Financial Trading - So many markets

Financial Trading - So many markets

Trading covers a multitude of sins, or at least many of the markets. Mention "trading" for non-trader and they will probably think of stocks and shares, but there are many other markets you can trade in. These include commodities, futures, indexes, CFDs and options. They all have their pros and cons, and some require specialized knowledge.

The most popular markets used by traders in stocks, commodities, futures, indices and Forex. Some traders to switch between markets, others just one stick. Let us highlight some of the similarities and differences between them.

Shares

In the United States has more than 40,000 shares, so you have plenty of markets to choose from. You can not handle all of them, so you need to home in on those that offer good opportunities for trading using whatever trading methods you decide to use.

When buying a stock that typically need to put all the money at the time of sale. It may seem obvious, but it is not so with all markets. Some brokers offer a 50% margin stock, meaning it can be traded on the value of twice the amount in your account. This seems like a good deal but if your stock starts to go down will get a "margin call" and will have to invest more money in your account or sell stock at a loss.

Shares traded in a very normal of 100. If you want to trade an expensive share - and some stocks are very expensive, especially in U.S. markets - you need a considerable amount of money in your account.

It is not easy to sell shares short. Selling short is a strange concept to many people who think of buying shares at a lower price and then selling at a higher price. But it's often easier to predict that a share will fall, not rise, so you want to do is to sell at high price and then buy it back later at a low price. The net result is the same, regardless of the sequence of contracts - buy low, sell high.

However, you can not sell something you do not even have to sell shares short to "borrow" them from your broker. This is not as straightforward as buying all the shares are not available for sale shortly.

Finally, the section dealing takes place during market hours so if you do not live in a country where traded have to adjust your trading hours to suit.

Futures, commodities and indices

Commodities are goods like corn, copper, oil, orange juice, oats, wheat and gold.

Technically, the futures contract is an agreement to make or accept delivery of the goods of a certain date at a price. In practice this rarely happens unless you're a manufacturer who actually wants goods. The vast majority of futures traders are simply speculating on whether the price will go up or down and will never deliver an item.

Futures contacts include products and also market indexes such as S & P 500, Dow Jones and Russell. Indices are simply composed of securities that provide a total reading of the market or any part of it.

S & P 500 (Standard & Poor's 500) tracks 500 of the largest companies in the U.S. market. The Dow Jones Industrial Average tracks only 30 of the largest and longest-established companies while the Russell 2000 is a lower index shares.

In fact, commodities and indices traded futures and in the same way, although retailers can use the terms interchangeably.

Unlike stocks, futures can be sold short just as easily as you can buy. Each futures contract has its price and fluctuating many traders deal with only a contract.

Brokers usually charge a flat fee commission per contract, often expressed as "round turn", which is a buy and a sell transaction. This may be a few dollars, often less than the value of a point or two on the contract. If you are trading a long time frame of the commission is negligible, but if you are day trading and scalping a few points here and there becomes a significant fraction of the cost.

Futures brokers typically offer a margin of about 20% of the basic instrument to be able to control $ 10,000 in value of the contract for maybe $ 2,000. However, the same rules apply - if you over-leverage your account will receive a margin call or your positions will be closed at a loss. Margin and leverage are both sides match.

Many brokers offer a demo account so you can get used to the trading platform and test your trading strategies before you put real money on the line.

Forex currency trading

Foreign currency, foreign exchange or Forex as it is known, has quickly become one of the most popular markets for private traders in recent years.

As its name suggests, it involves buying and selling foreign currency. Most commonly traded currencies are referenced against the U.S. dollar and are sometimes referred to as "currency pair", although you are only one tool for trading. For example, GBPUSD is the UK pound / US dollar pair. A value of 1.7625 would mean that one pound is worth 1.7625 dollars. Other popular pairs include the Euro (EURUSD), Swiss Franc (USDCHF) and Japanese Yen (USDJPY) although there are others.

So unlike the stock and futures markets have no table to choose, but there is variety within forex currency trading to give you a number of markets for trade.

The value of each pair differ slightly, but the minimal movement - called "pip" - is worth about $ 10. The GBPUSD is on average 100-150 pips per day which will be $ 1000-1500. Many brokers let you trade half or even quarter size, which are very useful when starting out. Also, many brokers offer demo accounts, so you can practice before risking real money.

The total value of the Forex market is worth billions of dollars daily, which is much bigger than stock or future. It is also truly international market, dealing takes place in the world 24 hours a day from Monday to Friday. You can, therefore, trade at any time of day or night at times to suit you. It is worth noting, however, that greater moves usually occur when U.S. and European trading sessions.

You can sell short only forex easy as it can be bought and brokers offer highly-leveraged accounts too - but the same warning about margins apply here.

Brokers tend not to charge a fee for forex trading and you will often see adverts for "commission free" trading. However, they make their money on that spread is the difference between buying price and selling price. The spread is usually between 3 and 5 pips, although some brokers may offer 2 pip spreads on some pairs and some less popular couples can have a greater spread.

Payment of spread is particularly useful when trading a mini lot. A 3-pip spread on a fourth lot would be about $ 7.50 and full size lot would be $ 30. Again, spread is more important when trading short time frames in which you're just in order to make a few pips per trade. You need to build the distribution in your trading system to not overestimate what you can do the trade.

One interesting aspect of foreign currency exchange rate is that there is no central clearing house where the absolute prices are quoted, unlike stocks and futures. So it's quite possible to see slightly different brokers quoting different prices for the same pair. As the market became more efficient, this difference is reduced, in most cases, a few pips, but emphasizes the importance of checking the data to be used for analysis is the same - or close to - that used by your proxy setting orders.

The market will decide to trade will depend on many things, not least of all, your budget, but also how many markets you want to look and what classes you want to trade. There are trading in vehicles to suit all preferences and pockets.




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