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  • Suyog Chandak

Commodities vs Equities? Which is better to trade

After trading for close to 10 years with 5.5 of those being full-time, and trading multiple products like Equities (both Futures and Options) and Commodities, I prefer trading commodities. According to me, trading commodities in the Indian Markets have some serious advantages over trading Equities.


If you too are looking to trade commodities, I will try to highlight both the pros and cons of trading commodities in India, hoping it helps you to make an informed decision.


Pros:


1. Almost always open: The biggest advantage of trading commodities is that the commodities market is almost always open. Internationally, the commodities market is open for 23 hours a day from Monday-Friday, i.e. from 3:30 AM IST to 2:30 AM IST, having only an hour off. On Indian Exchanges though, the commodities markets are open from 9 AM to 11:30 PM (up to 11:55 PM in the months of November – March). This makes it much easier to trade and provides the following benefits: a. Helps avoid serious gap-ups and gap-downs during the week. b. Helps capture all the moves that take place internationally c. Since the US markets usually dictate moves in the global market, we can trade commodities during the US market hours, unlike in stocks which close at 3:30 PM.

2. The price can’t be manipulated or ‘operated’: How often have we heard a stock being ‘operated’ by operators? We keep seeing erratic moves in stocks on a daily basis. This is because stocks, with the discretion of a small group of people, can be moved in their desired direction. This can never happen with commodities. Commodities prices are mostly fair and can’t be manipulated. Fun Fact: Even the US Federal Reserve (the richest body in the world with near unlimited funds) can only move the prices of commodities by a few percentages points.

3. Fewer Bubbles: Commodities have fewer bubbles and lesser erratic moves. This means it is suitable for almost all types of trading strategies. This may not be necessary with stocks. We see an abundance of parabolic moves in stocks which are often very difficult to trade.

4. Cyclic Nature: Commodity Prices are cyclic in nature. This means your buy/sell price will most likely come again. This comes in handy for new traders who have poor risk management and do not follow a stop loss. The cyclic nature of commodities will most likely enable a possible exit for a trade gone wrong. But, you need not worry. With our 30 Day Intensive Commodity Trading program, we help traders follow their stop loss.

5.Lesser News Based Moves: For commodities, there is no management, no balance sheets, and no earnings reports. This means it has fewer shock moves. The times it moves erratically, most likely stocks would follow suit. As a trader who depends on technical analysis or systems to trade, lesser shock moves help manage risk better.The biggest advantage of trading commodities is that the commodities market is almost always open. Internationally, the commodities market is open for 23 hours a day from Monday-Friday, i.e. from 3:30 AM IST to 2:30 AM IST, having only an hour off. On Indian Exchanges though, the commodities markets are open from 9 AM to 11:30 PM (up to 11:55 PM in the months of November – March). This makes it much easier to trade and provides the following benefits: a. Helps avoid serious gap-ups and gap-downs during the week. b. Helps capture all the moves that take place internationally c. Since the US markets usually dictate moves in the global market, we can trade commodities during the US market hours, unlike in stocks which close at 3:30 PM.

Advantages of stocks over commodities:


1. Investment in stocks which rally usually yield more than commodities. Stocks very often rally over 500% in a period of 1-2 years. This kind of move is extremely rare with commodities.

2. To trade commodities, you need to worry about the exchange rate, i.e. USDINR to trade. Commodity prices are directly dependant on the exchange rate. Any erratic move in the currency will have a direct impact on commodities.

3. It’s easier to track the fundamentals of individual stocks compared to commodities. To understand the fundamentals of commodities, you need to understand the Global Macro-Economics and Geo-Political.


All in all, commodities are a better instrument to trade compared to stocks, especially in the futures market.

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