Equity V/S Commodity – Key Differences between Equity and Commodity
As all know and commonly heard about the Equity and Commodity, But how they are traded in the stock market. The terms equity and commodity are quite commonly used for investments and trade that take place in the stock market.
The main similarity between the two is that both equity and commodities are investment assets in which investors can invest their funds by purchasing or trading.
Before investment in the stock market we must know the meaning of the Equity and Commodity.
Equity means the common stock of the company. It is listed on the stock exchanges so that it can be easily traded in an authorized way. Equity is a part of the ownership of the company that is issued to the general public to raise capital.
So when you buy Equities of a company, you become the owner of that company proportional to the value of shares. In the Equity Share you can get special benefits like profit-sharing, bonus, dividends, voting rights etc.
Commodity is a physical product that is used in Daily basis like Gold, Silver, cotton, Black Pepper, corn, coffee beans, oil, ethanol, copper, cobalt etc. These commodities are not physically traded on an exchange and instead traded through commodity futures and forward contracts.
Key Differences between Equity and Commodity
The only major similarity between commodities and equities is that they are both investment mediums. And the main difference in both of them as commodities are undifferentiated goods, and equity is an investment made in a firm.
Below is the top 14 difference between Equity vs Commodity
|Instrument||Physical Shares, Futures & Options||Physical Commodities, Futures & Options|
|Exchange||Equity shares are getting traded on BSE, NSE etc.||Commodities are getting listed and traded on MCX, NCDEX, NMCE|
|Holder||The holder of the equity instrument is termed as a shareholder.||The holder of the commodity instrument is termed as the Option holder.|
|Time Duration||You can buy equities and keep them with you for a month, a year, or a decade and later sell them.||Commodity Contracts expire every month. That means the value of futures or options contracts will go down to zero every month.|
|Volatility||Equity Markets are comparatively less volatile.||Commodities are highly volatile.|
|Risk||Equity markets are less risky as low volatility is there.||Commodity market is highly volatile as a result of the same these are highly risky|
|Events Benefit||Equity investors enjoy all Dividends, Bonus Shares, Voting Rights.||Commodity investors do not receive these benefits.|
|Factors affecting||Company Results, News, Economic Reforms, etc.||Commodities based on the demand and supply.|
|Regulations||The equity market is the free market. Hence comparatively fewer regulations are there.||A commodity market is a derivative market, and hence it highly supervised market under SEBI.|
|Lot Size||Equity Shares do not have lot size.||Commodity instrument gets traded in the lot size.|
Both Equity vs commodity have their own specifications, features, and investment terms. From a market perspective, it is advisable to have a balanced view of investing. In Equities you can invest with both Cash and Futures & Options Contracts. In Commodities you can invest in Commodities only via Futures & Options Contracts.