The financial market is a trading place where people from all over the world can be found and trade the most diverse products. The market has long since ceased to be reserved only for financial experts or die-hard brokers. Thanks to the Internet, it is possible for anyone to make an account with an online broker and actively trade. The chances of making profits are more than promising and due to the extensive information provided by the brokers themselves, it is possible to minimize the risk of losses. Interactive Brokers is among the online brokers with the lowest fees. (Source: https://www.bestbrokerreviews.com/review/interactive-brokers/)
The best known product on the stock exchange is the share. Not because it is the oldest financial product or the chances of returns are the best, but the basics are taught even in school. In the following article, the currently most popular financial products shares, CFD and the Forex market are presented once.
The trade with shares
As already mentioned, the share is the oldest financial product. The first security was already issued in the year 1200. For the company that issues the shares and is called the issuer, the sale of shares brings new liquid funds. Clearly, because the sale brings in money. The buyer of a share has the following view. Through the purchase, the shareholder receives the right to a share in the company. The more shares one owns, the more participation and say one has in the company and its entrepreneurial activities. For the company, the sale of shares brings money that can be reinvested, but on the other hand, the company must respond to the demands and wishes of the shareholders. These are expressed at the general meeting. Back to the shareholder. The latter buys a share and, in addition to participating in the company, also has the right to a share in the profits. This takes the form of interest, dividends or realized profits of the company on the market, which is then distributed to all company shareholders according to the number of shares. However, the shareholder is also free to sell his shares at a profit to other market participants after the company has increased in value. For targeted trading in shares, the shareholder must analyze the company, its activities, the market including competitors as well as the potential before buying. The market must be analyzed and calculated on a long-term basis, since an increase in value or the realization of profits may take weeks or months.
Trading with CFD
The abbreviation CFD stands for “Contract for Difference”. With them it is possible to trade stocks, currencies, commodities or even government bonds. It is possible to bet on rising as well as falling prices, which actually does not work when trading stocks. Also with commodities one assumes as a rule that only an increase in value creates profits. With CFD one can make profits with both price developments. This is because the trader does not actually own the shares or commodities, as is the case when buying a stock. An example of trading with CFD, if the traded product is a company that trades in oil. A company records profits in the market because the price of oil as well as sales increase. This is the indicator for the traders that the value of the company will also increase. Now it is possible to buy numerous CFD of shares from this company. A concrete example is 10,000 CFD worth 20 euros per CFD. If the value of the company now increases by only 50 cents, the trader already makes a profit of 5,000 euros. The basis for this huge profit generation is the so-called leverage effect, which describes that a minimal market movement produces large results. However, this effect can also turn in the other direction, because if the value of the company would fall by 50 cents, 5,000 euros have been lost within a short time.
Trading with currencies
The Forex market stands for Foreign Exchange and has the different currencies and their exchange rates underlying. The principle is familiar from vacations outside Europe, when you exchange the euro against, for example, the American dollar. The exchange has a certain exchange rate, which is currently 1.17 points. Accordingly, for 100 euros you get back 117 US dollars in return. When trading currencies on the Forex market, the respective exchange rate of a currency is the decisive factor. Similar to CFDs, options are placed on either rising rates “call” options or falling rates “put” options. What also makes trading attractive are the selectable time periods, which range from a few seconds to several months. One reason for the popularity of the Forex market, besides the short time spans, are the high returns, which can reach up to 95 percent. Accordingly, it is possible, for example, in the EUR/USD, with 100 euros to bet on a “call” option with 90 percent rednite, select a maturity of 60 seconds and if this trading option expires in the money, then within one minute a profit of 90 euros was earned.
The basis for a strategy in the financial market
Trading a financial product always proceeds differently. However, the strategy is always relatively the same. There should always be the same considerations and steps before you make a trading option. Be it commodities, stocks, government bonds, contracts for difference of commodities or stocks or even trading currencies, the creation of a strategy is identical to begin with. The first step is to focus on a few market products. You pick the financial products that are best suited for trading. In this step, the market and the chart are analyzed. If there were unpredictable developments in the market or in politics, which is one of the biggest influences of the financial market, then you should refrain from a trade or look at another financial product, whether it is another commodity, another stock or another currency pair, whether the trade is safer with it. If the chart shows a development that speaks for a trade, the analysis tools come into play. These analyze the chart, the market and the external influences fully automatically and give trends for the future. As a trader, you then only have to be able to interpret the result of the tools correctly. If there is a certain potential, a trading option is selected and a time frame is chosen. Thereby the probably most mentioned advice of experienced traders comes up. It is always traded with manageable amounts and never bet on risk. Only in such a way one will act successfully on the market in the long run and also gain profits.