How To Choose An Asset To Trade?

Types of financial assets in trading

Financial assets are categorized into groupings based on the characteristics that they exhibit and the laws and regulations to which they are subject. Brokers and traders may trade in multiple asset classes, or choose to specialize in just one. Each asset class has its own strategies for trading, market hours, and risk factors.

It's essential for traders to understand the unique dynamics of each asset class, to enable them to make informed decisions and navigate the specific challenges associated with their chosen financial instruments. Whether dealing with stocks, forex, cryptocurrencies, or other assets, a tailored approach is crucial for success in the dynamic world of financial markets.

We’ll be looking at the following financial assets:

• Forex;

• Stocks and ETFs;

• Futures;

• Crypto;

• Options.

Forex

Forex trading is the exchanging of one currency for another currency in order to profit from the difference in exchange rates. Currencies are traded against one another in the form of currency pairs, on international exchanges with no centralized marketplace. The market is open 24 hours a day from Sunday to Friday, with traders and investors of all sizes participating.

Stocks and ETFs

Stocks are assets that represent a piece of ownership in a publicly traded company and are traded on various stock exchanges around the world. There are tens of thousands of stocks in existence, some worth pennies and others worth hundreds or thousands of dollars.

ETFs, meanwhile, are bundles of assets and securities such as stocks and bonds. Stocks and ETFs can be traded during the market hours of whichever stock exchange they’re listed on, and many even distribute profits to investors in the form of dividends.

Futures

Futures are contracts between a buyer and seller (who are not known to each other) to buy or sell an asset at a predetermined price and pre-set time in the future. They are a form of derivative, with the price derived from the value of an underlying asset. Futures contracts can be derived from various asset classes, including stocks, commodities, and forex. They are traded on futures exchanges by brokerages, such as the CME group, which are open almost 24 hours a day, five and a half days a week.

Crypto

Cryptocurrencies are digital currencies traded on a decentralized system using cryptography (essentially encrypted information), that also serve as an alternative form of payment. The cryptocurrency market, which has no centralized authority and is run across a huge network of computers, is the youngest of all financial markets, meaning that legal bodies and financial regulators are still figuring out how to regulate it.

Options

Options can be traded over-the-counter electronically or directly on the exchanges of the assets they are based on. Traders can buy and sell options for many assets, such as stock options, forex and commodities. They can usually be traded almost 24 hours a day, Sunday to Friday.

Best Forex brokers

1

9.4/10

Go to broker

eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk. Don’t invest unless you’re prepared to lose all the money you invest.

Minimum deposit:

$50, $100 (for UK clients)

Bonus for deposit:

0%

Regulation:

CySEC, FCA, ASIC

Review

The eToro broker was founded in 2007. The company promotes itself as a social trading platform working with traders from over 140 countries. The broker has several divisions operating under different jurisdictions and licensed by different regulators. For example, eToro (Europe) is licensed by the Cypriot regulator CySEC (109/10) and eToro (UK) is licensed by the British regulator FCA (583263). The broker also has a representative office in Australia and the USA. eToro Profile Details

Pros/Cons

•the minimum transaction amount for copying is $1;

•handy functionality for passive investing;

•regulated by independent monitors;

•it is possible to purchase contracts for fractional shares (that is, to invest amounts less than the cost of one share);

•it is possible to buy shares at once (not CFDs) on the US stock exchanges.

•high spreads;

•periodic technical failures in order execution;

•lack of the most popular platforms such as MetaTrader 4 and MetaTrader 5 in Europe and the CIS;

•no access to ECN systems, orders are processed only according to the STP (straight-through processing) scheme with access to specific liquidity providers;

•there is a commission for withdrawing funds;

•impolite support staff;

•inconvenient website.

Study Review

2

9.2/10

Go to broker

Your capital is at risk.

Minimum deposit:

No minimum

Bonus for deposit:

0%

Regulation:

FSC (BVI), ASIC, IIROC, FCA, CFTC, NFA

Review

The name OANDA is an acronym for “Olsen & Associates” or “Olsen AND Associates”. It is registered in the United States and provides its clients with a wide range of financial services in most countries of the world. The company was founded in 1996 and is currently regulated in four jurisdictions. The main regulator of the broker is the UK Financial Conduct Authority (FCA). Oanda Canada is licensed by IIROC. The company has several significant awards to its credit, including a victory in the category "Best Forex Trading Technologies" from the UK Forex Awards, "Best Trading Platform" from FX Week, as well as "Best Customer Service" from the US Foreign Exchange Report.

Pros/Cons

•Minimum deposit from 1 dollar.

•A large selection of the most popular trading instruments.

•Several reliable and reputable financial regulators.

•Inconvenient and poorly functioning site.

•Lack of cent accounts.

•Lack of bonus programs.

Study Review

Factors to consider when choosing an asset

When choosing a category of assets or a specific asset to trade, you should consider several factors. Let’s take a look at them.

• Fees or costs. Different financial instruments can come with additional costs and fees, which may be transactional or ongoing fees. High fees can eat into profits so it’s preferable to choose assets with low or no transaction costs. For example, the bid-ask spread in a trade is considered a transactional cost, or overnight fees for holding stock positions with leverage are ongoing fees. Some assets such as forex or indexed ETFS offer low spreads and no transaction costs, while many derivatives carry high fees.

• Trading style. Align your asset with your preferred trading approach, whether it's day trading, long-term investing, or swing trading. The behavior of the chosen asset, as well as its market hours, will impact how effectively you can trade using your approach. For example, a day trader might find a forex pair such as EUR/USD attractive due to its intraday volatility. However, a long-term investor may favor a dividend-paying stock like Johnson & Johnson.

• Liquidity and volatility. Assess how easily you can buy or sell an asset (liquidity) and the level of price fluctuations (volatility). Highly liquid assets like Apple Inc. (AAPL) stocks offer ease of trading, while volatile assets like Bitcoin (BTC) appeal to those prioritizing significant price movements.

• Economic factors. Each asset class is affected by economic factors to different degrees. Make sure to understand how economic conditions influence your chosen asset class. For example, forex traders should monitor economic releases such as payroll data for the U.S. dollar, while crypto traders need to follow geopolitical events and inflation.

Tips for choosing an asset to trade:

Consider these additional tips when narrowing down your asset selection:

• Research. It’s essential to learn as much as you can about the asset you are considering trading. The more you know, the more successful your trading will be.

• Start small. Don’t risk more than you can afford to lose. Particularly if you are a beginner, start with small amounts of capital while you are learning the ins and outs of trading your chosen asset.

• Be patient. A lot of trading is about playing the long-term game. It is not a get-rich-quick scheme, so approach it with a strategy in mind for the long-run.