PRINCIPLES OF TRADING: WELL KNOWN TRADING INSTRUMENTS
Traders look at two primary factors when choosing the instruments they desire to trade: liquidity and volatility. Liquidity is the extent to which an instrument can be quickly purchased or sold without changing the asset’s price drastically. Volatility, on the other hand, gauges the disbursement of returns. The higher the volatility, the more perilous the instrument is.
The following are some of the most preferred instruments among active traders.
Normally, commodities are purchased and sold through futures contracts on exchanges. The contract specifies the quantity and quality of the commodity being traded. Agricultural, energy, and precious metals are the major classifications of commodities. The most commonly traded commodities include agricultural products, crude oil, and precious metals.
The marketable security trails bonds, commodities, indexes, or a group of assets. Like stocks, ETFs are traded on regulated exchanges. The fund experience price fluctuation throughout the session since it is purchased and sold.
Currencies are traded on the foreign exchange market. Accounting for more than $5 trillion in average daily volume, the market operates 24 hours a day and five days a week. Forex is one of the most attractive trading instruments because of flexible trading time, accessibility to important leverage, and relative steadiness. Here are the world’s major currencies: the US dollar, the euro, the Japanese yen, the British pound, the Canadian dollar, the Australian dollar, and the New Zealand dollar.
This instrument denotes a holder’s ownership in a company, representing a portion of the firm’s assets and earnings. There are two types of stock: common and preferred. Common stocks enables the holder to vote at shareholders’ meetings and receive dividend payments. Conversely, preferred stocks has no voting rights, but its holders have higher claims on the corporation’s assets and earnings. Stocks are highly liquid yet perilous as it can multiply returns or wipe out a trading account all at once. Still, every portfolio holds stocks as the security has proved its capability to outmatch other instruments over the long stretch.
We shall discuss how to curb risk in our next tutorial.