Financial market comprises of several number of instruments that you may invest in. Starting from a company listed on NSE or BSE(exchanges) to agricultural stuffs like cotton, oil, gold, etc. Moreover, financiers may place his position in a wide range of financial products. But, more likely, Equity and commodity trading comes with enormous importance.
What do you understand about Equity Investments?
Money which an investor invests in by purchasing the shares of the company in the share market is termed as equity investment. Moreover, when investors do equity trades then he buy stake in the listed company thereby purchasing shares from the stock market.
Investors who are fond of equity trades generally buy shares of a company thereby expecting their rise in value. However, they will get a return in the form of capital gains or dividends.
Furthermore, if an investment in equity rises in value then an investor will receive a financial difference if he sold their shares.
Consequently, Equity investments fortify your portfolio thereby providing diversification.
What is Commodity Trading all about?
Goods or products like metal, food and energy are defined as commodities. The things which we use in our day to day lives and are tradable in nature are known as commodity trading. Hereafter, there are mainly five types of commodities which can be bought or sold at liberty.
Types of Commodities
Precious Metals like silver, gold, copper, and platinum.
Base Metals like nickel lead and zinc.
Energy like crude oil, natural gas, and many more.
Meat and livestock like eggs and cattle, etc.
Agricultural products like rice, wheat, cocoa, ragi and many more.
You won’t believe but during our ancient times we used to do commodity trading in India. But later on due to foreign invasions, pitiable government policies and uneven markets lost its popularity.
Now with the discovery of stock exchanges like MCX and NCDEX in India has regained its importance and became popular nowadays.
Now let’s move on and discuss some core facts about commodity trading. Here in this article I am going to deliberate you why a trader should pick commodity trading.
We all are aware of the fact that online commodity trading comes with many advantages.
Let’s throw some light on some pros of commodity trading.
Pros of Commodity Trading
Trading Session:
Equity market is open for shorter duration as compared to commodity trading. Stock market opens at 9:00 AM and closes at 3:30 PM whereas MCX opens at 9:00 AM and closes at 11:30 PM. Consequently, a trader in commodity trading may have longer trading session in a day rather than equity trading.
This is the foremost reason of opting commodity trading as it runs round the clock.
Trading is meant for Commodity Traders:
The above statement means that commodity market suits for short-term investors or day to day traders. On the contrary equity market comes with no expiry date. Moreover, you may hold stocks for a longer duration or forever. If we converse about commodity trading, then it runs on contractual basis. Precisely, a trader may hold a particular commodity till the contract gets over.
Margin Benefit
As compare to Equity, margin necessity is lower in commodity market trading. Hence, during sharp and sudden movements commodity market permits traders to take higher disclosures which could prove very dicey.
A safety valve against Inflation
During inflation, the share prices in the stock market falls. On the contrary, if we look into the commodity prices then the business of end goods may substantially take a pace thereby revealing growing demand.
We all are very well responsive to the fact that demand is directly proportional to prices. Moreover, if demand of particular goods or services increases then the prices of that specific goods also increases. As a result, interest rate increases which thereby adversely affects the purchasing power of our economy. However, results in decrease in net revenue of the company.
Furthermore, a dip in the yield of the company hits the profit which is about to be distributed amongst stakeholders.
High Leverage facility
Options, futures and various other commodity derivatives offers an exceptionally large amount of leverage. Moreover, a trader may hold large position thereby paying only 5% or 10% of the value of contract as a margin of safety. As compared to equity stocks, commodity derivatives margin costs very low for trading.
Verge against Geopolitical tensions
Commodities provide investors a hedge against geopolitical tensions. Be it wars, riots, or conflicts supply chain of goods or services disrupts resulting in dearth of resources. Moreover, during the riots it becomes quiet difficult to transfer one’s good to another country. Now, this mismatches the supply and demand chain due to which the prices of goods rises. However, boost up the commodity market thereby strengthening the economy.
Wrap up
Trade in commodities is a money-spinning investment decision which help a trader to build their wealth. But, guys don’t forget everything profitable option comes with certain rules and regulations. Though, trading commodities buy you a leverage but if you are not careful enough then it may incur losses too. Due to high volatility and longer trading session, entertain commodities to deliver handsome returns as compared to stocks.
In short, commodity trading is apt for trading and not for investing.