Difference Between Equity vs Commodity
Financial Market comprises of various instruments through which investor invests their money and put efforts to earn the profit. These include equity, derivatives like forwards, futures and options, Commodity trading, forex etc. Each instrument has its own features, regulations and own set of profit providing a range. Investors based on their set of risk and holding capacity chooses the instrument and earn the profits.
Majority of the investors track the company performance and any specific ongoing activity that can affect the performance/management of the company, to map the range of equity of that company. Equity shares price movement provides the base for the majority of the market-related activity. The confidence of the investors, lending, F & O movement, a growth of the company, competitiveness etc. are decided by the equity price movement.
In layman’s term, 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. Also, Equity shares provide the ownership to the holders, holding equity shares is important in the market as shareholders will directly take part in the management and strategic decision making of the company.
The commodity is a raw material or primary agriculture product, which is capable of being bought and sold in the market. Trading of the commodity takes place in 2 ways:
- By taking physical delivery
- By cash settlement
Generally, settlement by taking delivery is done by the traders who are having a day to day transaction exposure in that particular commodity. So they will hedge themselves by buying the commodity at forwarding rates for the specified date and at the end they will take physical delivery for their daily requirements in the business. The second type of settlement in cash is a kind of speculation. Any person, who is based on their instinct of price movement in a specific direction in a given time frame, will enter into the transaction for the future specified date. On the specified date, the difference in the contract price and the actual price will be settled in cash. This is nothing but to manipulate the market based on the instinct of the price movement.
Head to Head Comparison between Equity vs Commodity (Infographics)
Below is the top 14 difference between Equity vs Commodity
Key Differences between Equity vs Commodity
Both Equity vs Commodity Card are popular choices in the market; let us discuss some of the major Difference Between Equity vs Commodity
- Equity shares are generally listed and traded in stock exchanges like National Stock Exchange and Bombay Stock Exchange etc., while Commodities are getting listed and traded on the stock exchanges like Multi Commodity Exchange, National Commodity and Derivatives exchange etc.
- Equity Markets are less volatile as trades can be undertaken even in a single share, while commodity markets are highly volatile as trades are conducted in huge lot sizes.
- Equity markets are less risky as low volatility is there, the Commodity market is highly volatile as a result of the same these are highly risky.
- Equity contracts have no expiry dates, while commodity contracts have always fixed expiry date on which settlement must take place.
- Equity contracts require an investment of market price only, while commodity contracts require an investment of margin requirement which keeps on changing based on the changes in the price.
- Equity market comparatively has a high amount of liquidity as compared to commodity market as investment happens in the lot size
- The holder of the equity instruments is considered as the owner of the company, hence it enjoys all the privileges like dividend, voting right etc. However, such privileges are not available with the holder of the commodity instruments.
Equity vs Commodity Comparison Table
Let’s look at the top 14 Comparison between Equity vs Commodity
|The basis of Comparison between Equity vs Commodity||Equity||Commodity|
|Holder||The holder of the equity instrument is termed as a shareholder.||The holder of the commodity instrument is termed as the Option holder|
|Ownership||Equity holder is considered as the owner of that company||Such privileges are not available with the commodity instrument holder|
|Volatility||The equity market is comparatively less volatile||A commodity market is highly volatile|
|Risk||Equity Trading is comparatively less risky,||Commodity Trading is highly risky.|
|Dividend||Equity holders are the owner, hence they are eligible for the dividend as a return||Commodity instrument holders do not receive such a privilege.|
|Exchange Traded||From Indian Parlance, Equity shares are getting traded on BSE, NSE etc.||From Indian Parlance, Commodities are getting listed and traded on MCX, NCDEX NMCE etc.|
|Expiry||Equity shares have no expiry date||Commodity instruments do get expire at the end of the month. In India, such an instrument gets expire on the last Thursday of every month.|
|Liquidity||Equity shares have comparatively better liquidity||Commodity instruments have comparatively low liquidity.|
|Time frame||Equity shares contract is, generally, for the long term.||Commodity instrument contract is for a shorter period to take advantage of price differences.|
|Period end valuation||Period end price difference will be recorded in the profit and loss account.||Period end price difference is recorded in the other comprehensive income, and on the expiry, it is recorded in the profit and loss account.|
|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.|
|Margin Requirement||Equity Instrument does not required margin, only needed to be bought at market price.||Commodity market requires high margin, which varies based on the nature of an instrument|
|Diversification||In the Equity market, the price of one equity instrument has a correlation with the price of another equity instrument.||In the commodity market, your risk is diversified. Price of the commodity has nothing to do with the price of other|
|Lot Size||Equity Shares do not have lot size.||Commodity instrument get traded in the lot size|
Conclusion – Equity vs Commodity
Equity vs commodity markets are highly different from each other. 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 doing investment. However, if a person is not having a high amount of exposure with the market and at the initial stage, one can start with equity markets and can initiate his/her investment cycle.
This has a been a guide to the top difference between Equity vs Commodity. Here we also discuss the Equity vs Commodity key differences with infographics and comparison table. You may also have a look at the following articles to learn more.