In today’s article, we will explain the commodity market. By now you must have heard about the stock market, what is stock market and how it works. In this article, we will know what is a commodity market, its types will understand commodity exchange, and what is the difference between the stock market and commodity market, which we will discuss in detail.
Table of Contents
What is Commodity Market?
A commodity market is a market where trading is done on Gold, Natural Resources Coffee, etc. The commodity market is regulated by SEBI i.e. Securities and Exchange Board of India. Commodities are divided into two types.
- Hard Commodities: All the natural resources such as metals and energy which are mined or extracted come in hard commodities. Metals include gold, silver, zinc, copper, platinum, etc. The same energy includes natural gas, crude oil, etc.
- Soft Commodities: In soft commodities, those things are very much which are carefully prepared such as Agriculture, Rice, Corn, Veet, Soyabean, Coffee, etc. All these come.
What is Commodity Exchange?
Commodity Exchange is an organization that provides trading platforms for commodities like stock exchanges to trade in stock markets like BSE and NSE. There are 6 Commodity Exchanges in India.
- Multi Commodity Exchange (MCX)
- Ace Derivatives Exchange (ADX)
- The Universal Commodity Exchange (UCX)
- National Commodity Exchange (NCX)
- Indian Commodity Exchange (ICEX)
- National Commodity and Derivatives Exchange (NCDEX)
By the way, these are all commodity exchanges, the largest and most popular of them are MCX and NCDEX, which have the most trading.
And MCX To talk about some facts, MCX was the first energy exchange that took out its IPO in 2012 and MCX became the first exchange that became publicly listed.
Now there may be confusion in your mind regarding the stock market and commodity market, so we understand what is the difference between these two.
Commonly Used Mutual Fund Terms
Difference Between Stock Market and Commodity Market
Here we can discuss 8 major differences between the stock market and the commodity market.
On the basis of stock duration
If you buy a share in the stock market, then you can hold it for a day, you can hold it for 1 month or if you want, you can hold it for years, but in the commodity market, there is no time for such a long time. There is a fixed rate of time i.e. there is an expiry date, you will have to sell it till then. You cannot keep it for long.
On the basis of trading hours
In the stock market, in general, you can trade morning to evening only, like from 9:15 am to 03:30 pm. On the other hand, the timing of the commodity market is higher than the stock market, it remains open for about 12 hours.
On the basis of ownership
If you buy a share in the stock market, then you buy the ownership of that company, you get ownership in that company, even if it is a small part, but there is no such thing as ownership in the commodity market. In fact, there is no company here. Not only. This is a type of contract in which you are buying a particular commodity at the present price, here are mostly futures contracts. If the price of that commodity increases further, then you can earn a profit by selling it.
On the basis of volatility
The stock market is highly volatile, where the share price sometimes increases and decreases quickly, in such a situation it becomes difficult to guess anything, the same commodity market is volatile in its comparison.
On the basis of risk
Even though the price fluctuates more in the stock market, but still the commodity market involves more risk than the stock market. Because there are some big reasons like weather, political anger, epidemic natural disasters, and things like risk-taking which are not possible to control.
On the basis of Dividend
As I discussed, the stockholder is the owner, so a return dividend means some part of the profit is received but nothing like this happens in the commodity market.
On the basis of regulation
The stock market is a kind of free market, where there are regulations but there are fewer regulations in the same commodity market, SEBI strictly applies regulation, then it is less free in stock comparison.