Trade basics - trading tools
Trading stock indices is the best choice to achieve the higher return on your even moderate investment. Indices are among other professional indicators to feel yourself comfortable in the constantly changing business environment in terms of advanced global economies. The indices are basic indicators to say a lot about a situation at the national and global markets, i.e. multinational economic conditions. There are American, Asian, Australian, European, etc. A bit more should be said about the attributes of this trading tool:
- There is a correlation with the various most important trends that are obvious for individual groups of securities (bonds and stock)
- The trading tool presents behaviours of global markets in terms of sectors prevailing in the economy
- There is a quite high rate of return as seen in the long term (for instance, you may choose to trade in favour of some developing industry or a national economy in general)
- Perfect short-term trading opportunities (here we have in mind transactions influenced by some important events in the world’s markets as a kind of a trader’s response)
- Market fluctuations as a response to Dow Jones behaviour.
Any trader and all the more so analyst believes that the Dow Jones index is reasonably considered a representative and informative indicator. Trends in the global markets often directly or indirectly depend on it. Each change to it courses reasonable or minor changes to the market. Changes sometimes depend on some news releases. It is also often discussed in analytical materials or papers on financial issues and in mass media. Transactions with the Dow Jones index are made in a transparent environment, in which major financial institutions and actors participate.
Of course, the index consists of a number of components. They are all well-known brands describing the industry of the USA. There are such names, as IBM, AT&T, JP Morgan, etc. Working with the index, we should be aware that to get its value, we take share fractions of corporations, then sum them up and then the resulting value is divided by an estimated coefficient. This sometimes means that even entities with poor capitalization compared to industry leaders might essentially make changes to the index. A practical example may be news from any industry, which are followed by formation of a new trend.
There are other indicators popular among traders. If the Dow Jones Index says of 30 companies, another one, the S&P 500 Index, says of share prices of five hundred participants to the system. This very index is perfect for getting an objective picture of activities in the stock market. S&P 500 is calculated with the company’s net worth. This implies that entities with their lower market capitalization less influence the index. S&P 500 indicators, which are weighted and valid, represent the picture of entire economy of the USA. It is obvious that changes to the index have been cyclical in recent years. This also means that investors watch the S&P 500 as one of the most used tools to work with analytics and forecasting materials.
Nasdaq refers to the system of over-the-counter markets, where we trade with shares of high-tech corporations. Among them, there are corporate giants that are leaders in their industries such as information technology, software industry or consumer electronics. These companies speak for themselves. There are Apple, Google, Intel, Microsoft and Yahoo. The index of Nasdaq does not restrict a number of participants. This implies that therefore new businesses that are promising in their industry might be also reflected in the index, as well as leaders with multi-billion dollar assets that might be venerable at the given period.
The FTSE 100 is another index and trading tool. It says of market activities of one hundred companies in the UK with the largest capitalization. The most of them covered by the index operate at national and international markets. This implies that this index has an influence on the European and global markets as well. The capitalization figure is taken into account together with other factors and indicators considered for decision-making. For instance, the shares of any corporation must be liquid and the company is expected to announce a clear national binding.
The DAX 30 is applied as the most essential index at the stock exchange market in Germany. It is made up in Europe based on data from 30 leading German corporations. Their shares are available at the Frankfurt Stock Exchange. The index takes into account the capitalization and stock price values, as well as figures on dividends and repeated investments. The index, as for its nature, let us evaluate a total income on capital. We also may refer here to some enterprises that participate in the index. There are Adidas, Allianz, BASF, Bayer, Beiersdorf and BMW.
The CAC 40 index is the main stock for French economy. It says of the 40 most efficient participants to the Euronext Paris stock exchange. Along with the DAX 30 index and the FTSE 100, the CAC 40 model of activities supports the European stock markets. Many largest companies from France from different sectors also actively operate abroad. Leading role in the index is played by such enterprises as Alcatel-Lucent, Michelin, L’Oréal and Schneider Electric.
The long-term upward trend, seen on the diagram of the index, looks like the situation with the German DAX 30 index. Elements within the index are weighted depending on the market capitalization of each company participating in it. Many traders with a huge investment size think that the CAC 40 index is an efficient and quite profitable tool in trading.
Forex market is the most popular form of trading for experienced and novice traders who want to have the most from their trading operations. The approx. daily turnover of this market is $4 trillion. Currencies are traded in pairs; the most popular are USD/EUR, EUR/USD and USD/CHF. The traders make money on the price rises and falls. Read more about forex trading and forex binary options here.
Diversification is a tool to expand your business, make it smarter and more beneficial. Contracts for difference (CFD) on commodities is an exciting area for trading. Many traders prefer this niche since CFD trading does not implies lower returns if we see it in comparison with investments into material commodity assets.
Dealing with CFD for coffee, grains, metals, sugar, etc. is essentially the same as trading in the foreign exchange markets. Each change to price quotes of commodity assets is converted into a line of trading opportunities. CFD is considered a trading tool that assures hedging even under unfavourable trading conditions in the markets. The more so as trading with CFD deals does not imply huge deposits. You can only have a small lot with a selected leverage. Investors into CFD on commodities also benefit from the following:
- Pricing can be extensively reviewed by experts
- With a lot of a small or a medium size, you may reach a reasonable profitability compared to other kinds of trade
- Short selling is permitted
- There are no fees as a commission
The trading experience at the markets of currency including development of some analytical skills using the appropriate tools of our platform is a prerequisite for your desire to try trading with shares. Deals with shares is a challenging and exciting kind of trading as there is a clear risk evaluation compared to a profit you might get.
Majority of the brokers give to each its customer an excellent list of ways and tools for risk hedging as well as portfolio diversification regarding stock investments. Using advanced online trading platforms with the up-to-date functionality, you may make your investment strategy true. Nowadays there is no need to leave your home to be a successful trader. It is possible to deal with shares of any enterprise presented at exchanges of Chicago, London and Warsaw. Here everything just depends on you and you preferences. You may become an owner of a share or shares of such preferable companies. You are entitled to participate in trading sessions together with leading players in financial circles. The accessibility is much higher today compared to earlier days.
It is not only possible to invest in corporate sector, but also in government bonds. This is the everyday practice among the leading brokers. Transaction may be executed in USD, euros and pound sterling as well.
Please remember that you may trade bonds both independently and using a metal-currency account. Many platforms offer you to deal with long-term interest-bearing bonds as well as short-term bonds. The first expire in 30 years, while the second expire in 10 years. Do not forget please when you think of your plan of investments that conditions under which you buy short-term bonds directly depend on a volume of trade. This implies that the greater the volume, the more favourable the conditions will be.
Let us review benefits you will get when you trade bonds:
- fixed income
- about 95% market value of bonds is allowed to be sent as a parallel margin to trade with other assets
- there is a preferable and competitive commission rate, 0.08%
- none but you decides on profitability and expiry dates for bonds chosen for trading
- you may real-time follow each change to your bond profitability using special-purpose functions
Precious metals are considered the most liquid assets at any market. There are gold, silver and platinum available for trading in the same way as you trade with bonds in the stock market or currencies in the foreign exchange market. Let us discuss why the precious metal market is so interesting for individual players and larger traders within financial markets:
Behaviour of precious metals is forecastable and expected. The value of almost any precious metal is not mostly subject to reduction. It is often the right choice to follow their growth even in times of downtrend in national or global economy;
There is high liquidity in the market of precious metals. Therefore, you may expect profitable short-term deals. Besides, it may be definitely said that metals market are described with excellent predictability in the long-term aspect;
When a person decides to convert a part of his or her portfolio of assets into precious metals, he or she chooses an excellent and perfect way to control over risks and diversify his or her package of investments.
One lot is considered a trade unit at the gold market, it is 100 troy ounces when one ounce comes to 31.1035 grams. It means 160.000 in dollars. Remember please that the most powerful financial centres for gold trading in the world are London, New York and Zurich. Sometimes, there is an overlap of trading sessions, when the markets are open at the same time in the USA and in Europe centres. In such cases, the gold market shows its highest possible liquidity. This creates a strong momentum bringing many profitable chances to traders. There is a unique fact about the gold and its market. The price of this metal always returns to levels preceding the recession in the whole history.
The copper is also a rather volatile metal. Pay attention to the fact that it was not included in the guarded assets. Therefore, there is a higher risk from a large leverage in trades with the copper compared to other precious metals. On the other hand, sometimes the behaviour of the price for the copper is often predictable. For instance, in case of a downturn in the markets of commodity, quotes of the copper usually follow such a momentum. The copper is recommended to those, who prefer making fundamental analysis and the trading systems that are aimed at very volatile markets.
As there is not so many suppliers of the platinum, as such, this metal’s price might be considered highly volatile.
This metal has other advantages except of its price volatility. The platinum has recently found its place among the guarded assets. For any trader or an investor this means that the platinum compared to other assets does not loose much in its market price in cases of troubles at markets of commodity.
There is a widespread knowledge that among the precious metals the gold is the most volatile one. Nevertheless, more and more participants in trading have experienced that the silver market is often equal to that of the gold. It is sometimes superior as well in terms of the volatility indicator and the speculation capacity for the silver market. Of course, the silver market is significantly less than the market of the gold. That is why because of relatively high volatility for the metal and a large size of the available leverage, you may gain a potentially very high profit on deals with the silver. However, take care to avoid substantial losses as well. InvestManicas recommend dealing with the silver for those traders who have significant experience in the area of metal trading.
Gas, heating oil, oil – all these instruments can be used in your trades. Any established energy market implies quite an active business environment. It is a crossroad of financial interests from the largest industrial enterprises, world economy leaders, events and politics. You will have to follow everyday fluctuations of energy prices. Therefore, it means that there might be quite favourable conditions to have a profit especially if you enter this market starting from short-term deals.
Heating oil market can be really interesting subject for investments. Pay attention to the fact that longer cold weather encourages a rally of prices in the market of heating oil. Therefore, take these points into account, especially when you are a newcomer to this market. Here we can give you some pieces of advice regarding heating products. InvestManiacs suggest you to avoid opening long-term transactions to buy fuel oil in cold seasons. The reason is that this market segment does not have good predictability in this time as the most profitable deals are short-term; they are concluded just in time of emergency cooling or warming. This causes relevant changes to the demand. At the market of fuel oil, traders should be also aware of all the news on expected or current changes to climate and weather forecasts and natural disasters.
A lot of brokers have made numerous efforts to give opportunities of oil trading even to those traders who do not have relatively large amounts of their deposits. Keep in mind here that Brent oil deals depend on a change to price quotes and they are not connected to purchasing physical energy products. The character of a price movement says when a trader will earn. Do not forget that oil prices depend in general on political and environmental factors and conditions, such as natural disasters for instance. Do not forget as well, that there is a high-speed progress in an area of sources that generate alternative energy. And this can also lead to significant fluctuations in prices and in figures of profitability.
The oil of this type goes from Texas (USA). There is a high demand for it being an important product of industry to make motor fuels, different solvents and special purpose chemical compounds. Pricing processes for other types of oil are in a direct dependence on the crude oil market. The figures of its production and supply by regions may lead to significant fluctuations in its prices. The profit you may get from crude oil trading is regarded the highest among other energy products; therefore, you will see that this market activity shows its high levels all around the reporting year in trading.
The market demand and supply in the area of natural gas are determined by a lot of factors. There are amounts of production and reserves in storage, capacities of pipelines and their safety, developments in technology and a size of imports between nations. Among them, there are climate factors, demographic and economic factors, competition in the fuel market in different parts of the world. In some countries, the demand has been growing but other external influencing conditions often say that prices for the natural gas are highly volatile. This implies that you can invest with profit in the global market of the natural gas.