Know the Difference between the Stock Market vs Commodity Market
If you’re looking to start trading, the stock market isn’t the only financial market available to you. In fact, there are other financial markets with different asset classes that you can trade in. The commodity market, being one of them. Although both the stock market and the commodity market function in a very similar manner, they both have their differences.
Want to know what the difference between stock and commodity markets are? Continue reading to find out. But before we get to the stock market vs commodity market part, let’s quickly reintroduce ourselves to the concept of both of these financial markets.
- What is the stock market?
The stock market is a place where you can buy and sell shares of companies. The term stock market usually denotes the stock exchanges, like the Bombay Stock Exchange and the National Stock Exchange, where the trading of shares usually happens. That said, you can only freely purchase and sell stocks of companies that are actually listed for trading in the stock exchanges.
- What is the commodity market?
Just like the stock market, the commodity market is a place where you can buy and sell commodities. The term commodity market generally denotes commodity exchanges, like the MCX and the NCDEX, where the trading of commodities usually happens. Some of the commodities that are listed on exchanges and available for free trade include copper, zinc, natural gas, crude oil, gold, silver, a host of agricultural commodities, and more.
- What is the difference between stock and commodity markets?
Apart from the obvious difference of the stock market allowing you to trade in stocks and the commodity market facilitating trade in commodities, there are plenty of other differences. Here’s a quick look at a few of them.
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Stock Market
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Commodity Market
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When you purchase a share of a company, you own a part of the company.
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When you purchase a commodity, you own that commodity.
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In addition to buying and selling shares, the stock market also allows you to trade in derivative contracts such as futures and options.
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You can only trade in derivative contracts such as futures and options in the commodity market.
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Liquidity is typically very high for the stock market, which makes buying and selling shares extremely easy.
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Liquidity is often low in the commodity market, except for a few popular commodities like gold and crude oil.
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The stock market is generally more stable and less volatile than the commodity market.
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The commodity market can be very volatile with wild price movements.
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The shares that you purchase can be held indefinitely forever or for less than a day.
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The commodity derivative contracts have a fixed life span and expire on a specified date.
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Conclusion
Now that you’re aware of the difference between stock market vs commodity market, go ahead and try investing in them. But be advised that you would need a trading account and a demat account to try your hand at online stock trading. If you don’t have one, don’t worry. Get in touch with Motilal Oswal right away to open one for yourself within just a few minutes.
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