How commodity traders can prepare themselves in the midst of rising inflation  

Inflation can be a bad or good thing depending on how you look at it. Knowing how trade and profit from commodities amidst high inflation is a great skill to protect your deposits and profit more.

High inflation rates lead to increased asset prices. These assets, including commodities, can make you a few thousands richer. But only if you understand how to trade commodities in such a situation.

This piece will explore how high inflation affects the commodity market, and how to be prepared as a commodity trader.

How Inflation Affects the Commodity Market

An increase in inflation rates results in some assets outperforming  others. Some of the assets that do this include commodities.

Commodities are assets where the price is commoditized. This means that the price of a certain commodity, such as Gold is the same in all locations. Gold is the most prominent commodity, and it has a long history of outperforming during high inflation.

Many investors believe that during inflation, paper assets such as bonds and even the dollar lose their value. However, hard assets such as Gold gain value.

When gold’s price increases, so does the price of oil, because the demand for transportation fuel will increase. This reaction also includes gasoline, which further increases inflation.

As the rate of inflation continues to increase, wages increase, and the demand for food increases, which drives up commodities.

Inflation in Hungary

The price of food products increased by 7.9% in Hungary. Other commodities such as Tobacco and spirits saw their price increase by 6.8%.

However, the country’s output from the industrial sector dropped by 8.1% in July. This was a 12.1% annual reduction in output.

The increasing inflation rate in Hungary has caused the price of commodities to plummet. Below we will provide a commodity trading guide for traders in Hungary.

Tips For Commodity Traders In Hungary

 Commodities are high-risk high-return investments. During high inflation periods, especially that accompany turmoil, commodities have always netted ROI’s.

Over the last 5 decades, whenever the level of inflation exceeds the median level, the annual growth rate of commodities reaches 22%. This increases stock losses and explains why many traders flock to commodities during high inflation periods.

Buy More Commodities

Since the price of several commodities in Hungary, including rice and corn, have begun to rise, take advantage, and purchase such assets. You can also purchase other assets including soybeans, oil, silver, and gold. You can purchase these assets using future contracts.

Future contracts are the obligation to buy a commodity at a certain date in the future on a regulated exchange.

Take advantage of the volatile situation.

During the high inflation rates period in Hungary, traders should take advantage because this increases the trading opportunities. Traders can benefit from upward and downward price movements.

Use Higher Leverage

Additionally, use leverage to boost profit. If you’re an experienced trader, you can consider doing margin trading to significantly amplify your profits. On the downside, however, this means you’ll increase your losses. Ensure you understand the risks and buy or sell commodities on trusted trading platforms such as eToro.

eToro offers a leverage of up to x10. This means you can trade with $1,000 with a $100 deposit.

Buy Inflation-Protected Securities

During high inflation rates, the value of securities increases. Historical data reveals that securities such as TIPS always outperform during high inflation rates. TIPS are bonds that increase in value with increasing inflation.

Take Advantage of Late Cycle Stocks

Every business goes through several phases. These phases include:

• Early cycle
• Mid-cycle
• Late Cycle
• Recession

The rate of inflation begins to increase during the late-cycle. Certain commodities will outperform during this period. More specifically, these commodities include the energy and materials sector.

In most cases, oil’s price rises. As the value of commodities increases, companies that produce these materials also experience an increase in value. 

Conclusion

Commodities increase in value during periods of high inflation. The current inflation rates in Hungary may be a chance for traders in the country to benefit immensely. The price of many food products has increased by 7% in Hungary, and commodity traders can apply the strategies recommended to earn more profits. One of these strategies is buying more commodities to benefit from the high ROI of each commodity.