It’s Will, and today I wanted to share a post to help you understand a very important aspect of trading, that being understanding the various products or asset classes, also known as markets, that are available for you to trade.
When it comes to trading, one popular first question to ask when you meet a trader is; Which products, or markets, do you trade? And why?
There are so many out there, from currency markets to stock indexes which are a favourite of mine to trade using our Price Reversion strategy, through to stocks, bonds, and so on. And in this Email, our aim is to educate you on some of the most important of these, along with helping you to understand how we can make dough trading or investing in them.
Firstly, we have stocks and shares.
Stocks and shares are issued by companies that are listed on stock exchanges. The most popular stocks at this current moment in my opinion being Apple, Tesla, Google and so on, which are listed on the New York Stock Exchange over in the United States. In the United Kingdom, companies like Vodafone and Barclays are popular while in Australia companies like BHP Group and Rio Tinto take the cake.
When we buy stocks, we essentially buy an ownership in the company, on either a short-term or a long-term basis depending on the strategy you’re using. The obvious benefit to buying shares is that the shares can rise in value over time and we can then sell them, booking-in a gain.
The other benefit is that shares can pay us dividends, so not only can you bank a winning trade, you actually also get paid just for being ‘in’ the trade, too. Pretty cool right. Let me explain how this works; When the company makes profits, they in many cases choose to distribute a portion of the profits to its shareholders, which if you’ve bought the stock and are currently in a position, means you receive some of that profit.
On the flip side, the risks are of course that the share price can fall, which means there could potentially be a capital loss for us when we sell the shares. In the worst-case scenario, we could lose everything if the company goes into bankruptcy, like what happened during the 2008 financial crisis when Lehman Brothers for example went into liquidation.
The shareholders lost everything.
So it’s not all sunshine and roses. As always, there are risks to consider and none of us know whether a market will go up or down on any one day, week or month. This is why trading with a statistical edge is critical.
Without an edge, you’re as good as risking your hard-earned money by just guessing, which is why we trade mechanical strategies using strict rules, built around statistical proof, to make sure that the trades we’re taking are accurate and will generate profits over the long-term.
Secondly, we have stocks indices, or ‘stock indexes’ as they’re otherwise known. An example of a stock index would be the DAX. The DAX is a German stock index in which the top thirty blue-chip German stocks are bundled up together into one tradeable market-price.
Let’s say that a large German company is hit with bad news tomorrow, this may bring the price of the DAX index down, because one of the stocks inside it has taken some kind of hit. That’s how it works. Again, having a strategy in-place to apply to these markets is critical, and I actually originally built our Price Reversion strategy for use on this market, along with other stock indexes.
Many DAX constituents are large multinational companies with global operations all around the world such as Deutsche Bank, Volkswagen, BMW and Adidas. Similar to stocks, an index can rise in value over time and can also fall in value over time. The risk for the index to fall to zero however is a very small one because the index is made up of thirty high-value blue chip companies and, dare I say it, it would be almost impossible for all thirty blue chip companies to go into bankruptcy at the same time!
We can also gain exposure to a stock index over time by investing in an index fund. Here at WBTrading, we encourage investments in index funds due to their safety, and their long-term ‘slow and steady’ nature. In fact a great video on the topic of index funds is already on our YouTube channel, entitled ‘What is an index fund’.
Next, let’s talk about the foreign currency markets.
The foreign currency markets – Also referred to as ‘forex’ or ‘FX’ is by far the largest financial markets in the world. According to the Bank of International Settlements, BIS, trading in forex averages $6.6 trillion in trading-volume per day. It’ll also be helpful to let you know the three most liquid trading pairs in the world, those being the Euro-Dollar pair, the Dollar-Yen pair and the Pound-Dollar pair.
Now, one of the benefits of trading in the forex markets is that they’re open 24 hours a day, allowing us to trade any time of the day or night, which means there’s limitless opportunities for traders all around the world regardless of their time zone. And by trading our strategies using our mechanical rules as one example, you’d have the opportunity to pull money out of the markets right around the clock, no matter your location or your time-zone.
Which brings me on to another subject, see…
Due to the size of the forex markets, you’ll find yourself competing against the big boys. In this case, the central banks, the investment banks, the hedge funds and other professional forex traders. Without knowledge, without a statistically-proven edge, and without proper risk management, there is absolutely no doubt that a retail trader will fail.
Here at WBTrading, our aim is to properly-educate retail traders and literally provide them with professionally-built, ready-to-trade strategy rules that provide that ‘edge’ over the market that is needed, and we also teach risk management in detail to equip new or struggling traders before they dive in and begin trading, meaning they’re ready to make money from the off, from day one.
We believe knowledge is power hence we advocate traders to equip themselves with knowledge and never just “go in blind” as you will no doubt lose your money to the traders out there who are trading with edge.
Next, let’s also cover the commodities markets. A common commodity that people trade is gold. Gold is seen as a safe-haven because it has acted as a store of value, maintaining it’s purchasing power for thousands of years. History has proved that over time, the value of gold remains constant while the prices of everything else tend to go up, in-line with inflation of course.
Gold typically performs well during let’s say a market down-turn or a financial crisis. As such, gold is a very useful asset-class that offers superior diversification to an investor’s portfolio, helping to withstand volatility over the long term.
Finally, and I’m sure you’ll agree with me here, but it would be an injustice for us to leave out the most recently popular asset class; Crypto-currencies. One example being Bitcoi. Bitcoi was first invented in 2008 by a person called Satoshi Nakamoto, and if you don’t already know what it is, it’s a decentralised digital currency, with no central bank in the world responsible for administering the currency.
Nowadays, bitcoin is accepted as a payment method allowing people to pay for services or goods using them, and throughout the last year or so, the Bitcoin price has increased remarkably, currently trading at close to 60,000 per-coin.
But Bitcoin isn’t the only cryptocurrency out there; Investors can also buy other cryptocurrencies that could potentially be the next Bitcoin so-to-speak, and there are cheaper alternatives such as Doge-coin or Lite-coin as two examples.
Importantly, investing in cryptocurrencies can also aid what’s called ‘portfolio diversification’ meaning you aren’t just trading one single market or one single sector, which often sets professional traders aside from others.
Right, that’s all for today and we really hope this Email gave you some perspective one the functions of the different asset-classes out there, along with how they can help to grow your wealth by both allocating funds to, and allowing you to trade, in various areas of the financial markets with the ultimate aim of achieving portfolio diversification.
Again, similar to trading, investing is all about withstanding the test of time and thinking long-term. And only the best, only those with a proven edge over the markets, survive. And if you aren’t yet trading with edge, and that’s leading to the fear and frustration, we can help.
Just click here and we’l help you gain an edge right now, immediately.
– To your success.