How to Invest in Equities & Commodities

peterrpaul

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Feb 12, 2021
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Equity Meaning in Share Market
Equity is a part of the ownership of the company that is issued to the general public to raise capital. So when you buy Equities of a company, you become the owner of that company proportional to the value of shares. Purchase of Equities entitles you to special benefits like profit-sharing, dividends, voting rights, and the risks associated with them. But when you do intraday trading in equities, you will not be entitled to such special benefits.
Commodity Meaning in Share Market
In simple terms, a commodity is a product that is used in your daily life like Cotton, Black Pepper, etc. or, a commodity can also be something valuable like Gold, and Silver. So you can invest in commodities like Gold, Silver, Cotton, Black Pepper, etc. just like how you invest in stocks of various companies.
Equity vs Commodity
When you invest in equities, you become the owner of the company proportional to the value of shares and expect your money to grow with the company’s growth. On the other hand, when you invest in commodities, you become the owner of the commodities and expect your money to grow with the value of the commodity.

How to Invest in Equities & Commodities
You can invest in Equities via Cash (i.e. normal investment) or via Futures & Options Contracts. And you can invest in Commodities only via Futures & Options Contracts.
So what are futures and options contracts?
Futures and Options contracts mirror the prices of the commodities depending on the supply and demand. For instance, let’s say you want to buy Gold, if the demand for gold increases, the price of Gold Futures & Options will increase proportionally, and if the demand decreases, the price of Gold Futures & Options will decrease
Difference between Stock Market and Commodity Market
Stock Market is an electronic platform where companies issue shares to the public. Apart from that various instruments like Futures & Options, ETFs, Mutual Funds, Debentures, etc. are traded in the Stock Market.
On the other hand in commodity markets, only futures & options of commodities are traded.
Difference between Commodity Derivatives and Financial Derivatives
Derivatives are nothing but Futures and Options. They represent the value of the underlying asset. The only difference is, Commodity Futures & Options represent the value of commodities, and Financial/Stock Futures & Options represent the value of Stocks.