Difference between Equity vs Commodity

The financial market consists of various instruments through which the investor invests his money and tries to make a profit. These (Equity vs Commodity) include equities, derivatives such as Forward, Futures and Options, Commodity Trading, Forex etc. Each instrument has its own set of features, rules and benefits that provide a limit. Investors choose instruments and make profits based on their set of risk and holding capacity.

Most investors track the company’s performance and any specific ongoing activity that may affect the performance / management of the company, mapping the extent of that company’s equity. The equity share price movement provides the basis for the majority of market-related activity. Investor confidence, lending, F&O movement, company growth, competitiveness, etc. are decided by equity price movement.

Equity

In the term of the common man, equity means the common stock of the company. It is listed on the stock exchanges so that it can be easily traded in an authorized manner. Also, equity provides ownership to share holders, share market share is important because shareholders will directly participate in the company’s management and strategic decision making.

Commodity

A commodity is a raw material or primary agricultural product that can be bought and sold in the market. Commodity trading takes place in 2 ways:

Physical delivery
By cash settlement
In general, settlement by taking delivery is done by traders who risk day-to-day transactions in that particular commodity. So they would hedge themselves by purchasing the commodity at forward rates for a specified date and eventually they would do physical distribution for their daily needs in the business.

The second type of settlement in cash is a kind of speculative. Any person, based on their tendency to price movement in a specific direction in a given time frame, will enter into a transaction for a specified date of the future. On the specified date, the difference between the contract price and the actual price will be settled in cash. It is nothing more than manipulating the market based on the instinct of price movement.

Significant Difference between Equity vs Commodity

Equity shares are usually listed and traded on stock exchanges such as National Stock Exchange and Bombay Stock Exchange etc., while commodities are listed and traded on stocks like Multi Commodity Exchange, National Commodity and Derivatives Exchange etc. on stock exchanges.

Equity markets are less volatile as trades can also be conducted in a single part, while commodity markets are highly volatile as trades are held in very large sizes.

Equity markets are less risky as there is less volatility, commodity markets are highly volatile as they are highly risky.
Equity contracts have no expiry date, while commodity contracts always have an expiry date that should be settled.

Equity contracts only require an investment of market value, while commodity contracts require an investment of margin requirement that changes based on changes in value.

Equity market has higher liquidity than commodity market because investment is very size.

The holder of equity instruments is considered the owner of the company, so it enjoys all the privileges such as dividends, voting rights etc. However, such instruments are not available with the holder of the commodity instruments.

Conclusion – Equity vs Commodity

Equity vs. commodity markets are very different from each other. Both equity versus commodity have their own peculiarities, characteristics and investment conditions. From the market point of view, it is advisable to have a balanced approach to investing. However, if one is not investing more with the market and at an early stage, one can start with equity markets and start their investment cycle.

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