Identify a primary risk associated with trading in commodities.

Trading in commodities is inherently linked to market volatility, which is characterized by significant price fluctuations. This volatility can arise from various factors, including changes in supply and demand, geopolitical events, weather conditions, and economic data releases. As prices can swing dramatically over short periods, traders are exposed to the risk of buying commodities at a high price and later facing substantial losses if prices fall sharply.

Understanding that this price fluctuation is a primary risk allows traders to develop strategies such as hedging to mitigate potential losses. Unlike administrative costs, which are generally fixed and predictable, or concerns about overregulation, which tend to affect the overall trading environment rather than the immediate financial outcome, market volatility has a direct and immediate impact on trading performance. Furthermore, while unfavorable interest rates might affect financing conditions, they do not represent a risk unique to commodity trading, making market volatility a more prominent risk factor specific to this field.