When you finally decide that you want to trade, the first thing you’ll do is choose markets where you want to trade or invest.
Different markets offer different advantages as well as risks. In general, it’s better to invest in different markets rather than just sticking to one. This is one rule of diversification: do not put all your eggs in one basket.
However, for beginning Forex Trading, it might be difficult to choose the markets they’re comfortable to trade in. More than that, it really takes a long time to understand and be familiar with any market. Nonetheless, it’s still helpful to have some heads up regarding each kind of market.
The Stock Market
When people hear the word “investing,” the first thing that pops up in their minds is the word “stocks.” The stock market is arguably the most popular kind of market for people.
In the stock market, an investor can buy or sell shares of ownership of publicly listed companies with his Forex Trading Account Types. There are two most popular kinds of stocks, which are the common stocks and the preferred stocks, each with distinctive advantages.
You can make money via the stock market either through capital gains or dividends. In capital gains, the value of each share increases in value. In dividends, the companies pass the income to their investors.
The Bond Market
The bond market, also known as the debt market, is most commonly used by governments, companies, and financial middlemen to issue debt instruments to raise capital.
After that, the debt issuers make monthly or yearly payments to the debt holders. They do this in the form of coupon payments. Once the debt reaches its maturity, the debt issuers pay back the principal on the debt.
If you plan to enter this market, you will most commonly use bonds, bills, notes, and certificates of deposits.
You can even use exotic types of debts, like mortgage-backed securities and collateralized debt obligations.
The Foreign Exchange Market
The foreign exchange market, or the forex market, allows you to trade money for money. You can speculate on the interest rates between currencies, trying to make a profit by attempting to predict the next movement of the currency pair.
Investors can buy one currency security by selling another with hopes that the currency they have bought will go up in value when compared to the one they have just sold.
In the forex market, the movements between the currencies are generally small and nearly most investments are for the short-term. As a result, a lot of leverage is used in this market.
This market can be considered as the expansion of the above mentioned markets. Derivatives are securities that have or derive their values based on underlying assets, like stocks, interest rates, currencies, or physical assets.
When you invest in these assets, you can go long or short on the underlying asset and can buy the right or obligation to buy or sell. Changes in the value of the underlying assets will cause changes in the value of the derivative.
Generally, you can invest in the major types of derivatives, which are options, futures, and forwards.