Major difference between Equity and Commodity

difference between equity vs commodity

Equity is one of the financial products that refers to a share of ownership sold by the registered entity on a stock exchange in the stock market. It is an investment asset which represents the proportionate ownership held in the respective company or business entity.

Commodity refers to raw material or a primary agricultural product that can be either sold or bought. Examples are coffee, tobacco, wheat, and pulses, etc. These commodities are not traded directly in physical quantities but are traded through commodities as future and forward contracts. Their values depend on the value of the commodity at the time of trading. Both equity and commodity are investment vehicles. Value of equity depends upon the successful operation of the form. While the price of the commodity depends upon the demand and supply.

Commodities are undifferentiated goods and profit margins are purely focused on price changes, while equity is an investment which provides proportionate ownership stake made in the firm. The liquidity of the investment in equity is comparatively higher than that in the commodity market. Equity investments are long term and considered as an ownership interest in the firm. While commodities are bought and sold with the aim of profit through quick and short term trade cycles.

Another important distinction between the two is that most traditional equity traders sell only those stocks which they own. They never consider selling those stocks which they do not own. But in future commodity selling, it is very common that may not own that commodity which you sell. It is only a contract which would provide you ownership only at maturity.  

For every contract in commodity, there is always a buyer for every seller. For example for every trader that think that the price of cotton is going to a higher level, there is another trader who thinks the price is going on the lower side. This means that futures are always a zero-sum trade. This may also mean that for every gainer in the future market, there is a loser also. You can always find someone who is ready to take the opposite side of your trade. In most market situation, they are instantaneously available.

 

Know more about -> Types of Commodity Markets

 

On the other hand, in the stock market, you can buy as many stocks of any company which it is willing to cell. When you buy stocks of any company, you may hope that they will become more valuable in the future. However the value of the stock is based on the value of the company itself, it is, therefore, not guaranteed to remain the same in future also. In futures, the contracts have a specified delivery time in the commodity market.

It is very important that you should be aware of the expiry month of the contract. As the contract gets closer to its expiry date, the market will be gradually there are for buyers because only those traders will remain the market who actually needs the delivery of that commodity at the maturity of the contract. It is the foremost duty of any competent broker to keep you update about first notice and last trading dates. However, you can hold the stocks of any company as long as it is in existence. You can buy and hold on to the stocks as long as necessary to earn the desired profit.

 

 

 

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