Financial markets trading offers traders with a range of products. Traders can choose the suitable one and invest. In the article, we’ll be discussing the two significant markets of financial trading; commodities and forex.
Commodities have products related to daily use products while forex trading is investing in currencies of various countries. Both are different and hold good benefits for traders. So, let’s analyse them and understand the benefits and differences: commodities and forex.
What are Commodities?
Commodities are the basic goods used in commerce. These are interchangeable with the other goods of the same type. Besides, these are often used as inputs in the production of other goods and services.
Some examples of commodities are gold, oil, sugar and natural gas.
What is Forex?
Foreing exchange market or forex is the financial market. It is the global marketplace for exchange of national currencies. The market is most liquid and volatile in nature. Traders buy or sell the currencies in pairs to invest and make profits.
The market is decentralised in nature and available with most of the online brokers. Some of the forex examples are EUR/USD, USD/GBP and USD/INR.
Differences: Commodities and Forex
The differences between commodities and forex are quite clear. However, the markets have many other points of difference than their main difference of offerings. So, to have better understanding of their services below we have the differences of commodities and forex:
Regulation
The first point of difference between forex and commodities is their regulation. The commodities market is a highly regulated market. But the forex market is not that regulated.
Forex has some regulations but is also a loser. It has little regulation which makes it less worthy in comparison to commodities. Also, some traders think they are better with government regulation trading then decentralised.
Financial Market
Commodities market is a physical financial market. Traders can check the commodities in physical and even trade. However, forex is an online trade market and has no physical presence making it a bit less reliable for trade.
Leverage
Leverage is the loan kind of facility for the traders. They can use it for trading at high market positions. Many brokers offer the services of leverage.
While forex traders can enjoy leveraged services to earn good profits and open at high positions. The leverage in forex is high but with commodities it is available but not that easy to get.
Exchange Trade Limits
Commodities are traded on exchanges. But the forex market allows users to trade in the over-the-counter market and are traded by brokers or interbank markets. By trading on the exchange commodities have daily range limits.
So, traders have to consider the limit of their trading in commodities. However, forex does not have any such limit.
Benefits of Commodities and Forex
Commodities and forex markets have their benefits for traders. Here, we have the benefits of both the markets that traders take advantage of:
Commodities:
- Commodities provide great diversification for portfolio
- Market provides exposure for the traders
- The trading hours of commodities is more thus more trading time
- Commodities have seasonal patterns which traders can track easily
- Commodities have higher leverage
- The transaction cost is low than other assets
- It makes for effective carry trade
Forex:
- Large and global market
- Good choice for beginners
- Allows trading 24 hours
- High leverage facility
- Low transaction costs
- The market has high liquidity
- High opportunities as market is volatile
- Allows buy and sell of currency pairs depending on the market
- Offers good technology to trade
- Regulated market
Conclusion
Commodities and forex markets are efficient trading places. Many traders and investors choose the market assets to invest in and have successful trading experience.
The article clearly denotes the differences of the two markets. But also, gives traders the benefits they can enjoy with each of the markets. Commodities are good for physical trades as it has physical presence while forex is a good market for online traders using high leverage.
Besides, they share many other differences. Readers can go through the article for a complete insight and then invest or trade in the products of the markets. Thus, making it easier to understand and invest or trade.
