Commodities
F&O
Equity
Currency
Definition of Commodity Market
A physical or virtual marketplace for buying, selling and trading raw or primary
products. For investors' purposes there are currently about 50 major
commodity markets worldwide that facilitate investment trade in nearly 100
primary commodities.
Commodities are split into two types: Hard and Soft commodities.
Hard commodities are typically natural resources that must be mined or
extracted (gold, rubber, oil, etc.)
whereas soft commodities are agricultural products or livestock (corn, wheat,
coffee, sugar, soybeans, pork, etc.)
There are numerous ways to invest in commodities. An investor can
purchase stock in corporations whose business relies on commodities prices,
or purchase mutual funds, index funds or exchange-traded funds (ETFs) that
have a focus on commodities-related companies. The most direct way of
investing in commodities is by buying into a futures contract.
Advantages of commodity trading
1) Leverage:- Commodity futures accomplish on margin, acceptation that
to yield a position alone a atom of the absolute amount needs to be
accessible in banknote in the trading account.
2) Commission Costs:- It is a lot cheaper to buy/sell one futures
arrangement than to buy/sell the basal instrument
3)
Liquidity:- The captivation of speculators agency that futures affairs
are analytic liquid. However, how aqueous depends on the absolute
arrangement getting traded. Electronically traded contracts, such as the
e-mini’s tend to be a lot of aqueous admitting the pit traded bolt like
corn, orange abstract etc. are not so readily accessible to the retail
banker and are added big-ticket to barter in agreement of agency and
spread.
4) Ability to go short:- Futures affairs
can be awash as calmly as they are bought
enabling a charlatan to accumulation from
falling markets as able-bodied as ascent
ones. There is no ‘uptick rule’ for
archetype like there is with stocks.
5) No ‘Time Decay’:- Options ache from
time adulteration because the afterpiece
they appear to accomplishment the
beneath time there is for the advantage to
appear into the money. commodity futures
do not ache from this as they are not
anticipating a accurate bang amount at
expiry.
Disadvantages of commodity trading
1) Leverage:- Can be a bifold belted sword. Low allowance
requirements can animate poor money management, arch to
boundless accident taking. Not alone are profits added but so are
losses.
2) Speed of trading:- Traditionally bolt are pit traded and in
adjustment to barter a charlatan would charge to acquaintance a agent by
blast to abode the adjustment who again transmits that adjustment to the
pit to be executed. Once the barter is abounding the pit banker informs the
agent who again again informs his client. This can yield some yield and the
accident of slippage occurring can be high. Online futures trading can advice
to abate this time by accouterment the applicant with a absolute hotlink to
an cyberbanking exchange.
You ability acquisition a barter of blah on your doorstep! Actually, a lot of
futures affairs are not deliverable and are banknote acclimatized at expiry.
However some, like corn, are deliverable although you will get affluence of
admonishing and befalling to abutting out a position afore the barter turns
up.
Definition of Options On Futures
A variety of derivative products based on exchange-traded
funds. ETF futures are contracts that represent an agreement to
buy (or sell) the underlying ETF shares at an agreed-upon price
on or before a specified date in the future. ETF options, on the
other hand, are contracts that give the holder the right, but not
the obligation, to buy (or sell) the underlying ETF shares at an
agreed-upon price on or before a specified date in the future.
These products are typically used when you adopt a bullish or
bearish outlook on the economy or an industry as a whole, over
individual stocks.
The advantages of trading futures contracts
1) The commission charges for futures trading are relatively small as compared
to other type of investments.
2) Futures contracts are highly leveraged financial instruments which permit
achieving greater gains using a limited amount of invested funds.
3) It is possible to open short as well as long positions. Position can be reversed
easily.
4) Lead to high liquidity.
The disadvantages of trading futures contracts:
1) Leverage can make trading in futures contracts highly risky for a
particular strategy.
2) Futures contract is standardized product and written for fixed
amounts and terms.
3) Lower commission costs can encourage a trader to take additional
trades and lead to over-trading.
4) It offers only a partial hedge.
5) It is subject to basis risk which is associated with imperfect
hedging using futures.
The Advantages of Trading Options
1) Options trading offers flexibility to the buyers as well as to the sellers.
It can be used in a wide variety of strategies in order to make a
profit from the ever changing market.
2) Financial leverage is another advantage of trading options. Investors
can employ considerable leverage without committing to a trade.
3) They are less risky as compared to other types of trading instruments.
Huge losses can be avoided as risk is limited to the option premium, so
the maximum loss is the price you paid to purchase it (known as
premium).
4) Hedging using options enables investors to manage risk and reduce
potential risk.
The Disadvantages of Options Trading
1) The cost of trading options can be higher on a percentage
basis than trading the underlying stocks.
2) Options are so complex that it requires a close observation
and maintenance.
3) The short selling of options is accompanied by unlimited risk.
4) Options will expire at a fixed point in time and lead to most
trading expire worthless. This is applied to the traders that
purchase option.
Stock trading
Stock trading is one of the most effective ways of making
money and building wealth. It might seem easy but stock trading can be
a risky venture especially for those who are lack of knowledge and
experience.
Definition of 'Equity Market'
The market in which shares are issued and traded, either through exchanges or
over-the-counter markets. Also known as the stock market, it is one of the most
vital areas of a market economy because it gives companies access to capital
and investors a slice of ownership in a company with the potential to realize
gains based on its future performance.
This market can be split into two main sectors: the primary and secondary
market. The primary market is where new issues are first offered. Any
subsequent trading takes place in the secondary market
Advantages
1) Big returns: There is a huge potential to make big profits in the stock
market. Many investors make a good return by buying the shares at a
lower price and then selling them after the price rises.
2) Accessibility: There is a wide variety of company shares available in the
market, anyone with sufficient capital can choose the best one for their
investment.
3) Electronic exchange: You can buy and sell shares through an electronic
exchange, which is a lot faster than going in person to the stock exchange.
4) Liquidity: Stocks traded in the market have greater liquidity than other
types of securities, which mean you can easily convert company stocks into
cash by selling them to other traders in the market. This has made stocks a
more attractive investment vehicle for many investors.
Disadvantages
1) High risk: There is a risk of uncertainty involved in share
trading. If a company goes bankrupt and you bought their
stock, your stock may be worthless.
2) Extra cost for brokerage services: A traditional brokerage
firm will offer a broad range of services but it is often more
expensive due to the higher commission structure. And, many
brokers charge additional fees for trading penny stocks.
3) Losses: Investors can face huge losses if the value of shares
drop dramatically. Many factors can impact the prices of shares,
such as natural disaster, negative rumours, profit downgrade, etc.
can lead to a fall in share prices.
Forex market
It is very true that foreign exchange market is
one of the most lucrative markets, with high
returns on investment. But this requires
knowledge, patience and organization. Once you
acquire and incorporate all these in your
investment behaviour, success will be knocking
at your door. Compared with other markets,
Forex market has huge advantages in comparison
with other type of investment, especially for a
beginner or a person with not so much capital.
But it can prove as well a huge disappointment in
the case of an unprepared person. Let’s have a
look at this market’s advantages, but also
disadvantages, to help you get prepared for
trading
Definition of 'Forex - FX'
The market in which currencies are traded. The forex market is the largest,
most liquid market in the world with an average traded value that exceeds
$1.9 trillion per day and includes all of the currencies in the world.
There is no central marketplace for currency exchange; trade is conducted
over the counter. The forex market is open 24 hours a day, five days a week
and currencies are traded worldwide among the major financial centres
of London, New York, Tokyo, Zürich, Frankfurt, Hong Kong,
Singapore, Paris and Sydney.
The forex is the largest market in the world in terms of the total cash value
traded, and any person, firm or country may participate in this market.
Advantages of Forex markets:
1. Minimal or no commissions - There are no clearing fees, no exchange
fees, no government fees and no brokerage fees.
2. Easy access – if you compare the money you need on the market in
comparison with the amount needed for entering the stock, options or
futures market, it’s a huge difference. The amount of capital is very low
and it allows numerous types of people to easily enter the foreign exchange
market.
3. No middlemen – spot currency trading is decentralized and eliminates
middlemen, allowing you to trade directly.
4. Leverage – with a little investment you can move large amounts of
money. Leverage gives the trader the ability to make nice profits and keep
risk capital to a minimum.
4. Lots of free courses and demo possibilities – On the internet you can find
huge opportunities for learning how the Forex market works and what you need
to become a good trader. Also, most online Forex brokers offer demo accounts
to practice trading and build your skills, using real-time charts and news feeds.
They are more valuable than you could even imagine and, before starting your
real money on the market, try to see if you are built and ready for it by
practicing with these types of software
5. Time and location flexibility – the market is open 24 hours each day, so you
don’t have to match your schedule with the one of the market. It doesn’t
require a full-time engagement and you can choose the hours that suit your
best. Also, you can operate from any corner of the world, as long as you have
an Internet connection.
6. Low transaction costs – the transaction cost, determined by the
bid/ask spread, is usually less than 0.1%, and it can go even lower in the case
of large dealers.
7. A high liquidity market – the market is huge, so is extremely liquid.
Around 4 trillion dollars are exchanged every day, according to the latest
figures released by the Bank of International Settlements (BIS). That
becomes an advantage, as you don’t have to struggle so much until you will
find someone who wants to buy your currency or sell you one. You can’t get
stuck and, by using features like stop lose, you will close your position
automatically, while not even being in front of the computer.
8. No forced deadlines – no one and no rule is forcing you to close a
position. You can stay open as long as you consider necessary.
9. No fixed lot size requirements – your contract size it’s your decision and
you are the only one who determines your own lot.
10. Transparency - due to multi-day market movement, its size and the high
number of participants, it is virtually impossible to market manipulation.
Disadvantages
1. Differences between retail and wholesale pricing – around two-thirds of the
trades are made between dealers and large organizations such as hedge funds
and banks. They trade at wholesale prices, while the investor trades at a retail
price. Like this it can become a challenge to compete against bigger organization
that start with a lower entry point and sell more profitably.
2. Risk of choosing an inexperienced broker – you can find on the internet many
people who are targeting fraud so be careful when choosing the broker.
3. Where there is a winner, there is also a looser – don’t expect necessarily to
win lots of money. Remember that for someone to get rich, another has to lose
money on the Forex market.
4. Requires knowledge and time – Without completely knowing the market’s
rules and without having patience, your investment might very well soon vanish.
When you enter Forex market, you have to be fully aware of its advantages, but
also disadvantages. Don’t count only on the benefits of this investment to think
that you will succeed. Study, practice, improve your skills, keep an eye on all the
news and factors that influence the market, and always stick to your established
system.