STOCK AND COMMODITY MARKETS: THE BASIC DIFFERENCE

The age old debate about which markets are better to trade continues doing the rounds in trading circles. Whereas some swear by the stock market, others feel commodity markets are a better bet in the long run. Putting it lightly, the stock market is like scotch whiskey – smooth and classy whereas the commodity market is like country liquor – crude and heady. Both give a high and it is just a matter of individual preference!

Trading and investing in the stock market requires a sound knowledge of fundamental analysis, technical analysis and a deep understanding of the various market forces that drive the prices. One needs to identify good companies, study their financials in great detail and finally decide on a reasonable price to buy the stock. Again, the basic price of the stock depends primarily on who its promoters are and the overall performance of a company. Thus there is an inherent dependency on other human beings on which one has no direct control, e.g.  acquisitions, mergers, bonuses, splits, dividends, etc.

The commodity markets on the other hand are less dependent on human beings as the basic commodities are natural resources like gold, silver, crude oil, metals, etc. and are not subject to manipulations. Moreover, the prices of commodities are more likely to remain constant in any part of the world and the demand and supply is universal.

Equities do not generally touch upon an individual’s day to day life as do commodities. The masses are more concerned about the prices of crude oil than they are about the price of a particular stock.

The trends in a stock market are subjective and less sustainable as compared to commodity trends which are more predictable and long lasting.

Major international political changes may affect the stock market far more adversely than they would affect the commodity markets. However, natural disasters can change the supply and demand levels in the commodity market and may not necessarily affect the equity market at all.

Large volumes are traded in both markets but the commodity markets do have an edge in terms of quantum traded.

Thus in a nutshell, both the commodity markets and equity markets offer traders and investors great opportunities to earn and create wealth. A trader or investor must therefore have a balanced portfolio that includes stocks and commodities in suitable proportions. The basic purpose of trading or investing is the generation of income and creation of wealth and any market that gives one this opportunity must be embraced with equal enthusiasm.

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