Stock Market has always been one of the major investing booths worldwide. Brokers, traders, experts, bankers, investors, and shares. They are all involved with each other in an enormous cycle every single day while trading and this goes on until the market closes for the day. However, if you are looking to get into the market of trading and investing, you need to know that the equity market is not the only market you need to focus on. There are many other financial markets available to you for options, you can choose from. A lot of classes of different assets can be your target to have suitable trading and investing business.
Such one instance is the commodity market. Although, both the stock market and the commodity market function in a very similar way, they deal with different trades and products and still have their differences. The economy as a whole offers us a wide variety of areas to select and get our money turned into better profits. Even so, it is crucial to know what should be the better avenues for your capital investments that would maximize the reward.
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Dynamics of Trading
While the stock market deals with the shares and ownership of companies and assets of finance, commodities on the other hand deal with all sorts of commodities and products that we use in our daily lives like oils and metals, and other agricultural products. Moreover, these markets may be slightly different but these both provide and offers the investors to have a sizeable amount of profitable investment. However, the trading for both of these markets has different market places that shelter the brokers, traders, and investors. Hence, it is important to know the difference between both the markets, and reading further will help you to get a clear idea of your decision-making strategy.
What is a Stock Market?
The term as we call it, stock market, specially refers to the two market and trading places that are –the Bombay Stock Exchange and National Stock Exchange. And stock market as a whole refers to an exchanging trade and financial place where you can buy and sell the shares of a company. However, the company should be listed in the market to have its shares and stocks traded. These shares and stocks are nothing but the company’s overall equity units. In some places, a stock market is also known as an equity market.
While the whole investing process is coming along, a person can sell the stocks that he bought whenever he wants to after purchase. It might be on the very same day, maybe after ten days or maybe even a year. It all depends on the plans they have for making their profits and on how they want to trade in the waters. The investors of the stock market first need to create a DEMAT account to proceed with the trading. And the holder in the equity market is known as the shareholder of the particular company.
What is a Commodity Market?
A commodity market refers to and is known as a marketplace that allows the investors and buyers to buy, sell and trade the raw materials and the primary commodities. Now, commodities can be classified into two structured products and categories, those are – hard commodities and soft commodities. However, hard commodities are the commodities that need to be mined before being sold like oil, gold, rubber, etc. While soft commodities are the commodities that can be called raw materials like cotton, corn, soybean, sugar, coffee, wheat, and many more such products.
Let’s get to know now, how exactly a commodity market works. Commodity markets allow the producers and consumers of the commodities to have access to them for trading in a centralized and liquid manner. The investors and actors of these markets can control the demand and supply and consumption through commodity derivatives and hedging for plans. Speculators, both large and small, and the commercials all play a crucial role in the Commodity Market. In India, the FMC is the Forward Market Commission and is responsible for all the regulations held in the commodity trades and exchanges.
Stock Market Vs Commodity Market
Let’s get to know the difference and distinction between the aforementioned markets with certain parameters to guide us and to help us understand the categorization better. The very first parameter among all would be the time frame. Because we know that the commodity market mostly executes the transaction through a futures contract, it is wiser to do short-term horizon trades and exchanges. While, the stock market is suitable for making the trade happen in both the long and short term, depending on the financial objective of the investor. He can go on with his trade for a day or ten years as he wants.
Then we would like to bring to your notice the parameter of volatility. When the comparison is done, it’s resulted that the commodity market is more volatile than the stock market. This is so because the commodity market is more sensitive and gets affected by the whole dynamics of the demand, supply, consumption, and geopolitical views of a product. While a stock market has nothing like that to affect its nature and its process of working. And because of being more volatile, a commodity market is also a riskier one as compared to the stock market is less risky because of less volatility.
It is crucial to know about both the markets before you decide to invest in any one of them. Both the markets have some similarities and differences, but always remember that both of them can give you a better reward if traded mindfully. It is also vital to study and analyze the difference between both the markets so that you know what you are getting yourself into, without any confusion clouding your senses. And now, that you are aware of things and differences and ways of how both the market works, try your luck and get the results you seek.