Today, it is possible trading every time, everywhere (special laws apart), when we want and what we want. That would be the focus of this article. What is the object of our trading?
What is the “right” market to trade? Stock? Forex (aka currencies)? Commodities such as gold and copper?
To know what market better suits your trading attitude and nature, we need to analyze them all.
Forex is the largest financial market in the world.
There is no opening bell in the forex market. There are 3 distinct trading sessions for you to take advantage of in the U.S., Europe and Asia. You can enter or exit a trade whenever you want from Sunday to Friday.
Even if it is possible to trade some stocks and commodities in the after hour electronic session, the liquidity is often very low and this makes prices extremely uncompetitive.
In trading Forex, the transaction costs are low and trading is commission free. Most Forex brokers offer little or no transaction fees. They are compensated through the bid/ask spread of each currency pair.
Market transparency is much greater in Forex than in stocks or commodities, this means it is easier to analyze how the market works.
The Forex market has no central exchange and it was designed to be this way to allow for instant execution of transactions, this means no delays for you and extreme ease of execution.
Price movements are highly predictable in the Forex market because, due to its highly speculative nature, price movements tend to over shoot and then correct back to the mean.
The Forex market has no structural bias as do most stock markets. But, in trading forex it is equally easy to buy or sell at anytime. The ability to buy or sell at any time with no penalties is another advantage the forex trader has over trading other markets.
Due to the high volume of price movements, Forex is the best market to trade using price action analysis.
Stock market is the choice of many people and it is common to think that stocks allows to make money right away.
Most of people use stock market as an investment activity, some use it to earn an income. These individuals are called “day traders” and they buy and sell stocks frequently.
It is simple to trade in this market because it involves buying/shorting shares of a company.
By mixing stock trading into the investment plan helps to build a diversified portfolio. It is recommended to create a diversified portfolio because it’s an important safeguard if any one type of investment fails.
Linked to stocks we can find options. Option trading is very attractive for the small investor as it gives traders the opportunity to trade a very large exposure whilst only outlaying a small amount of capital.
One of the main advantages that option trading has over stock trading is to be able to take a view on market direction with limited risk while having unlimited profit potential.
This is because option buyers have the right, not the obligation, to exercise the contract for the underlying asset at the exercise price. If the price is not right at the time of expiration, the buyer will forfeit the right and let the contract expire.
Commodities is a financial tool that is universal, so it is possible to trade on the price of different mineral/material.
To invest in commodities can offer profitable investment opportunities because they are not based on the profits or business strategies of a company or nation.
They are largely independent of performance of other asset classes. This also means that they have competitive prices and they are immune to price manipulation or insider trading.
Despite their inherent durability, there are different risks involved with investing in commodities, especially for the different aspects of the initial investment, the type of loan or margin at which the commodity is purchased and the nature of the commodity itself.
As we have seen, every market has his pro and con. It is not about the correct market to choose but it is important to be aware that alternatives are out there. This does not mean every alternative will be good for everyone, but using a combination of markets can have an impact on results. The rule is: diversify your portfolio.