Equity or Commodity? Where to invest?

Personal Finance

Investing money is one of the best ways to gain financial security. It has become one of the most lucrative job options for millions across the globe. Investing in the right market with the right strategy yields higher returns. Learning about market volatility, the nature of the investment, and the risks involved in it will determine how far the investment journey is going to go. There are various options for you to choose from. Equity investment and commodity investment are the two most popular options.

Both equity investment and commodity trading have higher return rates. But they behave differently under different conditions. There are certain differences between them, as they suit different investment goals. Not only that, but in terms of ownership, market structure, and different levels of risk factors, both options differ from each other.

Do you want to know which one is a better option, equity or commodity trading? Then read on to learn the difference between equity and commodity investment

What is the equity market, and what is the meaning of equity investment? 

In the equity market, you buy shares of publicly-held companies and gain a part of the ownership. So, in a nutshell, the market where the buying and selling of these stocks happen is known as the equity market. 

To be able to trade and invest in stocks on the stock market, you need to have a trading and depository account. You have to permit a brokerage firm to continue investing and trading in stocks. The brokerage firm connects with your relevant stocks and carries out the trade on your behalf. 

Now that you know what an equity market is and its requisites, it is time to learn about the commodity market and commodity investment

What is the commodity market, and what is the meaning of commodity investment? 

A commodity is a type of resource that you use in your day-to-day life. Though, in commodity trading, all the commodities are tradable and yield returns. There are two broad types of commodities. First, there are the harder ones, like gold or silver, and the softer ones, like agricultural products and livestock. 

So, that means a commodity trading platform is a place where the buying and selling of similar products happen. This place can either be physical or virtual. The investment can happen in various ways. It includes direct commodity investment and purchasing commodity futures contracts. 

What are some of the differences between equity investment and commodity investment? 

There are a number of differences between equity and commodity investment, and they are:

  • Result of Inflation

If inflation is used as a guideline, it is bad news for the stock market. Equity markets perform badly during inflation. This is because of the simple fact that the shares of the company can fall. As they fall, their share prices are also going to fall. 

But in the case of commodity trading, it performs better during inflation and yields a higher rate of return. You can sell the commodities you hold even at a higher price than you had actually planned. 

However, for an experienced investor, both equity and commodity investment can yield higher profits. 

  • Ownership

For equity markets, the ownership of the company remains in your hands, up to a certain percentage. You buy shares of a company in your name. Hence, you have the right to influence certain rules, regulations, and decisions of the company. You might have to wait for favourable conditions. Then you can sell it to another company to gain more profits. As a result, the company’s ownership is transferred to another investor.

In the case of commodity trading, such things do not happen most of the time. You don’t have an ownership feature, where you can share the ownership with another investor. The reason for this is that you are probably eligible for future contracts in commodity trading. So, with future contracts, you don’t stand a chance of sharing any type of ownership. 

  • Volatility

From the perspective of market volatility, commodities are way more volatile than stocks. Commodities like gold, silver, or oil have higher volatility trends in comparison to those stocks. The simple reason is that in commodity trading, commodities have low liquidity. They are influenced by factors like geopolitics and the supply-demand chain. 

  • Time factor

The time horizon for both the equity market and the commodity market is different. Stocks can be held for both short-term and long-term purposes. This depends on the goals of the investor. Stocks can be held for as little as a trading day or for a longer period. This makes them an ideal long-term investment option.

In the case of online commodity trading, the commodity market usually trades in contracts. These contracts have a shorter duration. These commodities have an expiration date as well. This makes it vital for the investor to trade them within a period of time. 

  • Margin requirement

There are different margin requirements for both equities and commodities. The margin in commodity trading and investment is much lower than that in equity trading and investment. 

Wrapping it up

When it comes down to choosing the ideal option, there is no clear answer to that. Both equity and commodity investment have their pros and cons. They behave differently in different environments. The key factors that distinguish them for an investor are their risk appetite and their investment goals. 

If you have a long-term investment goal and are eyeing a big profit, then you can invest in equity, depending on your risk. If you are aiming for a short-term investment goal, then commodity trading and investing are good options for you. 

If you’ve read this far and want to learn more about equity and commodity investing, you can go to Piramal Finance. They have many articles and blogs to help you learn more about the world of finance.