How To Choose An Asset For Trading

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When choosing which asset to trade, you should consider: costs and fees, your trading style, economic factors and liquidity and volatility. Conduct thorough research to enhance your understanding of the chosen asset, commence with small capital, especially if you're a beginner, to manage risks effectively, and adopt a patient, long-term strategy, recognizing that trading is not a get-rich-quick scheme.

Financial markets offer traders a wide range of opportunities, from participating in the global Forex market to investing in stocks, commodities, cryptocurrencies, and other asset classes. With so many options available, one of the biggest challenges is determining which financial instrument best matches your goals, risk tolerance, and trading style.

This article explores five of the most popular asset classes available to traders today. It examines the key advantages and disadvantages of each market and highlights the main factors to consider when deciding which assets to trade.

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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.

High liquidity. As one of the most liquid markets globally, forex provides ample trading opportunities.
Accessibility. As forex markets operate 24 hours a day, five and a half days a week, traders can engage at almost any time. This is not the case with an asset like stocks.
Low costs. The absence of exchange fees and low spreads make trading forex one of the more cost-effective forms of market engagement.
Profitability. Forex brokers offer leverage, enabling traders to control a larger position with a smaller amount of capital.

Fraud risk. It's essential to conduct thorough research and only trade with reputable brokers regulated by credible financial authorities.
Economic sensitivity. Forex is highly sensitive to economic indicators, making it more vulnerable to economic downturns compared to some other assets.
Complex fundamentals. As forex relies heavily on economic factors and fundamental analysis, it can be more intricate and complicated for traders who may prefer more straightforward technical analysis.
Limited asset variety. Though there are many currency pairs, there are far fewer diversification options compared to other asset classes like stocks or commodities.

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 are assets that represent a piece of ownership in a publicly traded company and are traded on various stock exchanges around the world, making them one of the best assets to trade on IQ Broker.

Diversity. Stocks and ETFs represent various sectors, providing opportunities to invest in industries ranging from technology to healthcare, allowing for diversified portfolios.
Long-Term. Stocks have historically shown the potential for long-term capital growth, making them suitable for investors with more long-term financial goals.
Liquidity. Many stocks and popular ETFs are highly liquid, enabling traders to easily buy and sell positions without the price being significantly impacted.
Active or passive investing. Investors can choose between active stock picking or passive investing through ETFs, catering to various investment styles.
Ownership and dividends. Owning stocks means owning a share of a company, giving you access to dividends and potential voting rights at shareholder meetings.

Market volatility. Individual stocks can be subject to significant price fluctuations influenced by news specific to the company, earnings reports, or broader market conditions.
Research intensity. Successful stock trading often requires in-depth research into individual companies, financial statements, and market trends, demanding significant time and expertise.
Expense ratios. ETFs have expenses that can erode returns over time, especially for high-frequency traders.

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.

Lower transaction costs. Futures trading often involves lower transaction costs compared to trading the underlying assets directly.
Speculative opportunities. Futures markets offer ample opportunities for speculators to capitalize on price movements without physically owning the underlying assets.
Tax advantages. Depending on the jurisdiction, futures trading may offer tax advantages compared to trading other assets.
Diversification. Trading in futures offers portfolio diversification in a way that stocks and ETFs can’t, by offering direct market exposure to underlying commodity assets instead of secondary market products like stocks.

Expiration risk. Futures contracts have expiration dates, and traders need to manage or roll over positions before those dates, adding complexity and incurring potential costs.
Limited asset variety. While futures cover various asset classes, the range may be limited compared to the entire catalog of financial instruments available for direct trading.
Complexity. Futures markets can be very complex, requiring a good understanding of market dynamics, contract specifications, and various trading strategies.

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.

24/7 Market. Cryptocurrencies trade 24/7, 365 days a year and are the only financial asset to do so. This provides flexibility for traders in different time zones and allows continuous trading.
Lower entry barriers. Cryptocurrency markets generally have lower entry barriers than other financial markets, enabling participation with smaller capital.
Innovation and technology. The crypto space is dynamic, with continuous technological advancements and innovative projects. Investors can explore innovative blockchain projects and Initial Coin Offerings (ICOs) for potential growth.

Volatility. Cryptocurrencies are known for their high volatility, leading to rapid price fluctuations.
Lack of regulation. Compared to other assets, cryptocurrencies often operate in a less regulated environment, posing additional risks.
Market sentiment. Cryptocurrencies can be heavily influenced by market sentiment and speculation. For example, price action on coins like DOGE is said to be based purely on sentiment.

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.

Versatile. Options can be used in various strategies, from speculation to hedging existing positions.
Diverse markets. Options are available on a wide range of assets, providing flexibility for different market conditions.
Adaptability. Options can be used in various market conditions, whether bullish, bearish, or neutral.

Limited time. Options contracts have expiration dates, so if the market doesn't move as expected within the timeframe, the option may expire worthless.
Continuous monitoring. Options require active monitoring, and unexpected market moves can impact the value of the position.
Costs. Commissions and fees associated with options trading can accumulate, affecting overall profit profitability.

Best Forex brokers

9.4/10

Go to broker

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Minimum deposit:

$100

Deposit Bonus:

Regulation:

CySEC, FCA, ASIC, FMA, FSCA, FSA Seychelles, EFSA, MAS, DFSA, SCB

Review

Trading.com is a multi-asset brokerage offering CFD trading and, in selected regions, direct investment in real stocks and ETFs. The platform is designed for both active traders and long-term investors. Trading.com is a licensed broker providing services exclusively to U.S. residents aged 18 and older. Trading is available through the desktop version of MetaTrader 5, the proprietary WebTrader, and the Trading.com mobile app.

The company is a registered retail foreign exchange dealer with the Commodity Futures Trading Commission (CFTC) and a member of the National Futures Association (NFA #0516820). Trading.com offers a single live account type without trading commissions, as costs are included in the spread. Leverage is up to 1:50. The broker supports trading with Expert Advisors (EAs) and provides a Virtual Private Server (VPS) for automated strategies.

Trading.com operates a dual-product ecosystem: a trading account for leveraged market participation, and an Investment Account offering direct ownership of global stocks and ETFs (where available). This enables clients to both trade short-term market movements and build long-term investment portfolios within one platform.

Pros/Cons

•Regulated in 10 countries, offering multi-jurisdictional licensing

•Advanced browser and mobile trading platforms

•Transparent fee structure, including clear spreads and additional charges

•Trading conditions automatically adapt to local regulatory requirements

•Educational materials, free analytics, and demo accounts available

•Customizable alerts through the platform and external communication channels

•No Micro or Cent account types, limiting low-risk entry options

•The Plus500 platform does not support automated trading

•Certain widely used trader strategies are restricted

9.2/10

Go to broker

Your capital is at risk.
80% of retail CFD accounts lose money.

Minimum deposit:

$50

Deposit Bonus:

Regulation:

CFTC, NFA

Review

Plus500 is an international fintech holding that offers CFD and options trading worldwide through its network of branches, as well as futures trading in the U.S. The company was established in 2008 in the Israel. It is regulated by the FCA, as well as by 9 financial supervisory authorities in other countries, such as CySEC (Cyprus), ASIC (Australia), MAS (Singapore), FSCA (South Africa), among others. Plus500 is listed on the London Stock Exchange (ticker: PLUS) and is part of the companies that make up the FTSE 250 stock index. Plus500 is a reliable intermediary for accessing financial markets, used by over 25 million traders worldwide.

Pros/Cons

•Operates under NFA and CFTC oversight in the U.S.

•Transparent pricing structure.

•Trading.com mobile app for Android and iOS.

•Access to EA trading in MetaTrader 5.

•WebTrader compatibility with Google Chrome, Firefox, Safari, and Microsoft Edge.

•Fast account setup and online verification.

•No automatic negative balance protection, only Margin Call and Stop Out alerts.

•Spot-only trading limited to currency pairs.

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.

Conclusion

Choosing an asset for trading requires careful consideration of your risk tolerance, trading style, and investment goals. Diversification, technical analysis, fundamental analysis, and staying informed about market events can help you make informed asset selection decisions. Remember, there is no single "best" asset, and the optimal choice depends on your unique circumstances and trading approach.

FAQs

Which asset is best for trading?

This depends on your trading style, risk tolerance, and what fees and costs you are willing to incur. Stocks are the most popular asset.

What is the safest asset to trade?

The safest asset to trade depends on your individual risk tolerance and investment goals. However, some assets are generally considered to be safer than others. They are: Government bonds, blue chip stocks, treasury bills.

What are the riskiest assets?

Commodities and certain currencies are widely considered the riskiest investments, as are many cryptocurrencies.

What assets do day traders trade?

Stocks are the most popular assets for day traders. They also trade bonds, options, futures, commodities and currencies.

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Team that worked on the article

Jason Law is a freelance writer and journalist and a Traders Union website contributor. While his main areas of expertise are currently finance and investing, he’s also a generalist writer covering news, current events, and travel.

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Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK.

Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets.

HFX

HFX trading likely refers to high-frequency forex trading, where automated algorithms execute a large number of trades at extremely high speeds.

CFD

CFD is a contract between an investor/trader and seller that demonstrates that the trader will need to pay the price difference between the current value of the asset and its value at the time of contract to the seller.

Volatility

Volatility refers to the degree of variation or fluctuation in the price or value of a financial asset, such as stocks, bonds, or cryptocurrencies, over a period of time. Higher volatility indicates that an asset's price is experiencing more significant and rapid price swings, while lower volatility suggests relatively stable and gradual price movements.

Crypto trading

Crypto trading involves the buying and selling of cryptocurrencies, such as Bitcoin, Ethereum, or other digital assets, with the aim of making a profit from price fluctuations.

Diversification

Diversification is an investment strategy that involves spreading investments across different asset classes, industries, and geographic regions to reduce overall risk.

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