Share market trading is not everyone’s cup of tea. The amount of risk and money involved makes it even more challenging to sustain in the market with investment. There were times when people used to invest high amounts in shares with too much risk. But they were a secondary source of income back then. However, the scenario has drastically changed.
Understanding Equity, Forex, and Commodity
People have started investing in various other forms like equity, forex, and commodity. There are also mutual funds, stocks, and other options, but equity, forex, and commodity have captured the market amongst shareholders. When a common man thinks of making a safe investment in the share market, he considers all the available trading options.
Hence, it is necessary to understand the basic concept of these trading options before jumping on to the question of how to choose the best one amongst them.
Equity trading is quite often used among investors and shareholders. In general sense, equity is that part of the capital that is invested by the owners of the company. However, it is open for the shareholders to invest in such equity as well. It is usually traded by companies whose shares are listed with National stock exchange or Bombay stock exchange.
Forex means foreign exchange. Forex trading is trading in foreign currencies in the money market. It is different from equity because equity is sold in the shares market. Here, the orders are placed by the investors on the stocks of exchange currencies of different countries. The forex market is influenced and affected by changes in policies by the foreign government.
Commodity trading is a recent phenomenon. It has been derived from other countries where the trading is done in metals, agricultural products, and crude oil. Since prices of these commodities are highly fluctuating and risky, they are becoming very prominent among the traders who invest in such markets.
Some key components differentiate and distinguish one market as well as investment from another. The investment decision is not easy, especially for a beginner. Hence, it becomes necessary to compare, assess, and analyze the merits and drawbacks of investment in different markets. These factors are described below:
The market is constantly fighting, which affects the investment of a shareholder or investor from time to time. Sometimes the prices go high, and occasionally low. But the equity market is safer and secure since these shares can be traded in both spot and derivative markets. This means that the investor has the option to put and call upon its shares at the current price.
However, the same is not the case with forex and commodity investment. There is no spot market but only the derivative market for foreign currencies and commodities. This makes them more prone to risk, leading to heavy irrecoverable losses. However, foreign exchange can be traded online.
Risk is an uncertainty that exists in every investment decision. No investment can guarantee a 100% return in any market, be it equity, forex, or commodity. But to make a safe investment, one needs to assess the imminent risk as much as possible.
Forex market is the riskiest market in terms of losses because it is prone to be affected adversely by the foreign policies not governed by the domestic markets. However, the commodity market is comparatively less risky. But if you want to choose between commodity and equity, you must go for equity because it has the lowest risk. This means that its risk to return ratio is better than other markets.
Several investors adopt different trading methodologies to make profits on their investment. However, other investors go bankrupt due to losses. This means that choosing the right type of trading methodology can do wonders for your investment. Online trading in the current scenario is an excellent way of making a hassle-free investment in stocks.
However, the investments need to be guarded by a middleman, known as stockbroking firms or stockbrokers. Making investments through brokers can help divide the risk. Nevertheless, it very much depends upon the investor to choose the right kind of trading methodology for his objectives. One must choose wisely.
A lot of investors do not research enough about the company they are investing in. The income of the company and the company’s investment determine the prices of the stocks of shares. But there are brokers to help you with your investment in return of charging a percentage amount for brokerage. The investment in equity, forex, and commodity depends a lot on the amount of brokerage you are willing to pay. Brokers charge different from investors depending on their decision to invest in the type of market.