• February 3, 2022

Commodity trading vs stock trading in Singapore

 

Commodity trading involves purchasing and selling futures contracts to make money off stocks or commodities. Stock trading is more low risk and involves buying and selling stocks on a regulated exchange. Commodity traders need to be aware of complex hedging strategies and multiple forms of risks like counterparty risk, expiration risk and liquidity risk.

 

Stock traders may want to look into commodity markets as well. It can also provide opportunities for investors looking to take on additional risks. Both have their benefits and drawbacks depending on your investment goals and risk appetite.

 

This article discusses the benefits and drawbacks of commodity trading vs stock trading. Investors must understand the difference between these two investment vehicles before making any decisions.

What are futures contracts in commodity trading?

There are generally two ways of doing so for those who wish to participate in commodity trading vs stock trading: futures and spot markets. Both markets allow you to trade currencies and goods such as oil and gold traded by major companies worldwide. Prices of these commodities can rise or fall depending on the global market, political instability, and other economic indicators.

 

An investor will purchase and sell futures contracts to make money off either stocks or commodities regarding commodity trading. Futures contracts are agreements between two parties to buy or sell an asset at a specific date in the future. As such, commodity traders need to be aware of both potential upside and downside movements to make informed decisions

Benefits and risks of trading commodities

One of the benefits of trading commodities is that investors can gain exposure to different markets with a limited investment. For example, if an investor believes that the crude oil prices will increase in the future, he can invest in crude oil futures contracts to make money off that potential price increase.

 

However, there are also downside risks as the prices of stocks fluctuate every day depending on economic conditions and news stories around the world. Hence, investors need to build an effective hedging strategy.

Benefits and risks of stock trading

On the other hand, stock trading involves buying and selling shares of company stocks on a regulated exchange. Stocks are priced based on market forces, making this investment form more low-risk.

 

However, one risk associated with this investment method is that it is very volatile as share prices may rise or decline rapidly depending on investors’ sentiments towards different companies/economies. Therefore, new investors must do sufficient research before making any decisions.

Three distinct differences between stocks and commodities

Commodity trading vs stock trading in Singapore has three distinct differences;

Regulation

The first difference between commodity trading vs stock trading is regulation or lack thereof. Stocks listed on the SGX (or any secondary exchange for that matter) are regulated by MAS (Monetary Authority of Singapore), which provides oversight on the entire process of buying and selling shares.

Price fluctuation

When investing in stocks, investors can typically expect the value of their shares to remain somewhat stable throughout the day. This means that should an investor wish to sell their stocks, they would retain most of the money they originally paid for their stocks.

Accessibility

Most individual investors do not have the resources, connections, or access to information that large investment institutions might enjoy. It has led most investors to focus their funds on stocks as they are readily available and easily accessible.

In conclusion

Both commodity trading and stock trading have their benefits and drawbacks. It ultimately depends on the investor’s risk appetite and investment goals. Commodity trading can be a lucrative endeavour for those willing to take on more risks. However, stock trading may be a better option for those looking for a less risky investment. Whichever route an investor decides to go, it is crucial to do adequate research before making any decisions and use a reputable online broker before trading commodities or stocks.