one is going to store 1MT of copper in his house. so the retail investor will be trading in future contracts. Which expire or need to be rolled over every month.

Retail investor has no synergy with these trades like big corporations have.  For small retail investor commodity trading is just speculative investment drive more by hope than by analysis.

I can just see retail investors loosing lot of money in near future. commodity cycles and fluctuations are driven by demand supply relations, unexpected events such as natural disaster, government regulations and in my opinion the relationship between all these is too complex to understand for small investor.

So now there come so called financial advisors. Retail investors keep blind faith on them and will invest in whatever the advisor says. This can give good returns but..yes there is this but. If advisor is not competent enough then retail investor will loose all the money.

Unlike dividends, right issues, bonus shares, coupons given by companies to their shareholders these commodity contracts earn nothing. So it is not good on part of commodity exchanges to do wide scale retail investors. Unless retail investors know what they are getting into what you will have at the end of the day a pool of failed investors and stagnant market till then cheers.

 

Signing off

Nikhil Parchure