Traders: Which Markets Should You Trade?

As technology increases and trading innovation continues, the world is seeing an expansion in the types of trading instruments that can be used. Even seemingly separate markets are attempting to steal each other’s market share. For example, a person no longer needs to buy gold physically or even from a futures contract, they can simply buy an exchange traded fund (ETF) to participate in the movement of gold prices. Considering that similar scenarios are possible with currencies, commodities, stocks and other investments, traders can fine tune how they trade and tailor it more to their individual circumstances.

Markets, Markets, Markets
Depending on education and experience, a person may not even be totally aware of the investments or trading vehicles that are accessible with a click of the mouse. Even while avoiding abstract and illiquid markets, traders can find trades within many different markets:

Stock Market: This well known market simply involves buying/shorting shares of a company.

ETF MarketFunds representing all sorts of sectors, industries, currencies and commodities. Trading similar to stocks, these funds can be bought and sold rapidly or held long term.

Forex Market: The largest market in the world. The forex market facilitates the exchange of one currency for another currency. Currencies are always traded in pairs, with many potential combinations available, but only some of which are very liquid.

Options Market: A market which allows participants to undertake positions in the derivative of an asset. Therefore, the option is not ownership of an underlying asset (though rights and obligations exist), but the option price (along with other inputs) fluctuates with the value (or lack of) that the underlying asset is providing.

Contract for Difference (CFD): A hybrid of the stock, forex and options market that allows participants to place trades in a derivative product based on an underlying asset. Generally the CFD does not have an expiry date, premium or commission (see broker’s terms and conditions), but does require the participant generally pay a larger bid/ask spread than what would be seen in the actual physical market for a product. (To learn more about CFDs, see Instead of Stocks, Trade A CFD.)

While there are other markets, these markets are all now easily accessible from home to just about anyone with an internet connection. Each market offers different advantages and disadvantages. Because of this many traders may decide to trade only one market because they feel it suits one aspect of their life or they lack knowledge of available markets. This could mean that traders are not taking advantage of the correct market given their trading style.

Source : Investopedia

Be the first to comment

Leave a Reply

Your email address will not be published.


*