The stock market is far from the only financial market that you can trade in. As a matter of fact, there’s another very popular financial market that both retail and institutional traders frequently participate in; and that is the commodity market. This particular financial market sees a lot of trading volume.
Wondering how commodity trading is different from regular stock trading? Here’s a quick glimpse - the differences are night and day. Continue reading to find out more about the dissimilarities between these two types of trading.
Differences Between Stock Trading and Commodity Trading
The dissimilarities between stock and commodity trading are aplenty. Here’s an overview of some of the most popular points.
1. Asset Class
The primary difference between these two types of trading is the asset class that’s being traded. In the case of the stock market, stocks of companies are traded among investors. And in the case of the commodity market, various types of commodities are traded.
2. Products
There are only two categories of shares that are traded in the stock market - regular shares and shares with Differential Voting Rights (DVRs). Meanwhile, there are multiple different categories of commodities that are traded in the market. Investors can trade in commodities ranging from gold and silver to crude oil and maize, among other things.
3. Trading Segment
When it comes to trading, there are two primary trading segments that you as an investor can participate in - the spot market and the derivatives market. When you purchase an asset through the spot market, the asset is electronically delivered to you. However, there are no such deliveries in the derivatives market. Instead, the derivative contracts are settled by squaring off the position on or before the date of expiry of the contract.
In the case of stock trading, you can participate in both the spot market as well as the derivatives market. That’s not the case with commodity trading though. In commodity trading, you can only participate in the derivatives market, which means that there won’t be any physical deliveries of commodities, but rather only the squaring off of the contracts.
4. Exchanges
As far as India is concerned, there are only two exchanges for stock trading - the Bombay Stock Exchange (BSE) and the National Stock Exchange. However, that’s not the case with commodity trading. As a matter of fact, there are multiple exchanges like Multi-Commodity Exchange (MCX), Indian Commodity Exchange (ICEX), National Commodities and Derivatives Exchange Limited (NCDEX) and National Multi Commodity Exchange of India (NMCX).
5. Ownership
When you purchase the stock of a company, you gain a percentage of ownership within the company. With commodity trading, however, there’s no question of ownership of the commodities since they’re not physically delivered to you when you purchase them.
Conclusion
Well, there you have it. These are the 5 most important differences between stock trading and commodity trading. Whether you’re interested in trading in stocks, commodities, or both, it is always a good idea to first open a demat account and a trading account. Without one, you cannot trade in either of these two financial markets. If you don’t have one already, you can get in touch with Motilal Oswal to open one in just a few minutes.
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