Assets and Markets to Trade
Let’s be honest: The ultimate goal of every trader is financial success.
However, reaching that objective is not a walk in the park. How successful you become as a trader depends on how well you understand the trading fundamentals, use the necessary tools, gather and analyse data, and make informed decisions.
In other words, you must develop the discipline to take everything you’ve learned about trading and transform it into a winning strategy.
Let’s assume you want to explore the idea of being a full-time trader. In that case, you must begin with the basics, like knowing what assets and markets to trade.
On the other hand, if you’re a novice trader and have yet to see trading success, it’s crucial to keep learning about financial markets.
We at EverythingTrading.com pride ourselves in our ability to meet your trading needs in your trading journey, regardless of your level of experience.
Whether you’re a beginner seeking to profit from trading or a seasoned pro wanting to up your trading game, our high-grade tools and exclusive intel can help give you the upper hand in a cutthroat trading world.
Read on for a comprehensive discussion of assets and markets—their definition, operation, and potential benefits and drawbacks.
Your Guide to Investing in Assets and Markets
If you plan to trade full-time, you must be savvy about investing in assets and markets. This guide will give you an overview of trading and insider tips to help you make informed trading decisions.
What Is Trading?
The goal of trading is to profit by buying and selling financial instruments.
You can trade in indices like the FTSE 250 (a London Stock Exchange’s or LSE’s index) and S&P 500 (a stock market index in the U.S.), foreign currencies, including the U.S. dollar and Euro, or commodities like natural gas and crude oil.
Trading vs. Investing
Traders typically buy assets at a low price and sell them at a high price within a short timeframe.
A trader prefers to profit from price movements and shorter trends, while investors hold on to their investments longer.
Who Trades and Who Invests?
The time spent holding assets is one of the primary differences between traders and investors.
Traders prefer to trade based on market movements and short-term trends, while investors invest long-term capital in shares they believe will increase in value.
How Does Trading Work?
You profit from trading if the market price of your position goes in the direction you expected. However, you lose money if the market price trends the opposite way.
What Are Trading Assets?
Simply put, trading assets are financial instruments you can buy and sell to turn a profit. Reputable brokers in the U.K., like Zenfinex, offer a competitive range of markets and assets you can trade.
Understanding Trading Assets
Assets are economic resources you can own and manage for profits or future gains. The following section lists some examples of well-known assets.
What Are the Assets in Trading?
- Commodities like crude oil and natural gas
- Metals, including gold and platinum
- Cryptocurrencies like crypto CFDs (contracts for differences) and Bitcoin
The Financial Markets Explained
Financial markets are every trader’s playing field, so you must understand its mechanics to trade effectively. Here’s a basic overview of the financial markets:
What Are Financial Markets?
Financial markets are where you can buy and sell financial instruments, including stocks, currency pairs, bonds, and commodities. As such, financial markets are the pulse of a nation’s economy.
Many assets exist in different markets. Below are some of the most common asset classes.
These assets are also known as stocks or equities. When you trade shares, you’re investing in an individual company listed on a stock exchange.
Big companies or governments can raise money by becoming bond issuers.
Bonds are future ‘IOU’ that you can buy and sell in the financial markets.
Exchanges in currencies take place in the foreign exchange (FX) markets.
What Affects the Markets?
Although each asset’s price often depends on unique factors, supply and demand are the fundamental forces driving every market’s price.
This factor speaks to the extent to which a particular financial market is available for purchase. When there’s a great demand for something in limited supply, its price increases.
This factor refers to how many people want to invest in a financial market. When there’s a lack of interest from potential buyers but an abundance of available options, the market’s value usually declines.
Who Trades Financial Markets?
Traders generally buy and sell company shares based on the market cycle, not the company’s supposed financial strengths.
Traders typically consider the following factors:
- Supply and demand: Traders pay close attention to their trades intraday to understand the market’s movement.
- Price patterns: Traders monitor the stock price history to predict potential price movements.
- Market makers: Some trader client services offer market makers for generating liquidity via rapid trading.
Investment companies like pension funds, asset managers, and mutual fund providers invest in financial markets to make money for their clients and themselves.
Retail investors and traders usually use brokers to execute their trades.
A bank acts mainly as a broker for other companies, such as funds. Still, some banks engage the financial market to make money for themselves.
In addition to investing in funds and buying shares, intraday investors and traders can participate in financial markets through spread bets and CFDs, derivative products that let you trade without owning the underlying asset.
Bulls vs Bears
Stock prices drop during a bear market. This market typically follows a market index dip of at least 20% from its peak.
Alternatively, bull markets mark the beginning of more significant economic patterns. In this case, investors are more likely to buy shares as their prices rise.
What Is the Bank of England’s Role in the Financial Markets?
The Bank of England gathers crucial information from the financial market and manages some critical financial market operations. These responsibilities include buying and selling government assets, directly influencing the cost of savings, mortgage rates, and money available for investment.
The Bank of England can also act like a regulatory body for financial firms to ensure confidence that your money is safe and that they can continue to provide services, in good times and in bad.
What Are Safe-Haven Assets?
A safe-haven asset is one way to secure your capital for tough times. In fact, these financial tools can buck the trend when the economy drops.
Safe-haven assets can retain or even increase value because they don’t dance to the same beat as the economy. These financial instruments can sometimes skyrocket in value during a market meltdown.
Examples of Safe-Haven Assets
A safe-haven asset’s popularity can change over time, so staying on top of investment trends is essential. The following safe-haven assets have retained their popularity over the years:
Gold is a physical commodity whose prices don’t depend on the central bank’s decision on interest rates. Additionally, printing doesn’t impact the supply of gold, unlike paper currencies.
Government bonds represent a fixed-term obligation from a government. They pay periodic interest payments (called coupon payments). Treasury bills and notes fall into this category.
For over 50 years, the U.S. dollar has been a popular safe-haven asset during economic crises. Its most critical safe-haven characteristic is that it’s the most liquid currency on the market.
Many people view the Japanese yen as a safe-haven asset during market volatility since it often appreciates against the U. S dollar even when U.S. stocks are volatile.
The central bank of Germany, Deutsche Bundesbank, suggests that the Swiss franc strengthens when global stock markets show signs of financial stress.
Switzerland’s political neutrality, its strong economy, and its developed banking sector make it a preferred safe-haven currency among investors.
Defensible stocks provide goods and services, such as utilities, food, consumer staples and beverages.
How To Trade Safe-Haven Assets
The primary use of haven assets is to protect investors’ portfolios. Still, traders must also learn to identify the right assets to buy and understand market trends to predict price movements.
- Investing in trading assets is holding securities to resell them to earn a profit.
- You can trade Treasury bills, foreign exchange contracts, mortgage-backed securities, and other securities.
- Firms keep their investment portfolios separate from their trading assets.
- Shares: Stocks represent fractional ownership interests in a company. Shareholders may receive returns through capital appreciation when the stock’s price rises or from dividend payouts.
- ETF: An exchange-traded fund (ETF) group assets together and passively track an underlying benchmark index, including the FTSE 100 (a share index of the 100 companies listed on the LSE).
- Forex: FX or Forex lets you manage major, minor, and exotic currency pairs.
- Indices: You can trade global indices such as the S&P 500, NASDAQ 100 (a stock index of the 100 actively traded companies in the U.S.), and FTSE 100.
Trading Assets vs the Investment Portfolio
Each financial approach has its pros and cons. International financial markets offer both effective strategies for making money.
The variables below can help determine the best approach, including:
- Knowledge of a particular market or asset class
- The amount of effort you’re willing to spend investigating and keeping track of your investments
- The money or capital you have to get started
- Your financial objectives
- Your risk tolerance
Aside From Trading Assets, How Else Can Securities Owned by a Firm Be Classified?
Generally, a trading asset is a security you trade for profit and hold for less than a year. However, note that firms can keep held-to-maturity securities until the assets’ maturity.
Simultaneously, firms can own available-for-sale securities which they intend to sell before maturity but at a later date than one year.
Types of Markets
If you plan to trade, one of the first things to do is to identify which market you will focus on while trading. Here are various types of markets:
1. The Forex Market
Forex or FX is popular with short- and medium-term traders due to its 24-hour, 5-day trading period.
2. The Stock Market
The real-time flow of supply and demand drives a market like this. Stock transactions always involve a buyer and a seller.
Stock Market’s Industry Sectors
3. The Derivatives Market
A derivative is a security that depends on an underlying asset. Options, futures and CFDs are some examples of well-known derivatives.
4. The Commodity Market
The market consists of hard commodities (natural resources such as gold and oil) and soft commodities (agricultural products like wheat and coffee).
Directly investing in commodities involves buying the physical asset or indirectly investing in stocks or derivatives.
5. The Cryptocurrency Market
It’s still unclear what the future holds for this new digital currency and how the market will develop. However, many traders speculate on cryptocurrencies due to the asset’s high volatility.
6. Insurance and Mortgage Markets
Insurance markets involve insurers and insureds, where risks are transferred in exchange for premiums. Meanwhile, the mortgage market revolves around long-term loans for buying homes.
7. Money Markets
Banks lend to each other for short-term liquidity purposes in this market, primarily focusing on very short-term debt.
8. The Capital Markets
Stocks and bonds (private and public) are part of these markets. Primary markets are where new shares are issued, and the secondary market is where people trade previously issued securities.
Financial Market Trends
Identifying the best market trend is one of many keys to successful trading. After all, trends can and often change. Risk management is crucial to long-term trading success.
1. Will the U.K. Pound Rise on Fed Interest Rate Hikes?
Possibly, yes. Morgan Stanley, a multinational financial service company authorised and regulated by the Financial Conduct Authority, predicts that the British pound could be at the top of 2023’s financial assets.
You can use Trust Acuity, our institutional-grade AI (artificial intelligence) technology, to access up-to-date market information worldwide and determine market sentiments.
Trading Markets – The U.K. Pound Index
The U.K. pound index measures the value of the U.K. pound against a basket of foreign currencies, and traders and fund managers closely monitor its value.
2. Will the U.K. Pound Market Crash or Rally?
Britain’s blue-chip stocks (shares of established companies) are trading near all-time highs in a promising start to 2023, adding to last year’s gains. This scenario may indicate that the U.K. pound will rally.
Get access to our trading community for more trading ideas and market interpretations.
3. Could Gold Rally Record Highs?
Brent crude oil, WTI (West Texas Intermediate) crude oil, and copper have seen significant gains recently as investors have become more optimistic about economic recovery post-pandemic.
However, escalating tensions between Russia and Ukraine and fears of stock market declines may have made gold an attractive investment.
Price action has remained range-based, but gold has now broken out of a wedge pattern.
Some traders and investors prefer to trade in less popular markets. Here are some alternative markets if you’re a day trader or a long-term investor:
For Day Traders
If you’re looking for alternative markets to day trade, you can try the world of commodities like precious metals or energy. These markets offer unique opportunities for profit and the potential for big moves, especially in times of market volatility.
For Long-Term Investors
If you’re a long-term investor looking for alternative markets, you can consider the world of commodities, specifically precious metals like gold and silver.
These assets have a long history of holding their value and providing stability to portfolios, making them an excellent choice for investors seeking wealth protection and diversification.
Ways to Trade in the U.K. and How to Get Started
The most popular trading methods in the U.K. are CFD trading and spread betting, which are forms of derivative trading. Alternatively, most investors prefer share dealing.
1. Choose Your Trading Account
For most traders, registering a brokerage account with a reputable broker is the first step. In the U.K., you can open a demo or real money account at Zenfinex.
2. Pick Your Asset and Market
Take only risks you can afford and understand the risks thoroughly.
3. Decide Whether To Trade the Spot Price, Futures, or Options
Spot trading refers to buying and selling assets at the current market price, called the spot or cash price. This option is suitable for short-term traders.
Alternatively, think about trading futures if you’re interested in buying or selling assets at a predetermined price by a specific date before the contract expires.
Options are another alternative to futures, which give holders the right, without obligation, to buy or sell an instrument at a specific price and amount.
Markets: Exchange or Over-the-Counter
The choice between exchange-traded and over-the-counter markets can mean the difference between trading success and failure.
Trading on an Exchange
Stock markets or derivatives exchanges began as physical places where trading took place. Some of the best-known include the New York Stock Exchange (NYSE) and the London Stock Exchange (LSE).
OTCs are less formal but well-organised networks of trading relationships centred around one or more dealers. Market makers quote prices for selling (asking or offering) and buying (bidding) to other dealers and their clients.
OTC market participants often use interdealer brokers to get an in-depth look at the market, especially in their interdealer segments. Dealers get quotes from their brokers, who then broadcast them over the phone.
OTC Markets and the Financial Crisis
Structured securities (which sell the underlying assets separately, dividing the risk) faced problems during the last financial crisis due to the architecture of OTC markets.
What Are the 4 Types of Trades?
Various financial markets offer many types of trading opportunities. However, well-known ones include the CFDs, stock market, ETF market, and Forex (FX).
Here’s a profitable CFD trade to help you get an idea of how trading works:
You trade CFD on a specific ETF tracking the FTSE 100 index. The broker requires a 5% margin rate, so it gets 5% down for the trade.
Note: 1 pound = 100 pence
You then buy 1000 shares of the ETF for 1600 pence (p) each, resulting in a stake of £16,000. Based on this event, you must pay 5%, or £800, to the broker:
Initial payment =Position value Margin rate
Initial payment =£16,000 5%
Initial payment =£800
For example, you close your position while the ETF trades at a selling price of 1,625p per share several hours later. In this case, you have made £250 profit due to the 25-point change in price:
Profit = (Selling Price – Buy Price)Position Size
Profit = (1,625p- 1,600p)1000
Profit = 25,000p or £250
Bank Trading Assets
From 2002 to 2021, the value of assets for all U.K. financial institutions increased overall.
Moreover, as of December 2021, the largest bank in the U.K. is HSBC (The Hongkong and Shanghai Banking Corporation Limited), with an estimated total asset of 2.2 trillion British pounds.
Why do companies hold trading assets?
Many companies hold trading assets, as they can help them manage risk, maintain financial flexibility, and generate significant profits.
How are trading assets reported on financial statements?
The balance sheet reports trading assets as current assets at fair value because these assets are short-term, and you can liquidate them quickly.
How do financial markets help me?
Financial markets facilitate the flow of capital between those who need it and those who have it. Additionally, financial markets let you transfer risk (usually through derivatives) and promote commerce.
How do financial markets help businesses?
Financial markets can provide companies with finance to hire, invest, and grow.
For instance, Apple began its operations in a garage in California. However, in 1977, its founders got a $250,000 loan from a private investor.
Within five years of its founding, the company had grown to the point where it could borrow over $100 million from financial markets by selling shares.
This story supports the idea that financial markets (when they’re functioning well) can foster significant business growth.
What is volatility?
Volatility is the amount of risk or uncertainty related to the value changes of a specific security.
What is liquidity?
Liquidity refers to the relative ease with which you can convert an asset or security into ready cash without affecting the market price.
How can beginners get started with trading?
One of the most convenient ways to begin trading in the United Kingdom is to register a brokerage account. Note that starting prices may vary depending on the trading platform.
For instance, you can begin trading with Zenfinex, one of the fastest-growing brokers worldwide, for as low as these amounts:
- Standard: £50; $50 or €50
- Pro: £2,500, $2,500 or €2,500
- VIP: £10K, $10K or €10K
What are the ways you can trade?
There are many ways to trade, including day trading, position trading, and swing trading. However, if you’re a beginner, it’s best to identify and stick with your preferred trading strategies first.
Our trading coaching can help you stay focused and level-headed during high-stress trading situations.
What can you trade on?
You can trade on various assets, such as fixed income (bonds), equities, exchange rates, and money markets (cash).
What are emerging markets?
This type of market has the features of a developed economy. However, an emerging market is still forging its way to increased engagement with the global economic arena.
Why are stock markets down?
Stock markets drop for various reasons, ranging from political chaos to unexpected events (like the Brexit vote). However, in many cases, stock markets go down when the economy slows down.
How do you calculate return on assets?
You can solve for the return on assets (ROA) by dividing a company’s net income by its average total assets.
How long do bear markets last?
Bear markets can last for months or years. The average period may vary slightly depending on your jurisdiction (locale) or the institution you cite.
What is the OTC market?
Over-the-counter markets (OTCs) are decentralised markets where market participants can directly trade currencies, commodities, stocks and other financial instruments without a central broker or exchange.
What is fixed income?
Fixed income is an investment option focused on preserving income and capital. It usually includes investments like corporate and government bonds.
What is a mutual fund?
Mutual funds let shareholders invest in stocks, bonds, and other investments “mutually” with other investors.
What does market cap mean?
An organisation’s market capitalisation is the total dollar value of its outstanding shares.
What is a bullish market?
Bull markets occur when asset prices continue to rise over an extended period.
With over 100 years of hard-earned collective experience in various financial markets, EverythingTrading.com’s primary mission is to give traders the tools and know-how so they can trade various assets securely and successfully. Join us today!