It can seem that one of the most common adverts before a YouTube video or on our Facebook timeline is one about investing. From stories of those who started in their bedrooms and became young millionaires, to professional sites that help you learn the ropes, financial trading is something that has now perforated the mainstream from the niche of those expected to be investors. But navigating the complex waters of being a first-time trader can be difficult, especially with not much formal training. Luckily, there are a number of financial instruments readily available that have helped made trading something that many more people can get involved with – these include indices, equities, forex, commodities, and bonds. Let’s take a closer look.
The forex market accounts for $6 trillion in average daily trade volume. Forex refers to the trading of currencies against one another, including the most-traded currency pairs of EUR/USD, GBP/USD, and USD/JPY. Forex trading has in-built stability through being tied to fiat currencies and can be done at a micro level around the clock, so a position doesn’t have to be held for as long as some other trading instruments. Traders can take advantage of the higher levels of volatility and capitalise on short-term price swings. You can trade forex options on a number of platforms that provide in-depth information and help map out possible spreads, something which helps beginners get to grips with this type of trading, one that has become very popular online lately.
When most people think about trading, they think of the stock market. Indices reflect a company, sector, or even country’s value based on their market cap or economic worth. Most country’s indices list their best-performing public companies. The S&P, for instance, lists 500 US companies and their buy and sell prices, which helps outline how the entire US economy is doing. This could lead to further trading and allow people to take the information and map it onto companies that aren’t yet listed on the index. The FTSE, Dow Jones, and Wilshire 5,000 are other examples of such indices.
Equities are other instruments used in trading. This option enables traders to trade individual company stock, which means investors ‘own’ the company in part, by owning stock of the company. Stock is popular due to the high level of liquidity as a financial instrument. This means that stocks are easier to trade, as you can enter and exit a position easier than some other instruments. Naturally, the biggest companies often attract the most volume in trades – Google, Microsoft, and Amazon, for instance. Traders should take note of what might affect stock prices – which could even include celebrity endorsements or criticism.
Commodities refer to things that are traded that have a set value – such as oil, gold, silver, salt, onions etc. Commodities can be bought or sold with futures contracts on exchanges. They are often added to a portfolio as a way of diversifying, as commodities are traded and valued differently. Prices are controlled by supply and demand. For instance, a general move away from meat on the part of the public in a certain region or country will affect both livestock and meat commodity prices and soybean prices. Historically, gold is perhaps the most dependable commodity, especially given how currencies and economies are often tied to gold and its value sees little in the way of moving with huge global events.
ETFs and ETNs
ETFs, also known as exchange-traded funds, track the performance of a variety of commodities, indices and sectors, and can include real estate and debt. Buying ETFs means purchasing shares in a portfolio attempting to recreate the performance of the underlying asset. These instruments can be bought and sold on a margin. ETFs and ETNs are seen as some of the safest instruments to trade and are therefore popular, but can include a rather high commission, so pay attention to your trading fees if you chose this asset class.
The barrier to entry for trading and investment has been lowered thanks to the wealth of information and intuitive platforms available online. Not only can we now quickly found out about the history of a stock, share or commodity, but we can analyse and map how it might be affected by various geopolitical developments. There are a range of different instruments for beginner traders to try as they decide how they want their trading journey to progress.