When you first look at any financial trading platform, the experience can be really overwhelming. Most brokers offer a wide range of markets – it is slowly approaching a stage where there is almost nothing in the world that you cannot trade!
We can classify the instruments into 4 main asset classes, and you will find these same asset classes on nearly every trading platform.
Here we find a large variety of instruments to trade. Metals like gold, silver, platinum or copper, and soft commodities like wheat, sugar, coffee and similar agricultural products. You also have energies, where we see instruments like WTI Crude Oil, Brent Crude and Natural Gas.
Stocks and Indices:
Stocks are known and recognised the world over, and most would be somewhat familiar with a company which is listed on the stock market. Some examples are Microsoft, Apple, Google or Facebook. Indices are like an imaginary portfolio of stocks. The S&P500 is a portfolio or “basket” of the 500 biggest companies in the US. The FTSE is the same for the United Kingdom with the 100 largest companies. Almost every country has at least one index which provide an accurate snapshot of the overall economic health of that specific region.
Governments use the capital markets to borrow money in order to pay for the day to day costs of running a country. They provide their investors with an interest rate, or yield, on this investment. The higher the perceived risk of a region, the higher the yield required to be offered by that region in order to entice investors in.
This is the most popular and most liquid market. There is no currency in the world which isn’t traded to some degree, but your broker probably is just giving you a selected range of possibilities. Known as the Forex market, more than 5 trillion USD is traded every day. A few of the major Forex pairs are GBPUSD, EURUSD and EURGBP.
So now we have a small overview of the instruments but what should we trade? It is difficult to give a clear answer to this questions as there are many different opinions regarding this topic and different strategies.
A lot of people say to specialise in one instrument in order to become familiar with every facet of its movements. This is almost impossible to achieve as, take EURUSD as an example, there are thousands of daily news items and details which you would need to consider before deciding on a direction. The big financial institutions have whole departments which are often just analysing specific asset classes, industries or individual markets day in and day out. They are highly specialised and professional analysts, who are far more knowledgeable that the average trader. With technical analysis, it will get a bit easier but it would still be difficult to find good trading opportunities with which you can profit on a consistent basis.
The other group of investors would recommend to diversify your portfolio. This is a good way to mitigate your risk and to increase the probability of finding good opportunities every day. Obviously there is a higher number of chances in 10 markets than in 1 market, so what if one market is not performing like you had wished for you strategy? Perhaps it would be best to just leave it like it is and have a look on the next trade in your portfolio, instead of risking your money in an unconfirmed trade. To diversify your portfolio, you should look to add different assets to your portfolio. Why not add commodities, or government bonds and forex? This would lower your overall portfolio risk, and it would also raise the number of markets where you can get nice trades.