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For those of us who are planning to venture into trading, the forex market should be our first choice. The financial market brings together millions of investors all over the world with the aim of trade. Forex market being the leading trading market in the world.
What is a Financial Trading Instrument?
Financial trading is simply the buying and selling of financial instruments to earn profits. The financial trading instruments can be in the form of shares, forex, or derivatives, such as contracts for difference (CFD).
The good thing with financial trading is that you can do it in your free time or you can decide to do it as a full job, at the end profit earning is our concern.
Financial trading instruments are classified into various categories:
- Stock Indices
- Individual Equities
- Commodities maturities
- Bonds
- Forex
- Exchange-Traded funds
- Ava options
- Inactivity and administration fees
Given the various types of financial instruments as an investor or trader, there are many factors that you should consider before trading any of the above instruments.
Factors to consider before investing in Financial Trading
- Liquidity- This refers to how easy it is for you to buy and sell a financial instrument at any given time. A financial instrument with high levels of liquidity tends to be easy to trade.
- Volatility-It’s the ability of financial security to rise and fall sharply at any given time. As earlier said that in financial trading, you trade on movements of value to earn a profit. Hence, high volatility tends to favor the traders by allowing them to generate profits.
- Low Transactions costs-An instrument with low transaction costs is the best as it will enable traders to generate optimum returns. However, brokers may charge a small trading fee for different financial trading instruments.
- Availability of information-Of course for you to increase your profits you must gather more necessary information. You have to be up to date on financial market trends.
Top six Financial Trading Instruments
Forex- This financial instrument is the best to trade because of its relative stability. The brokers tend to provide a significant amount of leverage that makes it easy for investors to trade. Besides, the forex instruments offer high liquidity and volatility, thus making it easy to trade.
Stock Indices-The instrument highlight the performance of a broader stock market. Prices of selected stocks in various companies are listed and weighted as a way of making it easy for traders to compare returns of specific investments.
Individual Equities-For instance, of those investors who can opt to trade individual stocks of companies. They might even decide to trade on the company ownership, depending on the number of shares that one buys. However, if you choose to trade on equities, there various factors that you should consider that time to time affect the stock price.
Commodities maturities- These financial trading instruments include liquid commodities such as Oil, Gold, or even Silver.
One can buy and sell various types of commodities in the exchange market. Of course, with financial trading, you have a wide range of ways of generating profits.
Exchange-Traded Funds and Government Treasuries
Exchange-traded funds are also referred to as bonds. They seek to track the performance of given sector indices or commodities. Exchange-traded funds cover a broad range of assets ranging from stocks, bonds, currencies, and real estate. Whenever a trader buys exchange-traded funds, he is buying shares that are trying to duplicate the performance of a given asset.
Exchange-traded funds instruments are some of the best financial trading instruments, given that the safety net that they come with. In this case, exchange-traded funds have continued to stand the test of times as some of the best investment tools for focused investors.
Ava Option
These are contracts that offer traders the right to buy or sell a specified amount of an instrument. The trader has the power to control not only the instrument and the amount that he invested but also the when and at what price.
Bonds
Bonds are a type of financial instrument that results in investor money to the bond issuer in exchange for interest. The bond price rates are often used as an estimating tool to help investors determine how expensive an asset can be. The investor compares bond yields on a certain type of government bonds to earnings yields on the stock in the financial market.
Which is the ideal Financial Instrument To Trade?
The best financial instrument to trade depends on several factors. For beginners, the number of resources that one has will dictate to the extent the type of instrument that one can trade.
For instance, when you’re investing in government bonds, you definitely require to have an amount of money compared to Forex markets where leverage is always on offer.
On the other hand, when it comes to day trading, some financial trading instruments tend to be volatile and liquid at different times of the day and week. For beginners, currency pairs paired to the dollar will most of the time be volatile and liquid during the New York trading session.
Most people are looking to launch investment careers in financial markets; in this case, the forex market will be on the rise.
Conclusion
Being in a financial market is the best investment that one can choose in life. The financial market has shown to play host to a wide range of instruments that one can trade. However, having a clear understanding of how a given certain instrument works make you to be in a position to earn more profits as well as minimizing the risks. You need to understand all the dynamics and factors that affect a particular financial trading instrument, to be in a sure way of launching a profitable investment career.
For perfect timing, one should never pick a financial instrument until they have gained sufficient knowledge of all the factors that can affect it. Not carrying out thorough research first is a sure bet way of losing money in the financial market.
