Commodities Vs Stocks

Advantages of the Commodities:
- Very low commission fees
- High liquidity enables you to get in and out of the market easily
- Able to succeed whether the market is up or down
- Narrower dealing spreads
- Increased leverage
- No one can corner the market

Future prices are widely and instantaneously disseminated, serving as a ready reference price for the bullion community.

Gold & Silver contracts are standardized, accepted globally and are liquid financial instruments.

People who are new to futures markets are sometimes unclear about the differences between futures and stocks. Although futures and stocks do have some things in common, they are based on quite different premises. Futures are contracts with expiration dates, while stocks represent ownership in a company. The following chart may help delineate the major differences between them.

	Futures	Stocks
Trading	Traded at an organized exchange	Traded at an organized exchange or over-the-counter
Represents	A commitment to buy or sell something in the future at an agreed upon price	Ownership of a corporation
Issued by	A futures exchange, which writes the terms of each contract and makes it available for trading, but does not specifically issue it Buyers and sellers create an obligation when they enter into futures contracts	A corporation
Maximum number that can be issued	No limit to the number of futures contracts that can be	Set by corporate charter There are, however, position limits and position accountability in stock index futures
Investing	Can be traded in expectation of making a profit, but can be a zero sum game	Long-term positive expectation of return, but no guarantee of profit
Cash Flows	In and out flows to traders’ accounts are based on daily marking to market – a debiting or crediting of each futures account based on that day’s changes in the price of the contract(s) held in each account	May receive dividends
Leverage	Highly leveraged	May be leveraged if purchased on margin, with a 50 percent margin being the standard (considered a loan from broker with interest required)
Ability to Sell Short	Yes, as easily as buying long; no uptick in price necessary	Permitted under special circumstances. A short sale can only be made on an uptick – when the stock price has gone up a tick
Time	Typically short term Fixed maturity/expiration date, usually less than one year	Typically, but not always, long term Stocks are perpetual instruments so long as the underlying company remains solvent
Money	Buyers and sellers deposit a designated performance bond in an account; the amount is a percentage of the current value of the contract As contract prices change, the accounts are debited or credited accordingly	Buyer purchases shares Margin may be paid as a down payment in some cases Broker may ask for a margin call – a request for additional money from the person buying or selling on margin due to additional price changes in the stock
Monitoring	Traders must be aware of expiration day and last trading time
Risk	Depending on price changes, more than the initial investment can be lost	If the stock is not bought on margin the most that can be lost is the entire investment