Commodity Risk Definition
When it comes to investing in commodities, there are a variety of risks that need to be considered. Here, we take a look at what commodity risk is and some of the key factors that can affect it.
Commodity risk is the chance that an investment will lose value due to changes in the price of commodities. This type of risk is usually higher for investments that are more reliant on commodities, such as commodity-based ETFs or mutual funds. However, even if you don’t have any direct investments in commodities, you may still be exposed to commodity risk through other investments, such as stocks in companies that produce or use commodities.
There are a few key factors that can affect commodity prices and, as a result, your exposure to commodity risk:
Supply and demand: A change in the supply or demand for a particular commodity can have a big impact on prices. For example, if there’s an increase in demand for oil but no change in supply, prices will go up. On the other hand, if there’s an increase in supply but no change in demand (say, because people are using less oil), prices will go down.
A change in the supply or demand for a particular commodity can have a big impact on prices. For example, if there’s an increase in demand for oil but no change in supply, prices will go up.
