What is the difference between equity & commodity trading?

The stock market offers various avenues for investment. Shares and commodities are the two most common investment options that investors select to earn returns. Using an open equity trading account, investors can start investing in equity shares and get benefits like capital appreciation and dividends. Commodity investment and trading, on the other hand, help investors earn profit using short-term price fluctuations.

What is a stock market investment?

Stock market investment helps investors select shares listed on the stock exchange and make an investment for both the short term and the long term. Investors through stock investment become shareholders of the company and get returns through stock piece appreciation and dividends. The stock prices are influenced by the economic conditions and overall profitability of the company itself.

What is commodity trading?

Commodities include gold, silver, natural gas, and other agricultural products like wheat, coffee, and sugar that investors can trade in through multi-commodity exchange in India. Investors can buy and sell commodities through a commodity trading account and earn profits by taking the benefit of price fluctuations. Moreover, commodity trading takes place in two formats:

Spot market: Traders buy and sell commodities for immediate delivery in the spot market to take benefit of price fluctuations.

Future market: Traders enter into a contract of buying and selling commodities at a future date at a predetermined price. They speculate based on price fluctuations, and movements allowing traders to earn profits.

How are share and commodity trading different?

1. Underlying asset:

Share market trading involves investment in securities i.e. shares of companies that are listed in the stock exchange. Investors upon investment in shares become shareholders of the company listed and get access to all the necessary information.

Commodity trading, on the other hand, involves investment in assets like physical goods and raw materials. Gold, silver, oil, and wheat are some commodities that investors invest in as part of commodities trading.

2. Factors influencing price:

The economic conditions and profitability of the underlying company influence equity market prices. Company earnings, mergers, acquisitions, revenue, and other aspects determine the stock price.

Commodity prices are determined by the supply and demand metrics, weather conditions, and other macroeconomic factors like inflation.

3. Risks

Stock prices tend to be volatile and depend on the company's earnings and other economic conditions. Various internal and external factors influence the stock prices. However, in the long term, investors can achieve growth and get returns.

Commodity trading is risky as their prices fluctuate heavily due to various unforeseen circumstances and factors like wars, famines, geopolitical tensions, etc. The prices can swing in the short-term making it a risky investment in the long run.

4. Investment duration:

Investors invest in stocks and securities for the long term to benefit from increases in price and dividend payouts.

Commodity trading is a short term where investors take the benefit of short-term price fluctuations to earn products.

5. Ownership:

Investors in stock market trading become shareholders of the underlying company.

In commodity trading, investors do not hold any commodity in physical form. They trade on price movements and their near-time fluctuations.

Conclusion

Equity and commodity trading are different in various aspects. Investors can select the best avenue for investment depending upon their risk tolerance, and ultimate financial goals.