So, you have decided to be a trader. What are you going to trade?
The options can seem somewhat daunting: shares, currencies, cryptocurrencies, commodities, indices, bonds and the rest. Where on earth to begin?
A good starting point in selecting the assets you wish to trade would be to decide how many different securities you intend to deal in. This is very much a matter of temperament. One novice trader may decide to focus not merely on one asset class, such as commodities, but on only one or two securities within that class, such as gold and silver.
Hedgehogs and foxes
By contrast, another would-be trader may choose to paint on a much broader canvas. Such a person may take the view that nothing ought to be ruled out, and that the widest possible “investable universe” provides a happy hunting ground for the intrepid trader.
The hedgehog knows one important thing, while the fox knows lots of lesser things. Neither is better or worse than the other, and most people sit on a spectrum between the two, but it is essential that the would-be trader has the self-knowledge to decide where on that spectrum they reside.
Once they have done so, they can begin the process of asset selection.
Given that every novice trader will be different, it makes sense at this stage to examine each asset in turn. After all, the characteristics of traders vary greatly, but the characteristics of the various families of securities remain relatively stable.
Let’s start with the euro, used and overseen by a number of states, as it is for currencies such as the Japanese yen, which circulates only in its country of origin.market. This is, at heart, a “political” market. It trades a state-guaranteed and state-sponsored product, money, and is thus supremely influenced by political decisions. This is as true for the
OPEC and the oil market
Are you comfortable dealing in such intensely-politicised assets? If not, currency trading is not for you.
You may be much happier trading . By definition, almost all the companies whose shares are quoted are 100% private-sector entities. True, some will be dependent on public contracts – defence-related firms being a classic example – while others, such as British housebuilders, have been greatly helped by government-funded schemes introduced in the wake of the financial crisis.
But overall, this is a market driven by private enterprise. A sizeable literature of research is available on the largest companies, should the trader take a fundamental approach to asset selection, while for those who prefer a technical, chart-based approach there are historical trading records from which can be gleaned levels at which individual stocks have seen support and levels at which they have encountered resistance.
The sector straddles both the politically-driven nature of the currency exchanges and the free-market atmosphere of company stocks. is an obvious example here, with the inter-governmental Organisation of Petroleum Exporting Countries (OPEC) explicitly seeking to influence the price by altering the volume of crude entering the world markets.
Pay no attention to recent talk in the US about treating OPEC as an unlawful monopoly. It’s been said before and nothing happened.
, in a sense, has its own “OPEC” in the shape of the world’s central banks. They remain big holders of bullion, and decisions to increase or reduce their holdings can have a huge effect on the price. This was seen with the gold sales of the late Nineties, which sparked a price crash.
Always remember, when trading gold, this is far more than the raw material for jewellery. It is a monetary asset, thus prone to government actions.
trading is obviously politically influenced, as the entire market was created by governments in the first place. and are heavily dependent on protectionist government policies, and the price of is strongly influenced by public-sector infrastructure projects.
Closer to a free-market environment are dealings inand .
Currencies without governments
Stock market have emerged in recent decades as an asset class in their own right, with traders able to take positions on the likely movements of the , the , the and others. Again the would-be trader can acquire deep knowledge concerning past movements of one or more index, or they can scan trading charts to figure out likely turning points upwards or downwards.
To end where we began, with currencies. There is good news for those traders put off the idea of foreign exchange by its political nature.offer a government-free alternative in the new, private money systems made possible by innovative technology.
is the best-known of these, but it has competitors. The cryptocurrency universe illustrates vividly how money would operate in the absence of official supervision, with huge volatility threatening at all times to trip up the trader.
A final word. If you feel you’ve chosen an asset that is not for you, don’t stick with it, cut your losses and start again. There’s no shame in admitting a mistake.