As a first time trader, both equities and commodities would be equally overwhelming for you and you might not even understand the actual pros and cons of both the options. However as you gain some knowledge and experience, especially about equity futures you would also come to know about commodity futures and would like to know the difference. Let’s see some basic differences.
Object being traded: This one is pretty obvious though. Still I thought I should mention. While in equity you would be trading the stocks of the listed companies ex : Infosys , Reliance, ONGC etc . In case of commodities you would be taking positions on some of the commodities like– Gold ,Zinc, Natural gas, Crude, Cotton, Wheat, Sugar etc
Difference in Exchange: While equities are traded on NSE and BSE in India, commodities are traded on MCX and NCDEX. So you need to have different accounts for maintaining margin money as per SEBI guidelines. You can use the same trading window to enter trades on any exchange though. Just pull your selected share or commodity in market watch and enter your trade.
Difference in timings: The equity markets are open from 9:15 AM to 3:30 PM on weekdays. Commodities can be traded from 10 AM to 11:30/ 11:55 PM depending on daylight saving extensions for closing hours. Also there are public holidays which differ on both exchanges and some special trading sessions as well decided by the exchanges.
Minimum investment: Remember that we are comparing equity futures and not simple equities. Unlike equities where you can buy a single share of any company, futures have lot sizes. Which means if you want to take positions in any share, you effectively buy/ sell the number of shares in one lot defined for that share. In general equities have a lot size of around ₹ 5- 6 lakhs and hence if you see the margin requirement for this, it may be a minimum investment of more than ₹ 1 lakh. In case of commodities, there are various smaller lots sizes like 1 Kg silver (around ₹ 43,500), 1000 KG Aluminium (around ₹ 1,28,000) etc. So the minimum investment would be about ₹5000-6000 for silver and about ₹12000-15000 for Aluminium depending on how much leverage your broker gives you.
Difference in fundamentals: Fundamentals for a company would be quarterly/ yearly earning, management quality, PE ratio , margins and lot more. However for commodities the fundamentals are demand-supply and inventories data.
Hedging: This is one of the major differences in equity futures and commodity futures. Equities also have options to hedge your future positions whereas commodities on MCX still do not have that option. There are news that options in commodities will be introduced soon but as of now they are not available.
Let’s see a quick summary
|Equity futures||Commodity Futures|
|Object||You trade shares of listed companies ex : Infosys , Reliance, ONGC etc||You trade in the commodities available ex : Gold , Zinc, Natural gas, Crude, Cotton, Wheat, Sugar etc|
|Trading Exchange||NSE , BSE||MCX, NCDEX|
|Timings||9:15 AM to 3:30 PM on||10 AM to 11:30/11:50 PM|
|Minimum investments||Around ₹ 1,00,000 +||Around ₹ 5,000-6,000|
|Major Fundamentals||All fundamentals of the company like results, management, PE ratio etc.||Demand -supply and inventory data|
|Hedging||Options available||Options not available|
I did include the points that I could remember but there may be a few more differences. I hope I have listed some points which would help someone understand the basic difference between Equity futures and commodity futures. Do feel free to add to the above differences in the comments below. You may also like to read my articles about
Getting started with MCX (Commodity trading)
Getting started with Equity trading