When you invest in equities, you become the owner of the company proportional to the value of shares and expect your money to grow with the company’s growth. On the other hand, when you invest in commodities, you become the owner of the commodities and expect your money to grow with the value of the commodity.
We have all heard about Equities and Commodities, but how are they traded in the Stock Market? Is there any difference between Equity and Commodity? How to Invest in Equities and Commodities?
All these questions will be answered in this easy to understand article.
Content:
- Equity and Commodity Meaning
- Equity vs Commodity
- How to Invest in Equities & Commodities
- Difference between Stock Market and Commodity Market
- Difference between Commodity Derivatives and Financial Derivatives
- Quick Summary
Equity and Commodity Meaning
Equity Meaning in Share Market
An Equity is a part of the ownership of the company that is issued to the general public to raise capital. So when you buy Equities of a company, you become the owner of that company proportional to the value of shares. Purchase of Equities entitles you to special benefits like profit-sharing, dividends, voting rights, and the risks associated with them. But when you do intraday trading in equities, you will not be entitled to such special benefits.
Learn how to buy shares online!
Commodity Meaning in Share Market
In simple terms, a commodity is a product that is used in your daily life like Cotton, Black Pepper etc. or, a commodity can also be something valuable like Gold, and Silver. So you can invest in commodities like Gold, Silver, Cotton, Black Pepper, etc. just like how you invest in stocks of various companies.
Learn about Commodity Trading.
Equity vs Commodity
When you invest in equities, you become the owner of the company proportional to the value of shares and expect your money to grow with the company’s growth. On the other hand, when you invest in commodities, you become the owner of the commodities and expect your money to grow with the value of the commodity.
| Equity | Commodity | |
| Instrument | Physical Shares, Futures & Options. | Physical Commodities, Futures & Options. |
| Exchange | NSE & BSE | MCX |
| Duration | You can buy equities and keep them with you for a month, a year, or a decade and later sell them. | Commodity Contracts expire every month. That means the value of futures or options contracts will go down to zero every month. |
| Volatility | Equity Markets are comparatively less volatile. | Commodities are highly volatile. |
| Risk | Comparatively less risky. | High risk. |
| Dividends, Bonus Shares, Voting Rights | Equity investors enjoy all these extra benefits. | Commodity investors do not receive these benefits. |
| Expiry | Equities do not have an expiry date. Note: Equity Futures & Options do expire every month. | Commodity Futures & Options expire every month. |
| Margins | Low margins. | High margins. |
| Trading Hours | 9:15 am to 3:30 pm from Monday to Friday. | Precious Metal, Base Metal, and Energy Commodities: 9.00 am to 11.30 pm from Monday to Friday. For Agri commodities: 10.00 am to 5.00 pm from Monday to Friday. |
| Factors affecting the movement | Company Results, News, Economic Reforms, etc. | Usually based on the demand and supply of commodities. |
| Suitable for | Long Term & Short Term | Short Term |
How to Invest in Equities & Commodities
You can invest in Equities via Cash (i.e. normal investment) or via Futures & Options Contracts. And you can invest in Commodities only via Futures & Options Contracts.
So what are futures and options contracts?
Futures and Options contracts mirror the prices of the commodities depending on the supply and demand. For instance, let’s say you want to buy Gold, if the demand for Gold increases, the price of Gold Futures & Options will increase proportionally and if the demand decreases, the price of Gold Futures & Options will decrease.
Difference between Stock Market and Commodity Market
Stock Market is an electronic platform where companies issue shares to the public. Apart from that various instruments like Futures & Options, ETFs, Mutual Funds, Debentures, etc. are traded in the Stock Market.
On the other hand in commodity markets, only futures & options of commodities are traded.
Learn the difference between Futures and Options Trading.
Difference between Commodity Derivatives and Financial Derivatives
Derivatives are nothing but Futures and Options. They represent the value of the underlying asset. The only difference is, Commodity Futures & Options represent the value of commodities and Financial/Stock Futures & Options represent the value of Stocks.
We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, and hence we bring you the important topics and areas that you should know:
Quick summary
- Equity is the part of ownership of the company that is issued to the general public to raise the capital.
- Commodity is a product used in your day to day life like cotton, gold , silver etc .
- Difference between equity and commodity: When it comes to equity physical shares, futures and options are used as instruments while in commodities physical commodity, futures and options are used as instruments.
- You can buy equities and keep them as long as you want and sell them later but commodity contract expires every month .
- Equity market is comparatively less volatile than commodity market.
- You can invest in equity via cash or futures and options contract.
- Stock Market is an electronic platform where shares are issued for public while in commodity market only futures and options are traded.
- Derivatives are nothing but futures and options but commodity futures and options represent the value of commodities.
