Looking To Trade In Financial Markets - Which Market Is Better?

Looking To Trade In Financial Markets - Which Market Is Better?

29 Oct 2019 05:00 PM
 

Equity, Commodity or Forex

Trading in the financial markets is what increases the volumes especially when some markets are open across the borders over different time zones. Each market has its underlying asset which is tradable over the exchange. Equity market has shares of companies, local or overseas which are freely tradable as their underlying asset, while commodity market trade in goods in metal, energy, agriculture, etc. Foreign exchange trading or forex trading has different currency pairs as their asset which is traded in the currency market.

Evolution

Trading in equity stock exchange first started in Antwerp, Belgium in 1500s though in Indian it dates back to the 18th century when securities of East India Company were traded in Kolkata and Mumbai. First stock exchange – Bombay Stock Exchange (BSE) was established in 1875.

Commodity trading started in the 19th century in Chicago in 1848 while in India is started in 1875 in Bombay Cotton Trade Association, and later on in 1900 in Gujarat Vyapari Mandali to trade in ground nut, castor seed and cotton futures. Bullion or gold trading started in 1920 in Mumbai.

Forex trading started after the Second World War as between the two world wars, the currencies worked under a fixed exchange rate system which was based on the gold and silver standards. In 1978, Reserve Bank of India (RBI) allowed banks to undertake intra-day trading in foreign currency exchange, in which the exchange rate of Rupee was determined by RBI.

Equity trading

Equity market will have shares and stocks of companies listed publicly like Reliance Industries, Tata Motors, Wipro, etc in local stock markets like National Stock Exchange of India (NSE) or Bombay Stock Exchange (BSE), while international stock markets like Nasdaq, Dow 30, FTSE, Nikkei 225, Hang Seng, etc will have stocks of Google, Facebook, Tesla, Galaxy Entertainment, CNOOC Ltd, Marubeni Corp, Mitsubishi Corp, Aveva, Barclays, etc traded on them. So equity trading can be done in any company local or global which are listed publicly in their respective equity exchange. Mostly mutual funds offer opportunities by buying into global equity markets. The movement of the stock price is widely ruled by the performance of each corporate, but national and international factors also play a major role while trading in equity.

Commodity trading

Commodity markets give access to coffee, cocoa, gold, oil, mined products, wheat, sugar cane, corn, etc, without physically buying or selling the asset. The commodity is quantified digitally, and then the prices vary depending on supply and demand. The regulations are much stricter in commodity market – in India commodity trading is done through h Multi Commodity Exchange (MCX), National Commodity and Derivatives Exchange (NCDEX) and National Multi Commodity Exchange (NMCE). Thus purchase and sales of futures contract whose value is linked to the commodity prices are facilitated in these exchanges.

Foreign exchange or Forex trading

This global market trades in different currencies – thus one buys one currency in lieu of another and supply and demand of each currency moves their prices. The forex market trades round the clock across continents thus is the largest in terms of volume. So if one wants to trade in Pound, the price movement of the currency is derived from the supply and demand of Pound and Dollar currency pair.

Differences

Each market thus carries significant risk especially for an amateur trader. Rigorous study and analysis of each underlying asset is required to understand what can impact the movement in the prices.  Both fundamental and technical studies are done on any asset trading to yield better results. Sometimes inspite of the studies, markets behave differently than expected and thus one should have sufficient hedging strategies to ensure safety of capital. Trading and risk are buddies which have to be management either through in-depth understanding or taking assistance from an expert.

Initially, physical markets which gave a better feel, made traders more comfortable as they can be seen in everyday life like sugarcane, wheat, etc, but with digitization, all markets have started trading holding securities, currencies or commodity in the dematerialized form.

Commodity and Equity markets are well regulated when compared to forex market, though all of them provide leveraging with as much as few hundred bucks, one can trade in thousands.

Trading in commodity and equity markets is done on an exchange whereas currency forwards are traded over the counter or traded though brokers in the interbank market. Exchange limits are to be maintained on a daily basis for commodity, equity and currency futures. Though margins on a forex market are much lower than the margins on equity market.

Few currencies are said to be commodity based wherein they show a positive correlation to the price of a commodity, though the quantum may vary. Historically the Australian Dollar (AUD) has show to strengthen with the Gold prices, Canadian Dollar (CAD) moves in tandem with crude oil prices. During volatile and uncertain times, spot gold prices tend to appreciate and a similar upward movement can be seen in the Australian dollar.

So which is better?

In terms of size, foreign exchange market takes the lead when compared to the equity and commodity, making them more tradable as greater the size more the liquidity. With currency futures and options traded on exchange, one can ensure the market is well regulated. The forex market lets participants like central banks, investment banks, hedge funds, etc from across the world participate as the markets are open 24 hours all through 5 days of the week.

Myforexeye provides currency trading for clientele who understand the risk-reward associated with it. The daily trading calls are of assistance in taking trading positions and all this done at a touch of a tab through the Myforexeye App.

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