Commodity Trading VS Stock Trading
Trade is an exchange of goods between two parties for a certain amount of money, but it doesn’t end after selling your goods to the trading company. You can also trade your goods with other companies and use the money you earn to buy more goods.
Stock traders generally focus only on the traded companies (and their financial state). Still, commodity traders are interested in buying or selling physical goods to profit from them. They might be trying to sell sugar in a market but repurchase it in bulk from a factory to sell it later at a higher price.
Key Differences Between Commodity Trading and Stock Trading
Trading With a Company
Stock trading is trading with a company that does business through the exchange of shares. Commodity trading means trading with a physical product that you can touch and feel. It can be tangible or intangible, but it has to be treated as a commodity rather than stock because the stock is traded between companies. In contrast, commodities are not always traded between two companies. For example, if you were to trade a gas mask, it would be considered a commodity because you are trading with the physical product rather than a specific company that produces gas masks.
Intangible and Tangible Goods
Stock is intangible, while commodities can be either intangible or tangible, meaning you can trade both between two companies or from a company to another.
Commodity Market Transactions VS Corporate Actions
Stock trading is done through the exchange of shares. It means that stocks are only valuable when you trade them with other people and companies, but commodities don’t necessarily need to be traded because they have value at all times. Stock traders also pay attention to the end product that a company produces. In contrast, commodity traders care about goods themselves because their primary objective is to sell the goods to profit from it rather than caring about what you will use it for.
Stock markets are open Monday – Friday, 9:30 AM – 4:30 PM in the UK, but commodity trading doesn’t necessarily have the same timeframe. Commodity trading can occur throughout the week, 24 hours a day, because it has no limitations in time or location.
The Price of Commodities VS Stocks
Stock pricing is determined by supply and demand, while commodities are limited because you will not sell every good at the same price. For example, if you were to buy a lot of sugar from one factory and sell it to another factory, you would profit from this because it wouldn’t cost you much money to transport or store your goods. However, in-stock trading, you could lose your investment in a company if something goes wrong where they do business even though their products are still doing well.
Taxation
Commodity traders have to pay 20% tax in the UK when they sell their goods because it’s considered a personal trade rather than a business transaction. Stock traders usually don’t have to pay any taxes because they are only taxed if they pay dividends to their shareholders.
The Role of Money
In commodity trading, you need to invest money to make a profit from selling your goods. In stock trading, there isn’t always an initial investment required, but you will lose all of your money if the market turns against you before you can get rid of your shares and recuperate your losses.
Risks
You can lose your entire investment if the market turns against you when you trade commodities, whereas, in stock trading, you could lose a few hundred or even a few thousand pounds, but it’s not going to wipe your bank account completely. Moreover, the chances of losing everything are much higher in commodity trading because stocks have a more reliable value than commodities.
In Closing
The two most significant differences between commodity and stock markets are that companies engage in stock trades while physical goods are traded through commodity markets. Stock traders care about what their investments produce and the company itself, while commodity traders only care about where they can sell their goods for profit. In stock trading, the price fluctuates according to supply and demand, but prices are only limited by how many goods are produced in commodity trading.
