The process of trading in the commodity market is similar to that of trading in stocks. The main difference is that instead of buying or selling equity or stocks of various companies, commodities such as energy, agricultural products, and metals are traded on a commodity exchange. Besides these, there are differences in the instruments of trade and the units. Let’s take a look at some of the significant differences as well as pros and cons of both.
The risks associated with commodities are in fact less than that in stocks, contrary to popular belief. Commodities are not as volatile as they appear to be. Metal and energy contracts have a cutoff barrier of 6 percent either way but stocks can fluctuate up to 20 percent in a single day. For agricultural commodities, this cut off is at 4 percent.
The trade timings of the stock exchange and the commodity markets vary. The stock market functions from 9.15 am to 3.30 pm while the commodity markets stay open from around 10 am to midnight. This gives commodity traders a greater window of opportunity to carry out trades and maximize their profits.
Ease of trade
Trading in commodities is pretty simple because it is just a matter of supply and demand. But, trading in stocks and equity is slightly more complicated. Without researching about the company you are investing in and making any kind of monetary commitments is not advisable.
Returns and benefits
Here, stocks stand at a slightly better advantage because quite a few of them pay out regular dividends to investors based on their performance. This does not happen in commodity trading online or otherwise. The value of commodities, however, is dependent on a physical asset, which makes them a lucrative investment during periods of economic uncertainty.