The stock market is not the only financial market accessible to us. Many other financial markets with distinct asset lessons that we can trade are present now. The commodity market falls into this category. Although both the commodity and stock market operate similarly, they both have their disparities.
What is the stock market?
A stock market is an area where we can purchase and sell shares of corporations. The word stock market generally indicates stock exchanges, just as the National Stock Exchange and Bombay Stock Exchange where shares are commonly traded. So, it implies that we can only voluntarily buy and sell stocks of corporations that are summarised for trading in the stock exchanges.
If a corporation’s capital is worth Rs.1000 crores and it has 1 crore stocks, then each stock exemplifies just Rs.1000 of its gross capital. So an individual that keeps 1 stock has an assertion to barely that quantity of the corporation’s ownership.
The price of one’s holding frequently shifts with changes in the corporation’s capital, brought about by major aspects, both internal and external. An individual can trade his/her stocks on the day they are purchased or maybe one year from that day, or even ten years from that day, depending on his/her investment goals.
The market that promotes this marketing – purchasing and selling is the stock market, and there are various trades within it.
In the Indian stock market, there are two main stock exchanges –
- National Stock Exchange
NSE, or the National Stock Exchange of India Limited, is the authorising stock exchange under the possession of several organisations of domestic and multinational financial organisations, public and privately owned commodities, and individuals. It is situated in Mumbai, Maharashtra.
- Bombay Stock Exchange
BSE Limited, furthermore recognized as the Bombay Stock Exchange (BSE), is an Indian stock exchange. BSE is the governing stock exchange that is under the possession of the Ministry of Finance, Government of India. It is situated on Dalal Street in Mumbai and was founded in 1875.
To subsidise stocks recorded in any of these exchanges or others, people are required to have a DEMAT account and a trading account.
What are the benefits of Investing in Stocks?
Here are a few of the advantages of investing in the stock market:
- Better Long-term Returns
One of the crucial advantages of investing in stocks is the chance to be considerate, and watch our cash compound and prosper. Though the rates of personal stocks ebb and flow every day, the all-around stock market inclines to develop in value.
- Dividend Income
Dividends obtained from the holding of stocks can provide investors with many advantages. Dividend expenditures can improve the full return on our investment in the stock. They furthermore assist in shorter volatility in the stock rates by stimulating support of the stock rate.
- Diversification Benefits & Liquidity
The stock market gives various financial tools, such as mutual funds, shares, bonds, and their derivatives, that deliver investors a broad span of insurances to invest in, as per their threat craving and monetary objectives.
- Transparency
The Indian stock market is overseen and governed by the SEBI, the Stock Exchange Board of India. Therefore, investing in the stock market is prudent and more understandable with the foundation of such an agent.
What is the commodity market?
A commodity market is just like the stock market, where we can purchase and trade commodities. The word commodity market commonly indicates commodity exchanges, for example, NCDEX and MCX where commodities trading generally occurs. However, few of the commodities that are recorded on exchanges and accessible for free trade comprise copper, crude oil, zinc, natural gas, gold, silver, a host of farming commodities, and such.
As the name refers, it is a market area for commodities and these commodities are interpreted under two classifications-
- Hard commodities
- Soft commodities
The former implies extracted and mined commodities like crude oil and gold. These are two of the most valuable and widely traded commodities worldwide.
The latter classification comprises agricultural commodities and livestock, such as rice, pork, wheat, cattle, eggs, etc. These generally have a much tighter shelf life correlated to hard commodities.
Commodity markets facilitate the selling, purchasing, and trading of these commodities. One of the facts in commodity vs stock is the trading method. Most traders join into a futures agreement to trade in commodities.
These agreements obligate two groups to perform a transaction at a predetermined rate on a prefixed period. Planters and manufacturers frequently influence futures agreements to fluctuate against probable losses. Still, these furthermore act as tools to realise an income.
People can furthermore select to invest promptly in commodities.
There are six commodity exchanges in India-
- Multi Commodity Exchange (MCX)
- National Multi Commodity Exchange (NMCE)
- Ace Derivatives Exchange (ACE)
- The Universal Commodity Exchange (UCX)
- Indian Commodity Exchange (ICEX)
- National Commodity and Derivatives Exchange (NCDEX)
What are the advantages of the commodity market?
- Potential Hedge Against Inflation
Inflation can result in a hike in rates for commodities. During high inflation, commodities indicate powerful accomplishments but are more unstable than other categories of investments.
- Potential Returns
Various factors influence the rates of individual commodities like inflation, supply and demand, and the economy. For example, because of enormous global infrastructure undertakings, demand has heightened in the international infrastructure undertakings that affect commodity rates. In addition, an optimistic effect on the corporation stocks affects commodity rates.
- Diversified Investment Portfolio
A diversified investment portfolio pertains to a suitable asset allocation strategy—commodities aid in modifying the investment portfolio. Investors can subsidise raw substances if they like to invest in bonds and stocks.
- Profitable Returns
Commodities came to be dangerous in the aspect of investments if the liquidity is big. This implies that corporations can experience both large profits and enormous losses.
What is the difference between stock VS commodity markets?
Apart from the apparent distinction between the stock market authorising us to trade in stocks and the commodity market promoting trade in commodities, there are a lot of other variations.
