Commodity Markets vs. Equity Markets in India

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Commodity Markets vs. Equity Markets in India

Date: Oct 13, 2022 | Time: 09:39:00 PM | Author: Editor News

For investing in the financial market, you may choose any sort of instrument that interests you, which could range from crude oil to precious metals like gold and silver. Apart from these commodities, you could also consider equities are favourable assets seen as an investment in the present market of the country. Unlike equities, based on their purpose for portfolio diversification, the top commodity for every investor today might be gold, oil, or any other raw material product. The very structure of the commodity market is different from that of the equity market, especially in a country like India. Other than this, there are numerous other key differences between the two. They are listed below.

Based on Volatility

The volatility of the equity market is much lower than that of the commodity market. Depending on the attitude of the current market, the state of the economy and the company's other underlying fundamentals the stock price of the company tends to change. The extent to which the price fluctuates in equities is significantly less volatile due to the continual change in pricing. When you are dealing with the equity market, the occurrences such as economic shifts are predicted and included in the share price. That particular bust or boom will only have a considerable impact on the price of the equity.

The demand and supply dynamics closely connected with the Commodity market make them very volatile. Unexpected events such as war, riots, man-made calamities, and natural disasters have an impact on the supply and demand chain. Moreover, wide variations will be created in the commodity prices in such unfortunate instances. The market will not necessarily be equipped to cope with these unforeseeable occurrences of rapid change in supply and demand.

Based on Trading Hours

Equity trading is accessible from 9.15 a.m. to 3.30 p.m. daily, whereas commodities’ trading is open from 9.30 a.m. to 6.30 p.m. daily. Yet another difference is that distinct kinds of exchanges trade stocks and commodities. Stocks are traded on the NSE and BSE in India, while commodities are traded on the Multi Commodity Exchange (MCX) or NCDEX.

Based on the prices

Commodities are often determined by international pricing. For instance, most liquid commodity futures in India, such as gold, silver, crude oil, copper, and zinc, are influenced by global variables. Domestic and company-specific variables drive equity more.

Based on Purpose

Equity trading is used to produce money, while commodities trading is used to hedge against unfavourable fluctuations. Equities are sometimes used for hedging. Nevertheless, the main purpose is to make money by investing in high-potential firms. Commodity producers adopt commodity trading to safeguard themselves against price fluctuations. They lock in a fixed price for the commodity through future contracts.

Based on ownership

Equity gives you ownership as well as other advantages such as stock splits, bonuses, dividends, rights and buybacks. Or in other words, the assets of the company are possessed by the traders. An investor who purchases equity securities obtains a stake in the listed firm. Unfortunately, this is not the case with commodities trade.

There is no company in the commodities market, and no commodity is purchased. Rather, traders invest in future contracts that represent the value of the commodity. These future contracts are rarely owned.

Bottom Line

When compared with Commodity trading, Equities demand thorough investment decisions. As already mentioned, the functioning of the other relies upon the demand and supply fluctuations. Anyhow, as per the risk appetite, one could opt for the market that suits them. Commodity markets are the suggested ones for those investors looking for short-term gains, whereas equity investments are the best for long-term investors.

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Commodity Markets vs. Equity Markets in India

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