Trading has been a popular investment choice ever since the concept of the stock market first appeared back in the twentieth century. But there’s so much more to trading than simply stocks and shares. Developments in communications and regulatory frameworks, plus the increased demand for trading services, have boosted the variety of instruments on offer. This article will explore some of the main options you have open to you if you’re thinking about becoming a trader.
Traditional: stocks and shares
Profiting from the rises and falls of the stock market has long since been something traders have done. It’s possible to buy stocks in individual companies, but this concentrates all of your risk in to one centralised location. Instead, most people choose to invest in tracker funds which cover the whole of a designated stock market. That way, you can still get the benefit of a stock market investment while also diversifying your risk.
Stocks and shares are generally considered to be a long-term investment in that their value can rise and fall substantially in a short timeframe, but their value tends to rise as time goes on and companies grow. If you plan to withdraw your cash within a few months, then, this asset class may well not be for you – as you do need medium to long-term growth in order to get the most from a stock market investment.
Alternative: foreign exchange pairs
From exchange-traded funds to cryptocurrencies, there are lots of different investment vehicles available to a trader. There are too many to mention in one article, but a flavour of the alternatives can be found by looking at foreign exchange, or forex, pairs. There’s a whole speculative market aiming to profit out of trading foreign currency, and it’s believed to be worth over $5 trillion US dollars per day. By pairing up two currencies and specifying how you think they’ll perform in relation to one another, you can be in for a large payout if you forecast it correctly. All sorts of factors, from general elections to interest rate rises, can affect this – so it’s very much a strategic endeavour.
The rise in the use of the Internet has led to an explosion in the use of CFDs, or contracts for difference. These derivative products can mimic the behaviours of a whole host of traditional and alternative investment vehicles, including company stocks, foreign exchange pairs, cryptocurrencies and many more. However, when a trader purchases a CFD they do not actually own the item it represents, such as a stake in a company or the actual forex currency. This lowers the barriers to entry: once you’ve found a broker on the best CFD broker table, you can often sign up and start trading within a day or two.
It’s clear that there are a whole host of options available to traders. From traditional investment vehicles such as stocks and shares trading to new-fangled alternatives like contracts for difference. So there are plenty of ways you can get your portfolio up and running and enjoy the benefits that a diversified trading experience can offer.