Spoiled for choice: how to decide which market to trade
08:16, 1 October 2018
You have decided you are ready to enter the markets, you have done your research and understood that trading CFDs is the way you want to go. The next step is deciding which markets you should trade.
In our short guide we’ll help you discover a little more about the types of markets available for trading and include three top tips to help you choose the right one for you.
The markets
Shares
One of the most well-known markets, shares are a part ownership or interest in a company. Usually this term is heard when an investor buys or sells shares in a company outright, but this is not the only way to access the market. When trading CFDs on shares, a trader speculates on the price movement of a company’s shares by choosing Buy, if the shares are moving upward, or Sell, if the shares are losing value.
Key data to watch: news, company quarterly reports, statements by the CEO or other key figures.
Indices
Indices are the plural form of a stock market index. They track how a group of shares from an exchange performs in the market. For example, the S&P 500, also known as the US 500, tracks the top 500 companies from the NYSE and NASDAQ exchanges, with the companies included based on the market capitalisation. Generally, indices can be capitalisation-weighted or price-weighted. In trading indices, a trader is speculating on the overall health of the shares included in the index, as well as the wider economic health of the parent country.
Key data to watch: Individual company data, overall economics of the country, GDP, news
Forex
A portmanteau of two words – foreign and exchange. Forex traders speculate on the price movements of a pair of currencies compared to one another. For example, GBP/USD the United Kingdom’s pound and United States dollar pair, or EUR/JPY the euro and Japanese yen pair. The price movements of Forex pairs are affected by the economic data of each individual country in the pair and its relationship to the other.
Key data to watch: GDP data, central bank releases, news
Commodities
One of the oldest markets, commodities are primary goods that are interchangeable for other goods of the same type. For example, one bullion of gold is equal to any other. Commodities are bought and sold in units such as pounds (coffee), troy ounces (gold) or barrels (oil). With four main types of commodities to choose from agricultural (wheat, coffee, sugar etc.), livestock (cattle, hogs etc.), metals (gold, platinum, rare earth metals, etc.) and energy (crude oil, natural gas, etc.) CFD traders are able to access markets that were previously reserved for investors able to take the purchase of such goods, organise their storage and of course have the liquidity to enter such a market.
Key data to watch: Forex prices, country data, key economy news
Cryptocurrencies
The latest offering to hit the financial scene, cryptocurrencies are an alternative digital form of currency, usually decentralised and created through a blockchain network. CFD cryptocurrencies are often traded again fiat (real-world) currencies such as the US dollar, for example in the BTC/USD pair, bitcoin and US dollar pair. They may also be traded against other cryptocurrencies, such as the ETH/BTC, ethereum to bitcoin pair. Cryptocurrencies are highly volatile markets and present excellent opportunities for traders to benefit from the price rises and falls.
Key data to watch: news and Forex prices
How to choose?
Now you know a little about which markets are available to trade, it’s time to decide which ones are best for you. We offer you three hot tips to consider when selecting your market(s).
#Tip No.1 – Know your style
We all have our individual style, whether in fashion or the markets, and it’s good to know what suits your taste. To explore and discover your trading style, you may consider using demo mode to get to grips with what works for you.
#Tip No.2 – Analyse your risk appetite
Risk management is a key part of any trading strategy, starting from the moment you decide which markets to trade. Get to know your risk appetite and if you’re more inclined to trade on highly volatile markets, such as cryptocurrencies, or less volatile ones. Need some help in managing your risk? Check out our article on this very topic.
#Tip No.3 – Diversify
The old saying goes, “never put all your eggs in one basket”, the same can apply to trading. Diversification is one risk management tool worth noting, by spreading your trades across different markets, asset classes, countries etc., you lower the risk of an unmanageable loss. To find out more about diversification, you can watch our handy video.