Difference between Stock market & Commodities
Although Stocks and commodities are traded on open exchanges most weekdays, they are two very different types of investments.
Stock Market and Commodity Market
The stock and commodity market is a financial exchange where various products, such as stocks and commodities, are bought and sold. The main function of the stock and commodity market is to allow individuals or companies to raise capital that will be used for expansion needs such as manufacturing, marketing, or research. So, what’s the difference between the stock and commodity market?
The stock and commodity markets are quite different in terms of trade. The stock market is a term used to refer to a financial market where securities such as stocks and bonds are bought and sold. On the other hand, a commodity market is a market for commodities like crude oil, wheat, corn, etc. There are many ways to trade in the stock and commodity market, including buying and selling directly, through a broker or an exchange, or using options.
Stock and commodity markets are also different in terms of risk. The stock market can provide investment opportunities for people willing to take the risk, while the commodity market provides stability. The stock market has brokers and other financial services to help investors, whereas the commodity market is based on the supply and demand of commodities. Stock markets start with investors who are willing to take risks. As such, they need funds for investment so as commodity markets where participants invest their money in those without taking any extra risks.
Buying and selling of futures contracts with publicly traded commodities.
A strong knowledge of fundamental analysis, technical analysis and a good understanding of market forces that pushes the prices are required for trading and investment.
We need to find the right organizations, analyze their financial status in detail and make a choice to buy the stock at a modest price.
The performance of the company, its promoters determine the basic price of a stock.
Acquisitions, mergers, bonuses, splits, dividends, etc. are involved in which have no direct control.
There is less dependency on human beings in the case of commodity markets, as the basic commodities are natural resources like gold, silver, crude oil, metals, etc.
The demand and supply is global and the prices of commodities are more likely to remain constant across the world.
Equities do not influence an individual’s day to day life as do commodities.
There is more concern about the prices of crude oil than they are about the price of a particular stock.
The trends in a stock market are subjective and less viable as compared to commodity trends which are more predictable and long lasting.
The impact of international political changes is more in stock market compared to commodity markets.
There may be changes in the supply and demand levels in the commodity market due to natural disasters whereas there may be no impact on equity market.
Large volumes are traded in both markets but the commodity markets do have an margin in terms of measure traded.
A balanced portfolio with stocks and commodities in suitable proportions is required for traders to earn and make wealth.
Basic stock investing comprises buying and selling of publicly traded shares.
We can hire a brokerage and pay fees for portfolio management.
We can also analyze and invest through any online self-service brokerages.
In order to make money, Individual investors, retail buyers, large mutual funds and even other companies invest in stocks.
Major public stock exchanges, including the New York Stock Exchange and Nasdaq, combined with a high volume of traders, make stock investing fairly liquid.
As a trader, we can get into and out of stocks within a few days or even on the same day as a day trader.
The physical goods produced in large quantities and easily distributed. This allows stable investment activity.
Some of the products traded through commodities exchanges are minerals such as gold and silver, crops such as soybean and wheat, and various livestock.
The future increases or decreases in the value of goods relative to the present-day value is the expectation of Investors in decision making.
Commodities are traded through futures contracts.
Investors buy or sell based on expected price points in the future.
Commodities are traded on margin with little of the actual transaction amount being held in the traders account at the time of purchase, according to the Street. This is contrast to stocks.
With margin trading, traders will often invest much more than the value of their accounts. Sharp movement in prices leads to a high risk-to-reward proposition.
Futures contracts are often used by farmers, producers and other agribusinesses.
This is to combat against potential losses stemming from actual business activities.
If producers are concerned about actual prices of a crop dropping before distribution, for example, they can trade in futures contracts to lessen losses.
|In Commodity market, commodity or product have several varieties or grades & each lot in a grade me vary from other lots in same grade.
||In Stock Market, one unit of a security does not differ from another of the same type in term of its face value & Characteristics.
|Commodity deliveries therefore have far greater implications for Buyers & Sellers than mere payment or receipt of contractual price, as in the case of Buying or Selling of securities.
||One unit of securities does not deteriorate of period of time. Quality also deteriorates due to improper storage & transport conditions.
|Commodity market future market has much more basic role as compare to stock market.
||In Stock Market derivatives is a product/contract which does not have any value on its own. It derives its value from an UNDERLYING Asset.
|Commodity supply is not fixed.
||Its supply is almost fixed.