The financial market is not all about trading currencies as assets. There are numerous financial instruments out there. Moreover, each of these features a range of different assets.
Similar to your focus on your day plan and timezones, you should focus on specific assets. Stop being a jack of all trades, the specialization will lead to results. Following this, you should become an expert in one field. In the end, this will give you a greater chance of success.
There are different asset classes you can choose. These are groups of comparable financial securities. For example, Bitcoin, Litecoin, and Ripple are under the cryptocurrency asset class.
Besides cryptocurrencies, other asset classes you can trade are:
Furthermore, there are financial derivatives that make different classes. At this point, we wouldn’t cover them.
For the successful start of a novice trader, it is enough to know the major asset classes.
Forex Market for Trading Currencies
Forex is a foreign exchange market. When thinking about trading, not many think of trading currencies. However, you always need a currency for trading!
When someone is making a purchase in another country, there is a demand for a different currency. As the supply and demand create the market – the market for trading currencies emerged!
Similar to trading goods, traders are positioning the value of currencies one to another. For this reason, participants in the market can purchase and sell currency pairs.
However, 95% of trades are not connected with actual trading of goods. It is because most traders are trying to reap the benefits of the price difference. Because of that, this is the most liquid market in the world with a daily volume of over $5 trillion.
At the same time, it is a decentralized global market. It is because the supply and the demand determine the price. Seemingly, this is where the exchange rates for different currencies come to life. For this reason, we can classify it as an over the counter market (OTC).
Participants of this market are ranging from:
- private companies
- central banks
- investment companies
- hedge funds
- retail traders.
Forex for Retail Traders
Many will state that the Forex market is the best start for novice traders. One reason for this is because it is easy to access the Forex and start trading currencies.
Seemingly, it is the same if you have a small amount of capital or a larger amount. Either way, there are brokers that will allow you to trade the forex market.
Another reason is that it is not hard to learn about currencies. As many already have the knowledge of the major economies, all you have to do is to follow the news and tips.
Forex market is also unique in the fact that it is open 24/5 from Sunday 10 pm GMT until Friday night 10 pm GMT. Therefore, trading on Forex Market is similar to a full-time job.
Equity Market For Stocks and Shares
The equity market or stock market is the market where you can buy or sell stocks and shares. Unlike Forex, where you are trading currencies difference, the purchase of stocks means ownership.
In the case of stocks, it is the ownership of the business that initially started selling stocks.
Consequently, the equity market is a vital part of many international economies. One crucial reason for this is that it allows businesses within those economies to be able to raise capital.
This capital has multiple positive effects. It allows businesses to grow and innovate. But at the same time as allowing investors to profit from the purchase of the said shares.
All purchases and sales of the stocks go through the exchange. Thereby, the first step is to list shares. For example, company listing shares at the New York Stock Exchange (NYSE) will have their shares bought and sold through this exchange.
The way that these exchanges work is that all bids for shares are visible by other traders. As visibility can create a FOMO (Fear of Missing Out) and many other effects, sometimes these shares can skyrocket.
Therefore, those that are investing in the equity might find themselves rich in a matter of minutes.
There are many other exchanges around the world. Naming a few:
NYSE – New York Stock Exchange (as mentioned above)
LSE – London Stock Exchange is founded in 1571. Thus, it is one of the oldest exchanges in the world
NASDAQ – American stock exchange that is the second-largest stock exchange after NYSE
SSE – Shanghai Stock Exchange for the Asian market
Bond Market as Debt/Credit Market
Unlike stocks where you get the ownership, the bond market is “debt” or “credit market.” Investors and traders alike can participate in this market buying and selling of debt securities.
Governments issue these debt bonds, and traders purchasing them are effectively supplying the government with money. The government than fund new infrastructure or pay their debts.
Similar to officials, private companies can also issue bonds. Whoever is issuing bonds, every bond is a part of the primary or the secondary market.
What is the difference?
The primary market is normally where new bonds are issued and bought. On the other hand, the secondary market consists of the same bonds sold by the brokers. Retail traders like you and I will typically buy and sell these bonds from the broker.
Examples of these bonds that one can buy are German 10-year bonds, the US 10-year, and the UK 10-year bonds.
Commodities Market for Products
The commodity market is a market to trade raw products. These products, such as oil, gold, soybeans, and coffee were selling for ages.
There are two types of commodities – hard and soft commodities. The first is natural resources like gold and oil. Second are soft commodities which are products usually from farms. These are coffee, soybeans, and wheat.
Different commodities can be bought and sold via brokers. Since the market determines the price, there are many buyers and sellers in the market. Of course, there are a lot of brokers, too.
The most easily traded and most accessible markets for retail brokers are the gold and oil markets. Knowing this, most brokers provide these to trade on with small spreads.
Cryptocurrency Market for Trading Currency of the Blockchain Era
Recently, the world is witnessing the new market taking place. It is the cryptocurrency market where you can trade digital or virtual currencies online. Of course, you are also trading them through different brokers. But for the most time, the identity is unknown.
It is because cryptocurrencies are decentralized and primarily utilizing blockchain technology. Decentralization means that trading currencies of this kind are not associated with any central bank. Therefore, cryptocurrencies don’t fall under any regulation.
Even when this is the case, they are the most secure since they are the latest breakthrough in cryptography.
Some of the cryptocurrency assets have a massive group of supporters. Bitcoin, Litecoin, Ripple, and Ethereum are one of the most famous. You can trade these via different brokers (some of them are purely crypto-based brokers).
This includes brokers that have previously focused on other markets. Following the trends, these are now including cryptocurrencies in their offerings.
In the case of cryptocurrencies, buying and selling determine the price, too. However, since cryptocurrencies don’t have backing in any other asset – the price is highly volatile.
Seemingly, the traders don’t have any fundamental analysis to relly on. Therefore, one single remark or a tweet can cause the market to skyrocket or fall.
Since the major trend enabling massive gains, many brokers will offer trading currencies built on the blockchain. However, not all of them are valid. Furthermore, you should choose only regulated and valid brokers to do so.
Trading Currencies or Some Other Assets?
Following this statement, it is important to choose between different assets wisely. It is because a variety of different asset classes have a myriad of instruments under them to trade.
For this reason, you should choose the correct broker that will allow you to trade the asset class you prefer. Furthermore, enabling the trade for the cheapest rates and with the cheapest spread. All of this would lead to high chances of profitability.
We hope this helped, good luck and happy trading.