Key Difference – Commodity Exchange vs Stock Exchange
The key difference between commodity exchange and stock exchange is that a commodity exchange is an exchange where commodities are traded whereas stock exchange is an exchange where stock brokers and investors buy and/or sell stocks, bonds, and other securities. Both types of exchanges are driven by the demand and supply for commodities or financial instruments. An exchange facilitates a trading platform for buyers and sellers to meet and conduct transactions. With the increase in the opportunities provided by the commodity and exchange markets, they are able to attract a growing customer base.
CONTENTS
1. Overview and Key Difference
2. What is a Commodity Exchange
3. What is a Stock Exchange
4. Side by Side Comparison – Commodity Exchange vs Stock Exchange
5. Summary
What is a Commodity Exchange?
A commodity exchange is an exchange where commodities are traded. Tradable commodities fall into the following categories.
- Metals (e.g. gold, silver, copper)
- Energy (e.g. crude oil, natural gas)
- Agricultural (e.g. rice, wheat, cocoa)
- Livestock and meat (e.g. live cattle, lean hog)
Figure 01: Examples of Commodities
Trading of commodities has been done from a very long time. However, the Chicago Board of Trade (CBOT) established in 1864 is considered as the world’s oldest commodity exchange where commodities such as wheat, corn, and cattle were traded via futures contracts. The most common way of trading a commodity is through futures, which is an agreement to buy or sell a particular commodity or financial instrument at a predetermined price at a specific date in the future. If an investor wishes to invest in a commodity futures contract, he or she needs to open up a new brokerage account. Each commodity futures contract requires a minimum deposit, depending on the broker, and the value of the investor’s account will increase or decrease depending on the value of the contract.
Listed below are some of the most significant commodity exchanges and their notable commodities.
What is a Stock Exchange?
A stock exchange, also referred to as ‘bourse’, is an exchange where stock brokers and investor buy and/or sell stocks (also referred to as shares), bonds, and other securities. To be able to trade a security on a stock exchange, it must be listed on that specific stock exchange. Large scale companies are often listed in international stock exchanges. Companies can also list their shares on multiple exchanges, and this is known as ‘dual listing.’
Two forms are available in stock exchanges as primary market and secondary market. When the shares or bonds are first offered to the pool of general investors, they will be trading in the primary market, and the subsequent trading will happen in the secondary market. Established in 1602 by the Dutch East India Company, Amsterdam Stock Exchange was the first company to issue stocks and bonds, thus is the oldest stock exchange in the world.
Below listed are the world’s largest stock exchanges and their market capitalizations.
The principle role of a stock exchange is to provide a readily available primary and secondary market for the securities to trade. Further, a stock exchange has a responsibility to monitor the financial market to ensure that it works fairly and transparently and to inform investors about new market opportunities.
Figure 02: Trading floor of the New York Stock Exchange
What is the difference between Commodity Exchange and Stock Exchange?
Commodity Exchange vs Stock Exchange |
|
| Commodity exchange is an exchange where commodities are traded. | Stock exchange is an exchange where stock brokers and investors buy and/or sell stocks, bonds, and other securities. |
| Trading Components | |
| Metals, energy, agricultural, materials, and livestock are traded in a commodity exchange. | Stocks, bonds, and other financial securities are traded in a stock exchange. |
| Largest Exchanges | |
| New York Mercantile Exchange is the world’s largest physical commodity market. | New York Stock Exchange is the world’s largest stock market. |
Summary – Commodity Exchange vs Stock Exchange
The difference between commodity exchange and stock exchange depends on whether the exchange provides a platform to exchange commodities or stocks and other financial instruments. Stocks usually trade for a longer time than commodities where once the subject commodity is bought/sold, the exchange withdraws the contract. Some of the most significant scale commodity and stock exchanges are located in the United States that provides a significant contribution to millions of daily transactions.
Reference:
1. Wee, Rolando Y. “Biggest Stock Exchanges In The World.” WorldAtlas. N.p., 07 July 2016. Web. 05 May 2017. <http://www.worldatlas.com/articles/biggest-stock-exchanges-in-the-world.html>.
2. “Commodities Trading: An Overview.” Investopedia. N.p., 05 Apr. 2017. Web. 05 May 2017. <http://www.investopedia.com/investing/commodities-trading-overview/>.
3. “Top Commodity Exchanges in the World.” CommodityHQ.com. N.p., n.d. Web. 05 May 2017. <http://commodityhq.com/trading-strategies/detailing-the-top-commodity-exchanges/>.
Image Courtesy:
1. “NYSE127″By Ryan Lawler – Own work (Public Domain) via Commons Wikimedia