Financial Trading includes a number of different of markets. If you talk about trading to a person who is not involved in this business, they are most likely to think that you are talking about the buying and selling of stock and shares. The fact of the matter is that there are many markets that you can trade in. These markets include futures, CFD's, indices, commodities and options. There are advantages and disadvantages in all of them and some require more expertise and detailed knowledge than others.
Traders mostly trade in the markets of commodities, stocks, indices, futures and forex. I am going to discuss the similarities and the differences between them
In the USA alone there are over 35,000 shares so there are a large number of markets for you to choose from. Choose carefully and focus on the shares that offer the best trading opportunities. When purchasing shares you will normally have to put up all the money when the sale is finalised. There are brokers that will offer you a fifty percent margin with the shares. This means that you will be able to trade to twice the amount that you have available in your account. However, the danger is that if the value of the shares decreases, you will get what is known as a margin call, which means that you have two choices open to you. These are to increase the funds in your account or sell the shares at a financial loss.
Selling shares short is next to impossible. Most people find this a strange way of making money, but it can be easier to predict that a share will fall in value. Sell the share at a high price and buy it back it back when the price is lower. You make a profit. In order to sell the shares short you will need to 'borrow' them from the broker. Some but not all shares are available to sell short.
Commodities are products such as crude oil, corn, lemon juice, gold, copper, oats and wheat. A futures contract is when an agreement is entered into to make or accept delivery of a commodity on a certain day and at a certain price. In reality this does not happen very often unless you happen to be a manufacturer who wants the goods. The majority of futures traders are only speculating on whether the price will go up or down. They will not take delivery of the item.
Futures contracts will include commodities and they will also include also stock market indices. Examples are the S&P 500 and the Dow Jones. Quite simply, Indices are a number of securities that provide an overall reading of the market or some element of the market. The S&P 500 (Standard & Poor's 500) follows 500 of the largest companies in the US market and the Dow Jones Industrial Average will follow only thirty of the largest and longest-established companies.
Commodities and indices are in effect futures and are traded in a very similar way. Where they differ from shares is that futures are able to be sold short just as easily as they can be bought. Each futures contract will have its own variable price and many traders will deal in one lot contracts.
Brokers will usually charge a flat fee commission per contract, which is often expressed as a round turn. Each transaction will have only one buy and one sell. This transaction may only be for a few dollars, which is often less than the value of a point on the contract. Futures brokers will usually offer a margin of about twenty percent of the value of the underlying instrument. This means that you will be able to control $20,000's worth of a contract for $4,000. However, the same rules will also apply if you over-leverage your account. You will receive a margin call or your possibly your positions will be closed at a loss. Margin and leverage are both a double-edged sword so be very careful.
Currency trading or forex as it's usually known, has become one of the most popular financial markets for private traders in the last ten years. The buying and selling of foreign currency is involved. The most commonly traded currencies are combined with the US Dollar and are sometimes referred to as a "currency pair" even though only one instrument is being traded.
Unlike shares and futures, you don't have a large amount of markets to choose from, but there are choices n forex trading to give you a nice selection of markets to trade.
The value of the forex market is worth trillions of dollars per day, which is far bigger than shares or futures. The forex market never sleeps. It is taking place around the world twenty four hours per day from Monday to Friday. But, remember however, that the biggest moves in the market usually take place during the US and European trading sessions.
As with other financial trading markets you are able to sell short forex as easily as you are able to buy Brokers will offer highly-leveraged accounts but the same dangers regarding the margins also apply here.
Brokers do not usually charge a commission for trading forex. However, where they make their money is on the spread. This is the difference between the buying price and the selling price and spread is usually between two and five pips although some brokers may offer variations on this. The spread is more important when trading short time frames where you're only all empting to make a few pips profit per individual trade.
No absolute price is quoted with forex trading because there is no central clearing house. Therefore it's quite possible to find that different brokers will quote slightly different prices for the same currency pair.
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Andrew Tomkinson is a writer of Articles on the Financial Markets. For more information on the Financial Markets and help in choosing a trading system that works, please go to the link:
http://budurl.com/ForexCypher
