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5 Key Differences Between Commodity Futures & Stocks
Commodity futures and stocks are two very different investment vehicles, though they are often confused. Commodity futures are contracts to buy or sell a specific quantity of a commodity at a set price on a future date, while stocks are ownership interests in a corporation. Commodity futures are traded on exchanges, while stocks are bought and sold in the secondary market. Here are five key differences between commodity futures and stocks.
Futures contracts are standardized.
Unlike stocks, which can vary greatly from one company to the next, futures contracts are standardized. This means that they are all for the same quantity and quality of the underlying commodity. This makes it easier to trade futures, as there is no need to worry about the specifics of each contract. Additionally, because futures contracts are standardized, they are traded on regulated exchanges. This adds an additional layer of safety for investors.
Futures contracts are traded on an exchange.
The key difference between commodity futures and stocks is that commodity futures are traded on an exchange, while stocks are not. Futures contracts are standardized agreements to buy or sell a specific quantity of a commodity at a specified price on a specified date in the future. Stocks, on the other hand, are shares of ownership in a company. When you buy a stock, you are buying a piece of the company.
Futures contracts are margined.
When you trade stocks, you are buying or selling an actual ownership stake in a company. When you trade futures, you are buying or selling a contract that will either deliver a commodity to you at a later date or require you to deliver a commodity to someone else. The key difference here is that with futures, there is no actual exchange of the commodity taking place until the contract expires. This means that when you buy a futures contract, you are not actually buying anything. You are simply agreeing to buy something at a later date.
Stocks are not standardized.
One key difference between commodity futures and stocks is that stocks are not standardized. This means that each stock is unique and there is no set market price. Commodity futures, on the other hand, are standardized contracts that are traded on an exchange. This means that there is a set market price for each commodity future.
Another key difference is that commodity futures are traded on margin. This means that you only have to put up a small amount of money to trade a contract. Stock trading, on the other hand, requires you to pay the full value of the stock.
Lastly, commodity futures contracts have a set expiration date. This means that you will have to either sell or buy the underlying commodity by the expiration date. There is no such expiration date for stocks.
These are just a few of the key differences between commodity futures and stocks. It's important to understand these differences before you decide which one to trade.
Stocks are not margined.
One key difference between commodity futures and stocks is that stocks are not margined. This means that when you buy a stock, you are buying it outright and do not have to put down a margin. Commodity futures, on the other hand, are margined. This means that when you buy a commodity future, you are only required to put down a small percentage of the total value of the contract. The margin allows you to control a much larger position than if you were buying the underlying commodity outright.