Minimize Risk and Maximize Tax Benefits with Commodity Trading
Posted: Sep 18, 2014
Trading and investment are seen as lucrative ways to earn money and enhance monetary wealth in the long run. Different ways of trading and investing offer varied levels of risk and return. Generally, higher the risk, greater is the return on investment and vice-versa. Many people are risk averse while some others may be willing to take much more risk in order to yield higher returns. One of the most popular investment options is commodity trading which entails the buying and selling of commodity in an international market also known as a commodity market. In this market, trade is conducted on primary goods such as wheat, coffee, and sugar, to name a few examples. There are two types of trading in the commodity market, the first is physical trading and the second is based on future contracts. Future contracts include options trading. An option is a contract in which a buyer gives the right to buy or sell an underlying asset or instrument at a specified price on or before a specified date.
If the buyer exercises the option, he or she can sell that right to another seller at a premium. A premium denotes the price of purchasing the option or contract. There is no obligation placed on the seller or buyer to sell or buy the option. Unlike stock trading, wherein the seller must sell the trade, in commodity trading there is no obligation. In fact, the contract can remain unused until it is expired in case an option holder does not wish to sell it to anyone. This minimizes risk to a significant extent, provides leverage and even insurance. An option seller is also commonly known as the writer of the option. It is imperative to understand that when you purchase or sell option you are not actually purchasing or selling any assets. The contract only highlights the agreement to buy or sell the asset. The actual value of the option lies in the value of the underlying asset or instrument.
Another advantage of such type of trading is that a seller need not sell the option till he or she is comfortable in doing so. The option holder can analyze the market, assess the risk, understand the direction the market is heading toward and then only sell the option at the right time. Due to this unique non-obligation feature, risk is minimized but profit is still unlimited. This international market also makes it easy to trade in different countries. You can easily trade options in Costa Rica, for example, and spread risk across various countries. However, as fruitful as this type of investing sounds, it is essential to engage professionals in order to maximize benefits of trading in international markets. Many trading companies pay top dollar in order to research and understand where the market is heading. These experts know where profits can be earned, what options yield highest return on investment and the suitable time to buy or sell options. You can easily find such companies online and many of them specialize in trading in Costa Rica.
Travis Matthews is the author of this article on BerkleyFX.