| Definition |
Involves buying and selling raw materials like gold, oil, metals, and agricultural products through standardized contracts. |
Involves trading shares of companies listed on stock exchanges to gain ownership and earn returns. |
| Underlying Asset |
Tangible physical goods like energy, metals, and agricultural produce. |
Equity ownership in a business or corporation. |
| Traded On |
Commodity exchanges such as MCX, NCDEX (India) or CME (US). |
Stock exchanges like NSE, BSE (India), or NYSE, NASDAQ (US). |
| Participants |
Includes hedgers, producers, manufacturers, speculators, and traders. |
Retail investors, institutional investors, mutual funds, and traders. |
| Price Influencers |
Global demand-supply factors, weather, geopolitical issues, and economic indicators. |
Company performance, earnings reports, macroeconomic trends, and market sentiment. |
| Leverage |
High leverage is typically available; trades can be made with low margin requirements. |
Lower leverage in cash market; higher leverage possible in derivatives trading. |
| Volatility |
Highly volatile due to sensitivity to global events and natural phenomena. |
Moderate volatility influenced by financial reports and market trends. |
| Holding Period |
Mostly short-term; positions are often squared off before contract expiry. |
Can be held short-term or long-term; no fixed expiry for stocks. |
| Settlement Type |
Can be settled in cash or through physical delivery of goods. |
Always cash settled; buying shares results in ownership transfer. |
| Investment Goal |
Primarily for hedging and short-term speculation. |
For long-term wealth building and dividend income. |
| Regulation |
Regulated by SEBI through recognized commodity exchanges. |
Regulated by SEBI via stock exchanges in India. |
| Contract Nature |
Standardized contracts with fixed lot size, quality, and expiry. |
Equities are perpetual; F&O contracts also available. |
| Risk Type |
Exposed to price swings due to weather, politics, and international news. |
Business, market, and economic risks affecting company performance. |
| Liquidity |
Lower liquidity compared to equities; depends on the commodity. |
Highly liquid, especially in large-cap and blue-chip stocks. |
| Diversification |
Good tool for diversification and protecting against inflation. |
Offers sector-wise diversification across industries. |
| Taxation |
Taxed as non-equity; short-term capital gains apply at higher rate. |
Equity taxation benefits; LTCG taxed at concessional rate after 1 year. |
Commodity Trading vs Equity Trading