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Add to FavoritesThere are many investment instruments that are available in the world of finance. Economy had evolved and capital driven markets are the most popular in the recent years. Most of these investment instruments are usually co-related with the market data like certain sector indexes, currency prices and commodity prices.
Among all these investment opportunities, there are some very risky ones and two of the most risky of all, above bonds, stocks and funds are commodities trading and forex. As you know the current market are very volatile, more and more investors are moving their money else where and just tipping their toes into stocks in the hope for some form of diversification.
From my perspective, I believe that Forex or also known as foreign exchange is riskier as compared to commodities trading. In commodities trading, if you were to look at the moving averages and RSI movement, you would find that the moving range is not as large as how currencies move. However, it only applies to certain currencies which are more frequently traded like USD against major currencies.
Apart from the huge movement pips, currencies are more related to news. For example, a federal rate cut will affect USD almost definitely which brings your investment decision to a point. However, following news may not necessary be profitable as many of such news were made known to the institutional investors at an earlier time, so the position that you took may be the position that they dumped. Forex is hard to grasp, on one hand, it should be more predictable and on the other hand it is like almost an impossible chart to read due to the massive movements. That is different for commodities trading which is more largely due to demand and availability. Of course, if you were to invest in crude and gold, by now, you should be rewarded handsomely already. Major hike in commodities price had brought a new phase of investing opportunities. But if you were to look at the price movement, although similar to the movement of Forex, the level of risk is lower because it is less unpredictable.
Last but certainly not least, Forex is exposed to export and trade figures. If your currency is relatively controlled and lower, your export will be more viable and on the other side of the coin, if your currency is too low, it becomes worthless. A dedicate balance is needed for currency pricing and range. You may be buying something that already is going down or rather the opposite direction. Most of the time, Forex are more speculative in nature which is somewhat the same as commodities. But in terms of commodities, you are able to get the actual stuffs. That makes investing in commodities a more viable investing solutions for companies dealing in that specific commodities.
It is your choice at the end of the day, which is more riskier for you. It is always the old saying, 'Caveat Emptor'.
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Commodity
Forex trading will always be the more volatile when compared to commodities trading. Now both are extremely risky, but commodities trading is a little easier to judge. See some commodities can be tracked by things they are related to. For instance you can track beef commodities by looking at the stocks for major grain companies, or vice versa. Also most commodities trading is done nationally. Some exportation does account for some of the numbers, but for the most part the numbers reflect domestic usage. This means that by studying the local markets, or one or two foreign markets that consume the commodity you are trading, you will have a better understanding of that commodities market. Forex, however, is entirely 50/50. Half of your trade is focused on the value of a currency in one economic microcosm, and the other half is based in a totally separate economy. Most pairs are trading in currency that you won't even be using. For example, a person in the US might trade a pair that is Yen/Euro. Meaning that they are either selling yen to buy Euro's or selling Euro's to buy Yen. Knowing the value of money in your own economy can be a full time job for some, but trying to figure it out for two economies that you aren't even a part of is down right confusing. You must also remember that every countries economy and monetary system is related to it's politics. If Japan goes to war with Russia, both economies will be effected, and it's hard to say which one would come out on top. Not to mention that each country can control the type and quantity of media information that comes out of it. North Korea is a great example of this. Not even foreign made movies are allowed into the country. So the only information that you have about the political and economic standing of the country, is the information that they allow you to have. At least with commodities trading, your economy is probably a participant in the trade, and you should have some idea as to the general health of your own economy. Most commodities trading is conducted though reputable boards or exchanges, forex is still a relatively unregulated and fractured industry. Not to mention the fact that you can gage the general value of a commodity, but a currency is harder due to many countries operating on a "fiat" system. Commodities offer a risky trade, but they are also based on concrete goods, and are usually easier to gage because of the relatively limited number of economic considerations in play. Forex will always be riskier due to it's lack of regulation, multiple economic concerns, and fluidity of political risk.
Learn more about this author, Christopher Johnson.
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