Trading instruments are instruments which can be bought and sold on the market. They can be currencies, metals, and futures contracts. There are also exchange-traded funds (ETFs) and CFDs.
Exchange-traded funds (ETFs)
Exchange-traded funds (ETFs) are financial instruments that give investors access to a wide variety of assets. These include stocks, bonds, commodities, currencies, and other assets. ETFs are designed to provide investment results that closely match those of the underlying indices. They are a great way to diversify your portfolio and capitalize on seasonal changes in asset prices.
Unlike mutual funds, an ETF does not have to be purchased and sold on a daily basis. Instead, the market price fluctuates throughout the day, reflecting supply and demand. The share price may be higher or lower than the net asset value (NAV) of the underlying indices.
If you want to invest in an ETF, you should read the prospectus carefully. Each ETF will have its own investment philosophy and risk management. Investing in an ETF is similar to investing in any other diversified investment, but the potential for loss can be greater.
Futures contracts
Futures contracts are a form of derivative instrument that is used by investors to speculate on future price movements. They are standardized and offer a number of advantages. The notional value of a futures contract is the total worth of the underlying asset. This does not include additional fees.
A futures contract can be traded on an exchange or privately. Most brokers can handle futures contracts. Depending on the type of futures contract, you might not have to own the underlying asset. For instance, you might be able to trade currency futures, which gives exposure to the exchange rate of a specific real currency.
A futures contract is usually leveraged, which magnifies profits and losses. You need to maintain a margin on your account, which is a minimum amount that you need to hold at all times. Generally, it is a few thousand dollars.
CFDs
CFDs are a type of financial instrument that allow you to trade an asset without actually owning it. Unlike traditional trading, the costs are spread across multiple positions, giving you the ability to gain exposure to financial markets on a smaller budget.
There are a number of different ways you can use CFDs to enhance your portfolio. For example, you can buy a CFD of a commodity, such as gold or oil, to speculate on its future price movement.
Aside from the obvious choice of commodities, there are other sectors where you can find opportunities to trade. These include stocks, bonds, indices, and even cryptocurrencies.
However, before you dive into trading the financial markets, you should do your homework. This includes educating yourself on the risks involved.
The biggest risk with CFDs is losing your money. You will need to be ready to accept losses. Also, there are no guarantees about the returns on your investment.
Currency options
Currency options are derivative contracts that give the buyer the right to buy or sell currencies at a pre-determined price. They may be put options or call options. These are useful for hedging against unfavourable exchange rates.
They can be purchased in combinations with other options. The premium of a currency option can be a bargain compared to the cost of buying the contract. It can also be used to make leveraged trades.
Unlike a stock option, a currency option can be closed before it expires. However, it can be worthless if the current exchange rate is taking the option out of the money.
Traders can use currency options to hedge against an unfavourable exchange rate, or to gain exposure to an expected rise in the value of one currency relative to another. These options are similar to futures in that they are traded on an organized stock exchange.
Metals
The price of precious metals is largely dependent on supply and demand. However, geopolitical stress, monetary policies and interest rates can also affect the prices of these metals.
One of the best ways to invest in precious metals is through exchange-traded funds (ETFs). ETFs track the composite value of a number of specific securities, including those that contain precious metals. This type of investment provides an easy way to diversify your portfolio.
ETFs can be used by both beginners and experienced traders. They are a more convenient option than futures contracts.
Another popular way to invest in precious metals is through mutual funds. These are a way for investors to own a stake in a company that produces metals. A mutual fund is a type of investment where the management fee is paid by the investor.