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Difference between Equity Trading, Commodity Trading and Currency Trading

The major difference between equity, commodity, and currency trading is that while equity is the capital invested in acquiring company ownership, commodities are undifferentiated products in which investment is made. On the other hand, currencies involve the trading of currencies at different exchange rates. Commodity and equity belong to the asset class, while currency trading consists of the transaction of foreign currencies. Let’s analyze the difference in a more descriptive way.

Commodity

A commodity is not tradable as a physical holding, but it works on contracts for a particular time. These contracts carry definite standards such as future price, quantity, and time, and they are only valid for a specific time.

For instance, Gold futures 2-month trading at $100 will end after two months. So, all the open positions in the contract will close exactly after two months.

Equity

Call equity an investment where an investor invests for the long term. An equity holder acts as the owner of the firm and enjoys voting rights, profit shares, and gains in stock enhancement during the holding tenure. Major equity investments are TCS, Tata Motors, IEX, and more.

Currency

When you talk about the forex market, it majorly includes commercial banks, financial companies, investment firms, hedge funds, etc. Currency rates vary depending on the demand and supply of a nation’s currency by millions of investors in the trading market. This demand and supply work on several factors such as economic crisis, interest percent, inflation rate, trade balance, political issues, and more.

Now that it is clear what equity, commodity, and currency trading are, let’s look at the differences:

Personal Preference

• Some people are comfortable with a specific kind of market. They like commodities because they prefer a physical market to relate to. Commodities include assets like sugarcane and wheat.

• Then there are equity investors who prefer investing in firms and their growth, such as Reliance, Tata, and Infosys.

• Lastly, some investors like investing in currencies and earn from the exchange differences and rates like GBP/USD, JPY/INR, and more.

Trade Mechanism

• Commodities are traded on commodity exchange using futures and contracts.

• Equity is traded on stock exchanges through different options like forwards and options contracts.

• Currencies are traded on currency exchange rate through future and options contracts.

Regulatory Differences

• Commodity trading is regulated and listed and traded on MCX, NCDEX • Forex is decentralized and works with no central exchange.

• Equity shares are traded and regulated by BSE and NSE.

Participants

• Commodity trading is short-term trading, majorly used for hedging to limit losses or make easy profits depending on speculations.

• Equity trading is a long-term investment to gain ownership and profit in a growing business.

• Currency trading is short-term trading for savvy investors, opportunists, and arbitrageurs.

Type of Trading

• Trading commodities is simple as it only involves supply and demand.

• Currency trading works more on technical analysis, fundamental analysis, tools, and strategies.

• Stock trading needs research about the background of the company, its goals, and future targets.

Trading Hours

• The commodity market opens from 10 am to midnight.

• The currency market opens 5 days a week for 24 hours daily.

• The stock market offers the shortest trading time frame.

Volatility

• Metals and energy contracts and move lump sum 6% up or down.

• Stocks can more around 20% in one day.

• Forex is the most stable of the three.

Conclusion

Commodity, equity, and currency work on different mechanisms through which investors can generate profits and earn high returns on investments. It depends on your personal preference, trading skills, and investment capital. So, analyze well before investment and then start with your preferred option.


30-11-2021
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