Which one is better for trading and investing - Equity or Commodity?

Edited on 12/03/19

Equity is more popular among the majority of people and we are more familiar with it. Whether it is India or any other country, equity investors and traders are more in number in comparison with commodity or any other securities (financial asset). There could be many reasons behind this like –

1. Equity is the most popular asset class and people feel it less risky.
2. Equity can be held (in Cash Segment) as long as we wish to hold or the company remains listed in exchange. Even the Share can be transferred to others too. 
3. Equity has diversification. There are lots of company which is listed on exchange from different segment or services. So, People have many options to diversify their portfolio in different segment and services like FMCG, Pharmacy, IT, Metals, Oil & Gas, Mining etc.
4. Equity is available in many forms from direct investment in company share to mutual funds or bonds.
5. Whereas commodity prices are affected by many fundamentals and global impact, the equity-share price of a company is mainly affected by the news and development of the company like company balance sheet, quarterly and annual results, activities and management change etc.
6. Majority of people think equity is simple to invest while the commodity is complex. 
7. In terms of fund requirement and quantity - if you like you can purchase only one equity-share (cash-segment) and can be held as long as you wish. While commodity which is mainly traded as forward contract with lot-size, you need comparatively more money and needed to roll over in next contract if you want to hold for a long time. Also, you have to pay rollover charges in terms of brokerage and taxes.

Perhaps I have talked much about equity and now I would like to discuss some points about commodity then I will try to measure which is better for trading and investing.

1. Commodity price is decided by global demand and supply and mainly affected by global news and fundamentals. So if the price of Gold falls in the USA then it is a strong chance to falls also in India and other countries, although this could not be always true some exceptions may be due to currency impact or local factors.
2. The commodity is mainly forward contract, means they are traded in the future market and for a defined time frame of 1, 2 or 3 months with defined lot-sizes. Recently in India on MCX exchange, Option contract has been introduced in some commodity like Gold, Silver, Copper, Crude, and Zinc but very little volumes have been seen in Options trades.
3. A commodity is riskier than equity in terms of margin money required to buy or sell a contract. While in the commodity you need only 4-10% of total value (Exchange can increase or decrease margin requirement according to volatility and price). So commodity is of type 'high risk, high gain’ and also likely to dry up your total investment in a short span of time. By trading in commodity, you can double your money in a single day but it is also possible to lose your major portion of capital in a single day. In any future contract, you have to pay only a small portion of the total value. In equity-future, this could be around 25% while in commodity future it could be around 4-10%.  The broker also provides extra leverage money to trade in intraday between 2-20 times of your trading account balance. Trading on leverage money is the most dangerous thing if your trade goes wrong or if high volatility encountered. But if your trade goes right you can also make a handsome profit with your less money.
   I don’t suggest this type of trade. Always trade with sufficient money in your a/c. 
   You can check the daily margin of any MCX commodity on MCX official website.
4. In India, there are two major exchanges for Commodity trading MCX (Multi-commodity Exchange) and NCDEX (National Commodity and Derivatives Exchange). MCX is most popular for Non-Agri Commodity and mostly people trade on MCX in Bullion (Gold and Silver), Base Metals (Copper, Lead, Aluminum, Nickel, Zinc) and Oil and Natural Gas. NCDEX is mostly popular for Agricultural Commodity. 

Now I come to the conclusion of this article. Which one is better for trading and investing - Commodity or Equity?

First of all, I would like to say that this is my personal opinion and you may agree or disagree with me. 

1. In my opinion, if you are a smart trader or investor and if you have good knowledge of technical and fundamental analysis with more than 2-3 years of experience then you can make comparatively more money in commodity than in equity.
2. The commodity is less volatile in comparison with equity. Commodity prices generally trade in a range. In any single day rarely go up or down with high percentage like 10-20-40-50% whereas equity Share of a company may go up or down by 40, 50, 60, and 70% in a single day. So if you have not placed any stop loss or not watching your Share on screen then your capital may hurt badly and there is no guarantee that your price will come soon or may not come in your whole life.
3. The commodity can be converted in physical settlement and may be used in your industry and shop so these are consumable material while equity shares are your portion in a company’s profit and loss. The commodity is tangible materials while equity is non-tangible.

Both Equity and Commodity have their own pros and cons and I leave it upon you to decide which one is better for you.

More proudly I would like to say that you should trade an opportunity whether it is Commodity or Equity and always trade/invest with your risk capital.

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