Commodities generally divided into two groups such as soft and hard commodities. We can consider coffee and cacao as soft and metal and oil as hard commodities. People usually trade on commodities because some of the reasons such as they considered to be more traditional, transparent and there is a unique range in the market.
What are Equities?
Equities are stocks and shares.
When buying an equity, the investor takes ownership of a small percentage of a company. A percentage of said company will be divided up and shared for this purpose. If said company increases in value, the value of the investor’s equity mirrors this.
Publicly traded companies list their shares on an exchange for anyone to purchase. The more people invest in their company through stocks and shares, the more capital the company has to fund their business operations. Investors can diversify their investment portfolio through buying from a diverse range of industries on the exchange.
An investor buys a share in a company in order to sell it for a profit later. They expect the share to increase in value, however, company shares will not always go up in value. This means that this process of buying and selling stocks and shares occurs very quickly.
An index groups multiple companies’ share prices together. An index is usually made up of that are listed together on the same exchange. They are often mentioned in the news media to measure how a certain market or exchange is performing.
Investors trade indices for the same reasons as they trade shares, hoping to profit from their growth but with the additional advantage of the diversity they add to a portfolio. When you trade an index you are trading multiple companies across multiple industries. For example there are 30 companies that make up the German DAX index. Including, at the time of writing, the carmaker Volkswagen, the sporting goods company Adidas, the airline Deutsche Lufthansa, and the pharmaceutical company Bayer, and the insurance and financial company Allianz.
The companies in DAX are the 30 most valuable companies listed on the German Deutsche Boerse stock exchange. Trading the DAX gives an investor more diversity than investing in a single company, e.g. Adidas, which specialises exclusively in in manufacturing sporting goods.