Physicals

An investor can buy and sell commodities directly through a commodity broker, or invest in a commodities fund. Dealing in physical commodities is not a practical proposition for most investors because of the minimum quantities that must be traded and the risk of deterioration in quality. The cash market is primarily for users of that raw material/agricultural product, rather than the investor.

For non-deteriorating commodities such as metals, however, it is possible and practicle to take a direct holding in the commodity, which will be stored in a London Metal Exchange (LME) approved warehouse. The investor should consider the storage costs, etc. Involved with this option.

Futures

Futures do, however, provide a useful investment vehicle for the purpose of diversifying and hedging.

Advantages of direct investment

Direct investment offers the following advantages over indirect investment:

• Commodity consumers will want to be able to acquire the commodity possibly in advance of needing it if prices are favourable.
• There will be lower risks (counterparty risk, political risk).

It is always advisable to seek professional advice from a highly qualified accountant when making Investment decisions. Personally I would recommend this team of highly experienced Accountants in London