Differentiate between commodity and stock - SS1 Commerce Lesson Note

A commodity refers to a raw material or primary agricultural product that can be bought or sold, such as gold, oil, wheat, or coffee. It is a basic item used in commerce that is generally uniform in quality and can be exchanged for other goods of the same type. On the other hand, a stock represents ownership in a company. When you own a stock, you own a small piece or share of that company.

Commodities are tangible goods, often found in their natural state or after minimal processing. They are typically traded on exchanges and their prices can fluctuate based on factors such as supply and demand, weather conditions, geopolitical events, and market sentiment. Stocks, on the other hand, represent an ownership stake in a company and are traded on stock exchanges. Their value can be influenced by various factors like company performance, earnings, news, and investor sentiment.

Commodities are often used as investment vehicles for diversification and hedging purposes. Investors may buy commodities to protect against inflation, manage risk, or take advantage of price fluctuations. Stocks, on the other hand, are primarily purchased as investments in individual companies. Investors buy stocks with the expectation that the company's value and profitability will increase over time, allowing them to profit from dividends or capital appreciation.

Commodities' returns are mainly driven by changes in their supply and demand dynamics. The value of a commodity can rise or fall based on factors such as changes in production, global economic conditions, or geopolitical events. In contrast, stock returns are influenced by the overall performance of the company. If the company performs well and its value increases, the stock price tends to rise, potentially generating capital gains for investors.