Commodity Market Vs Stock Market: Commodity market is a place where trading in commodities take places. It is similar to an Equity market, but instead of buying or selling shares one buys or sells commodities.
Difference Between Commodity Market Vs Stock Market.
| Commodity Market | Stock Market |
| In commodity market commodity or product have several varieties or grades & each lot in a grade may vary from other lots in the same grade. | In the 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 implication 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 the period of time. Quality also deteriorates due to improper storage & transport conditions. |
| The commodity market Future market has a much more basic role as compared 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 |
Advantages Of Commodity Trading.
- Commission: Selling or Buying of future contracts is much cheaper than trying to sell or buy the actual instrument.
- You can go short: A Trader/investor can profit from bullish as well as the bearish market. Even you can cover your position on the same day.
- Liquidity: Because of the existence of speculators in the Futures market. Futures contracts are practically liquid. The liquidity depends very much on the actual Futures contract being traded.
- No cut-offs: commodity Futures, they do not suffer from time decay as they are not expecting a particular strike price at expiry.
- Margin: Commodity futures work on margin, No need to the required total value of the contract to purchase Future contract. You can trade with small margin as per exchange guidelines. E.g You can trade with a small margin of Rs 10000 in 1 lot of Goldmini (Total Value is Rs. 500000).
Disadvantages Of Commodity Trading.
- Margin: Due to Margin available Its changes to lose your all investments if market prices go in opposite direction of your position.
- Risk of Physical Delivery: There is an actual risk of having to take physical delivery of the commodities. Imagine waking up one day to find a truck of soya or oil waiting on your doorstep! Actual physical delivery is not Happens. Most Futures contracts are just settled in cash once the tenure of the Futures contract has expired.
- Risky Business!: Many traders have lost money & the trade is regarded as an extremely risky venture. Trading in commodities has been regarded as something just for the experts.
Advantages & Disadvantages of Stock Trading.
| Advantages | Disadvantages |
| Work at home Low commissions. | High risk:- If a company goes bankrupt &you bought their stock your stock may be worthless. |
| Complete freedom No time bar. | Extra cost for brokerage services: Many brokers charge additional fees for trading penny stocks. |
| Make money in minutes No investment limit Quick returns. | Losses: Natural disaster, negative rumors, profit downgrade many factors can affect your share badly. |
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