Difference Between Equity and Commodity Trading | 5paisa (2024)

FAQs

What is the difference between commodity trader and equity trader? ›

Commodity market runs on demand and supply forces whereas equity market is dependent on the performance of a company and general macroeconomic conditions. Risk tolerance is necessary when investing in any of the two markets since both involve a certain amount of risk.

Commodities represent raw materials or agricultural products traded in standardized quantities, while equities represent ownership in companies. Commodities are driven by supply and demand dynamics specific to the commodity, while company performance, industry trends, and market sentiment influence equities.

Because the supply and demand characteristics change frequently, volatility in commodities tends to be higher than for stocks, bonds, and other types of assets. Some commodities show more stability than others, such as gold, which also serves as a reserve asset for central banks to buffer against volatility.

Choosing between equity vs commodity

Choosing between the two — equity vs commodity — trading largely depends on your risk appetite. Equity investment is more likely to suit long term goals while the commodity market can be a better choice for investors eyeing short term gains.

The four leading privately-owned energy traders — Vitol, Trafigura Group, Mercuria and Gunvor Group — have made combined net profits of more than $50 billion in the past two years, according to Bloomberg News calculations.

The salaries of Commodities Traders in The US range from $73,918 to $762,812, and the average is $166,453.

Yes, the same funds can be employed for both Equities and Commodities trading.

According to SEBI regulations, commodity funds can't be directly transferred to an equity account. In addition, as commodity and equity are two different segments, their funds differ. Therefore, you can transfer neither of them directly to the other.

What is an equity? Equities in trading are portions of ownership in a public-listed company. Equity is bought and sold in the form of shares or stocks, which are issued by companies as a way to raise money. When you buy equity, you are taking ownership of a small portion of that company.

And, the disadvantages of commodity market trading include high leverage, excessive volatility, higher dependence on macroeconomic factors, etc.

Why not to invest in commodities? ›

Things to be aware of when investing in commodities

Commodities can be highly volatile, and market trends and timing can greatly impact their performance. Additionally, global events such as geopolitical tensions or natural disasters can impact commodity prices.

Trading commodities for a living is a dream of many aspiring traders, but only a small number of people can make this a reality. Although it is a difficult process, there are several things you can and must do in order to make this a profitable and lasting venture.

Duration of the Trade

There is no requirement to buy or sell the shares. Commodity trading is better suited for short-term investors since commodity futures have an expiration date. Before the expiry date, investors need to buy or sell the underlying commodity.

Usually, trading in the commodity market is suitable for a shorter time horizon since most transactions are executed through a futures contract. It's suitable for both short and long-term investment objectives. Individuals can park their funds for a day, a month, a year, or even 10 years.

Key Takeaways

Commodities are considered risky investments because the supply and demand of these products are affected by events that are difficult to predict, such as weather, epidemics, and natural and human-made disasters.

A commodity trader buys and sells financial products based on market predictions. They carry out trades of commodities such as gold or oil on behalf of clients and the firm they work for. Commodity traders might be employed by investment or commercial banks, hedge funds, or private equity groups.

A commodity trader is an individual or business that invests in physical substances like oil, gold, or agricultural products.

Equity trading is the buying and selling of company shares or stocks, also known as equities, on the financial market. There are a few ways in which you can invest in equities. Most equity trading refers to the buying and selling of public company shares through a stock exchange or as over-the-counter products.