COMMODITIES TRADING VS STOCKS TRADING
Commodity trading & stock trading are linked in many ways. Theoretically, the ups & downs of stock market base on the reported as well as projected earnings of different firms, groups and companies among stock trading on an index. The earning & stock prices fall with the slow speed of business along with the rising cost of producing products. Mostly, as the commodity markets meet, the increasing prices of such commodities mean that the corporate earnings of consumers of such commodities will decrease.
In commodity trading, supply & demand plays main role. The example of developing countries can be taken as they need heavy investment in different commodities like steel, fuel oil and some other products to build the required infrastructure, as well as cotton, cooking oil, grain and food to fulfill the needs of population (Increasing middle class). This trend creates heavy demand and high prices of commodities. Increasing demands attract investors from stocks and bonds business and they get advantage.
After purchasing low price commodities, manufacturers’ earnings and stock prices increase. Increasing prices of commodities prove speed breaker in expanding economy, it is due to the decreasing purchasing power of the people. As the consumers stop buying different types of manufactured goods, due to low selling prices, manufacturers’ earnings and stock prices come down. High commodity prices open the new ways of low price manufacturing costs like direct import of products and outsourcing of cheaper labor.
Interest rate and declining economy are interlinked, when the global economy faces declining, central banks of countries try to control the situation by keeping their interest rates low. Manufacturing costs are reduced by low interest rates; it is due to the options from bank for loans which companies utilized. Manufacturing commodities’ prices also come down due to this reason. Commodities trading & stock trading both tend to unite ass central banks struggle to encourage the economy via lower rates.
Commodities Trading Ways
Chicago Board of Trade (CBOT) of USA has special role in the futures of commodities. The CBOT & CME Group are interlink and same, among these Chicago Mercantile Exchange (CME), well known New York Mercantile Exchange (NYMEX) as well as COMEX commodities exchange are connected in this matter. For buying or selling at a specific date in the coming days, special contracts are signed. Every futures contract means a specific quantity of any required commodity like oil, bushels or corns. Some more options are also available in futures, these are at stated prices. Without exercising the discussed options, there is no required delivery of any commodity. All these options are settled down in CBOE. For future trading or commodity options, applying and approving is necessary for any special commodity or option, its account with your broker is also important.
Stocks Trading Ways
If we discuss about stocks, these are managed in stock exchanges, famous examples are NY Stock Exchange & NASDAQ. Every stock shows the fractional share ownership within the issuing company. A cash account at your broker is necessary for trade stocks. For margin trading, a margin account is necessary.
These were some examples of commodity and stock trading with their definitions. The role of global market is important to understand this concept.