September 12, 2019

How is working at a hedge fund trading commodities different than trading equities?

In terms of the working environment, there isn't much difference between trading commodities and equities. Depending on the firm's rules and working conditions, the trading may vary to a great extent. While the commodity's value is figured by its demand in the current market, equity trading depends on the success and profit of the firm.

Let's learn each type of trading in brief.

Hedge Fund Commodity Trading

As the name quite suggests, commodity funds investment involves the raw materials that are further used for the production of final goods. These raw materials can be precious metals, such as gold, silver, platinum and energy resources such as oil or natural gas; and agricultural products such as wheat, rice, maize, and etc. The investment isn't limited to the products only but investors can choose to invest in the companies that produce and manufacture these goods.

There are many types of commodity funds, out of which three are extensively preferred by investors. They include:

• Index Funds

• Commodity funds

• Futures-based commodity funds

The major benefit traders working with hedge funds commodity trading expect is the protection against inflation. As the prices of commodities are likely to increase during the inflation period, investors can secure their financial future by investing in these precious commodities. Other than that, commodities fund help users in portfolio diversification. When traders choose commodity fund along with equity trading, they manage their risks by not investing their total savings in one market. This way, they diversify their portfolio and minimize investment risk.

Trading Equity Hedge Funds

In equity trading, the shares are sold by a private company to the stock exchange. The price movement of the equity shares affect the marketing decisions, firms’ growth, and the overall performance of a company. Unlike a commodity, equity funds holder enjoys a part of the ownership of a firm. As the traders are buying shares from the company, their success depends on the firm's success.

In commodity trading, the success of your investment is determined by the value and demand for that particular commodity in the marketplace. It is comparatively riskier than equity trading. On the other hand, equity investment depends on the firm's success. The investors must consider investing their funds in both equity and commodity trading. It helps them to diversify their portfolio and minimize their risks. This way, even if one market fails, they have other sources of income.

Know more about hedging: Open Free Trading Account