The financial market is the largest and most liquid industry in the world. out-performing other giant industries like the health industry, automotive and fossil fuel industries.
In the retail trading industry, this massive liquidity means prices change significantly over time.
Retail traders can therefore profit by speculating on these moves. Once a trader opens a CFD account with a broker like AZAforex.
Leverage is often provided by the broker and this enables one to open positions that would otherwise be impossible to open with their initial capital start-up. Meaning the broker only requires a small portion of your capital to open a trade you wish to execute, and then provides the additional capital needed. This means the normal trader can start trading with as little as 20 USD!
Retail trading is further classified into three broad classes. These include the forex market, the stock market and the cryptocurrency market.
The forex market is the most liquid of the three classes. It is traded over the counter, meaning it is not bound to any open and close time except for the weekends. It is tradable from midnight on Sunday to midnight on Friday.
This means it has the most potential to profit for an experienced trader. Аlso with the super high liquidity, it means trading costs are very low and the broker spread is usually very small. Also, slippage is very rare as liquidity is high, slippage is whereby the price opens significantly lower or higher than the previous price when the market opens.
Also, the forex market has access to higher leverage than the stock and crypto market. Thus, you need lesser money to trade. Forex is further classified into currencies which include major and minor currencies and exotic currencies and also metals like gold and silver and commodities like sugar, corn etc. And indices. indices are derivatives derived from a pool of pairs eg the Au200 index is derived from the AUD currency pairs.
In terms of trader personality, forex would suit anyone who doesn't have much capital to trade and wants to keep trading costs low. And also, anyone who likes to stay and watch the charts while looking for trading opportunities.
Forex also is for aggressive traders looking to make big returns in a short time, but remember big returns can as well translate to big losses if things don't go to plan.
The stock market is the younger cousin of the forex market. The difference here is that the liquidity is much lower, in fact, a fraction of the forex market liquidity. However, it can still prove profitable to a certain class of traders.
The stock market is centralized and traded on exchanges located in different countries of the world. It involves trading company shares. As such trading only happens when those exchanges and stops when the exchange closes.
Typically, most exchanges open at 10 am GMT +3 and close at 6 pm GMT+3. While the New York Stock exchange opens at 4 pm GMT +3 and closes at 11 pm GMT +3. So, traders need to concentrate on their trading in these times.
Also trading on the exchanges is much more expensive than forex. Typically, three times more expensive. This is because sometimes orders have to be processed through third parties hence the commissions. Leverage offered by brokers to trade stocks is significantly lower typically a maximum of 1:20 and this means you will need a much higher capital to open a position of the same size in the forex market. Also, a lower liquidity price is prone to slippage and this can be disastrous to a trader, as orders like stop losses may not be triggered when slippage occurs in the opposite direction of your trade. All is not bad about the stock market though; trading stocks is much more stable and not prone to the volatility experienced in the forex market.
Also, unlike forex, stock prices tend to move more than forex on a typical day. And these movements equate to money-making opportunities.
That said, stock trading is suited to traders looking for longer-term gains. As such it is more of an investment type of trading. If you are looking to trade in the stock market, then you should have high initial investment capital to have sufficient margin as well as cater to high trading costs.
Also trading in the stock market is tricky as you must know the market sentiment. stocks tend to move together, therefore be careful not be buying in a bear market! and shorting in a bull market!
The other class is crypto trading. Crypto is the newest form of trading typically around a decade old.
However, in recent months, its popularity has surged due to its anonymity and transaction costs. In trading, crypto is much similar to the stock market in exchanges, only that here it is crypto exchanges that are decentralized and not fixed to specific locations. The magic with crypto is you can trade 24 hours a day, 7 days a week, 365 days a year. You can trade crypto anytime and anywhere. the crypto market itself operates similarly to the forex and stock markets.
Leverage is typically lower than the forex market. and you need higher investment capital. the crypto market is super volatile and can be disastrous to inexperienced traders. You can trade tens of cryptocurrencies including bitcoin, Ethereum, dogecoin and other crypto derivatives.
Crypto is suitable for long-term investors looking for a huge return on their investment as a crypto general market trend is easy to predict. Also, apart from speculating on the market direction. crypto holders can sell their crypto at the market rate and get cash in return. As such apart from trading itself crypto holders can buy crypto, hold and sell when exchange prices are higher meaning a bigger return.
All in all, to successfully trade the three types of markets, a trader needs to develop and religiously stick to their trading plan. A trading plan dictates what to trade, at what time, and entry parameters before opening the position. Also, Risk management is Paramount by determining the size of trade to open and appropriate stop loss position. Otherwise, without a trading plan, it would be impossible to realise any profit in the market and failure is inevitable. Cheers!
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