Commodity Market Trading vs. Stock Trading
Accessing commodity markets via derivatives or spot is not practical for most investors. One of the most common steps that investors need to take when accessing commodity markets is establishing a brokerage account. Usually, only accredited investors are allowed to access these markets. Even though commodity markets are not for everyone, regular investors can still […]
Accessing commodity markets via derivatives or spot is not practical for most investors.
One of the most common steps that investors need to take when accessing commodity markets is establishing a brokerage account. Usually, only accredited investors are allowed to access these markets.
Even though commodity markets are not for everyone, regular investors can still gain indirect access through the stock market. For instance, mining stocks are often linked to the prices of commodities. There are various exchange-traded funds (ETFs) that track different commodity indexes and sectors. However, for most investors, the core of their portfolio is usually bonds and stocks.
Commodities are often favored by individuals with long-term time horizons and higher tolerance for risk. They tend to be volatile, making them an ideal asset class for those with this risk tolerance.
| STOCK MARKET | COMMODITIES MARKET |
| Investors can own the asset | Traders do not own the asset |
| Often more long-term investment (buy & hold etc) | Commonly shorter-term trading |
| Price based largely on business’s financial health | Price based largely on supply and demand |
| 8-hour markets | Round the clock markets (closed weekends) |
| Normally low spread | Can be high spread |
Commodity and stock markets are two of the most prominent asset classes that investors can use to make money. While both of these asset classes have tremendous potential, they are traded in distinct marketplaces. Before investing in either, it is important to understand the difference between these two asset classes.
