Equity Vs Commodity

August 3, 2023

Equity Vs Commodity

When you buy equity, you buy a part of a business and a chance to make money from it. On the other hand, commodities are things that everyone needs, like gold, oil, or food. When you buy commodities, you are not buying shares in a company. Instead, you are betting on how the price of the physical good will change. 


What Is Equity Market? 

The equity market, often called the stock market, is a platform where buyers and sellers trade shares of publicly-listed companies. Beyond just the exchange of shares, the equity market is significant as it:

  • Provides companies with capital for expansion by selling shares to the investing public.
  • Offers investors a chance to have partial ownership in the company and thereby participate in the company’s profits.
  • It serves as an indicator of the economy’s health, as it reflects investor sentiment and market confidence.

Learn how to buy shares online!

Commodity Meaning In Share Market

In stock markets, commodities are basic, interchangeable goods or raw materials, often used in manufacturing. These commodities, classified into four categories, include agricultural products (e.g., corn, coffee, sugar), livestock and meat (e.g., live cattle, pork), energy resources (e.g., crude oil, natural gas), and metals (e.g., gold, silver, copper).

Commodity trading influences global economy by driving price discovery, allowing portfolio diversification beyond typical securities, and providing inflation protection as commodity prices often rise with inflation. It also offers insights into economic health through supply and demand shifts. Trading can occur through futures contracts or commodity-related stocks.

Learn about Commodity Trading.

Difference Between Equity And Commodity

Commodity trading influences global economy by driving price discovery, allowing portfolio diversification beyond typical securities, and providing inflation protection as commodity prices often rise with inflation. It also offers insights into economic health through supply and demand shifts. Trading can occur through futures contracts or commodity-related stocks.

OwnershipRepresents ownership in a company. Shareholders hold equity and have voting rights.Represents physical goods or raw materials. Ownership is in the form of contracts or derivatives.
RiskSubject to market and company-specific risks. Factors like financial performance, competition, and regulatory changes impact equity prices.Subject to supply and demand dynamics. Factors like weather conditions, geopolitical events, and global demand influence commodity prices.
Trading LocationTraded on stock exchanges. Examples include NYSE, NASDAQTraded on commodity exchanges. Examples include Chicago Mercantile Exchange (CME), London Metal Exchange (LME)
Pricing MechanismDetermined by market demand and supply for shares. Prices fluctuate based on investor sentiment, financial results, and other market factors.Influenced by global factors like weather, geopolitical events, and overall demand. Prices can be impacted by supply disruptions, changes in consumption patterns, and government policies.
DividendsShareholders may receive dividends based on company profits. Dividends are a distribution of profits to shareholders.No dividends, but investors may earn income through price appreciation when they sell commodities at a higher price than their purchase price.
Market RegulationGoverned by securities and exchange regulations. Regulatory bodies monitor and enforce compliance with trading, reporting, and disclosure requirements.Governed by commodity market regulations. Regulations ensure fair trading practices, set position limits, and oversee delivery and settlement procedures.
Investor ParticipationOpen to retail and institutional investors. Investors can buy and sell shares on stock exchanges, often with the assistance of brokersOpen to retail and institutional investors. Investors can trade commodity contracts or derivatives, requiring specialized knowledge or the assistance of commodity brokers
ExamplesStocks, shares, and mutual funds. Examples of equity investments include Apple Inc., Microsoft, and S&P 500 Index fundsExamples of commodities include gold bullion, crude oil futures, wheat futures, and natural gas contracts

How To Do Commodity Trading?

Commodity trading can be a lucrative investment strategy when done right. Here are the steps to get started:

  1. Educate Yourself: Understand the basics of commodity trading, available commodities, and factors affecting their prices.
  2. Choose a Reliable Broker: Select a broker like Alice Blue that provides access to commodity markets, reliable trading platforms, and good customer support.
  3. Open a Trading Account: Complete the KYC process and open a trading account.
  4. Understand the Market: Monitor market trends, read commodity reports, and stay updated with global news impacting commodity prices.
  5. Start Trading: Buy and sell commodities through your trading platform. Ensure to use risk management strategies to limit potential losses.

Learn the difference between Futures and Options Trading.

How To Do Equity Trading?

  • You can start equity trading by associating with a reputable broker, like Alice Blue, to access advanced trading platforms and exceptional customer support.
  • Next, you need to set up a Demat and Trading account, which is needed to hold shares and trade them. When you have these accounts, you can buy the stocks at the price you want.
  • It’s crucial to conduct thorough research and analysis on company financials and industry trends before initiating any trades to mitigate risks and increase potential returns.

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:

Market What is Primary Market?
Difference between IPO and FPO
Bull vs Bear Market
Trading What is Online Trading?
What is Algo Trading?
Investment What is Bonus Share?
What is Valuation of Shares?
What is Corporate Action?
Debenture Meaning
Difference between Equity Share and Preference Share
Analysis Stock Market Analysis
Individual Topics What are CTT & STT Charges?
India Vix
Difference between FDI and FII
Account What is Trading Account
What is Demat Account

Difference Between Equity And Commodity – Quick Summary

  • Equity represents ownership in a company, offering the shareholder a claim on part of the company’s assets and earnings. Conversely, in financial terms, commodities are tradable assets that are often the building blocks of other goods and services. Investing in commodities is not about owning a piece of a company, but about speculating on the price of the underlying asset such as gold.
  • The equity market is a platform where buyers and sellers trade shares in listed companies. Conversely, the commodity market deals with buying and selling of gold, silver, copper, platinum, etc.
  • While equities can generate income through dividends and capital appreciation, commodities only provide returns via capital appreciation.
  • Trading in commodities, though potentially profitable, requires an understanding of market trends, and global news.

Equity Vs Commodity – FAQs

1.What Is the Difference Between Equity And Commodity? 

The main difference between equity and commodity lies in their nature. Equity refers to shares issued by a company, giving the shareholder a claim on the company’s earnings and assets. Commodity, however, is a basic good used in commerce that is interchangeable with other goods of the same type.

2.What Is Equity And Commodity Trading? 

Equity trading involves the buying and selling of company stocks in the stock market, while commodity trading deals with the exchange of gold, silver, platinum, etc.

3.Which Is Better Equity Or Commodity? 

Both equity and commodity investments have their unique advantages and risks. Equity investments can provide dividends suitable for long-term growth, while commodities can act as a hedge against inflation and volatility. The choice between the two depends on an individual’s financial goals, risk tolerance, and investment strategy.

4.Is Mcx A Commodity Or Equity? 

MCX, or Multi Commodity Exchange, is an exchange like BSE or NSE. But unlike BSE or NSE, where equities are traded, MCX is an exchange where commodities are traded.

5.What Are Examples Of Commodities? 

Commodities include physical goods like gold, silver, crude oil, natural gas, and agricultural products like wheat, cotton, corn, etc.

6.Is Gold An Equity Or Commodity? 

Gold is a commodity. It’s a physical asset that can be bought, sold, or traded in the commodity market.

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