At first glance, this page looks confusing but the details start to make sense if we look at the individual items.
All of the items on this page are Trading Instruments. Another name for these instruments is Securities. Trading instruments are various markets within which you can trade. They can be contracts, foreign exchange, commodity futures, stocks, metals, and many more.
Let’s look at a few of the more common instruments.
Contract for Differences (CFD)
A CFD is a contract that works on the difference between the value of an asset on the date it is initiated and the date it is concluded. This type of instrument ignores the asset’s value; it is only interested in the difference between its current value and the value at a stipulated date. Investors can trade on an asset without owning the asset.
Credit Default Swaps (CDS)
These are financial contracts which an investor can sell or “swap” a credit risk with another investor. An example would be a financial institution that is concerned that a loan may default. They can use CDS to swap that risk with another investor.
Forward contracts are customizable and are an agreement between a buyer and seller to exchange an asset on a specific date and at a particular price.
These contracts do not trade on exchange and are known as Over-the-Counter (OTC) contracts.
An example is a large bakery that uses this to hedge against the change in the price of wheat if they believed there was a risk of a shortage in the future. They can decide to lock in the price before the lack becomes noticeable.
A futures contract (or Futures as they are better known) are financial derivative contracts that obligate both parties to a future date. The seller must sell or the buyer must buy an asset at a specified price on a specified date. This type of contract allows an investor to speculate the value of a commodity, security, or financial asset at a specific date. These contracts are traded on the stock exchange.
Options are financial investment instruments that are based on the value of underlying securities.
The options contract allows the contract holder to either buy or sell the asset for which the contract was raised. An options contract differs from a futures contract in that the holder does not have to sell or buy the asset. In other words, they have the option to conclude the transaction or not.
There are two types of options; a put or a call option.
In a put option, the holder can sell the contracted asset within a specified period and at a specified price.
In a call option, the holder can purchase a contracted asset at a specified price within the specified time.
FOREIGN EXCHANGE MARKET
Also referred to as forex or the FX market, the foreign exchange market is the largest financial market in the world, with a daily turnover in excess of $6 trillion. Unlike other markets, forex has no physical or centralised location, and it is open 24 hours a day, Sunday night to Friday night.
Forex trading is essentially the simultaneous buying of one currency and selling of another, on this massive decentralised global market.
The foreign exchange or Forex market comprises an international electronic network that deals in trading currencies. The United Nations recognizes 180 currencies and most of these can be traded.
This marketplace used to be traded only by governments and large financial institutions but now anyone can buy and sell currencies quoted on the forex markets. For example, you can trade British Pounds for US Dollars and profit or lose on the exchange rate differences.
This is a very volatile market and trillions of dollars are exchanged daily around the world through a network of banks and brokerages.
An index measures the price changes over time of a group of securities by using a standard measure and methodology. These groups can cover the entire market such as the Dow Jones Industrial Average or highlight a specific portion of the market such as the NASDAQ covering tech stocks.
TRADE MAJOR INDICES ROUND THE CLOCK
Trade major indices with GMAPros, such as the UK 100, US 30, Euro 50 and Germany 30. Some of
the indices are also available for trading outside normal trading hours, which means you can speculate on their prices even if the markets are closed!
Trading out of normal trading hours has the following benefits:
Increased Flexibility – Buy and sell over a larger time period, which gives you more choices and opportunities.
Better Prices- Take profit and stop loss orders can be triggered during out-of-session trading hours. You will probably receive better prices and avoid possible market gaps and slippages when the underlying market opens.
Trade over 90 cash and forward indices on GMAPros now.
Cryptocurrencies are a new and exciting asset class. A cryptocurrency is a form of digital money that exists purely in computer code and is decentralized.
As the name suggests, cryptocurrencies use cryptography (an encryption technique) to regulate and create additional units. Bitcoin was the first cryptocurrency to be launched in January 2009, but there are now over 2000 crypto coins and tokens available online.
Cryptocurrencies can be used as a medium of exchange and as store of value, but they are very different from traditional fiat money. Still, you can buy and sell them like any other financial asset. At GMAPros, you can speculate on the price movements of various cryptocurrencies.
Commodities are any goods that are used in the commercial world that are interchangeable. Examples of commodities are wheat, oil, beef, pork, etc. The quality of the product may vary but wheat is wheat whether it comes from the USA or Europe.
Commodities are usually used as an input to the production of another product.
Traders in commodities can buy and sell directly in the cash market or via options and futures.
Advances in technology have brought some new commodities to the market such as bandwidth or cell phone minutes.
Trading in metals can mean buying and selling anything from gold to iron ore. Many precious metals are traded such as gold, silver, platinum, and palladium. Additionally, there are many industrial metals such as iron that can be sold as well.
In addition to owning the actual metal, investors can gain access through the derivatives market or mining company stocks.
STOCKS AND ETFS
A corporation sells stock to raise funds. Stocks are a form of security that gives the holder a proportionate share in the corporation’s ownership. Stocks are traded through the stock exchange but can also be traded privately. Stocks tend to be the backbone of most investment portfolios. Historically, they have outperformed almost all other types of investment instruments.
An exchange-traded fund is a bucket of securities that are traded as an entity on the exchange just like a stock. An ETF can contain many types of investments such as bonds, commodities, and stocks. Some have only US-based holdings while others include international holdings. The share price of the ETF is exceptionally volatile and changes throughout the day as the ETF is bought and sold. These often have lower brokerage commissions than buying individual stocks.
A CASE OF STOCK TRADING
As the markets adjusted to the end of the 2007/08 global financial crisis, the prices of FANG (Facebook, Apple, Netflix and Google) stocks started to edge higher, providing the cue for the entire market. The stocks continued to soar higher and higher, posting double-digit growths in 2017 on the back of strong earnings. They managed to drive the benchmark S&P 500 Technology Select Sector index up by 34.57% that year alone. When stocks rally, it means that investors are willing to pay higher prices to own equity in the underlying companies. In 2018, when the US-China trade war headlines dominated the wires, the stock market started to experience volatility and the shares of FANG companies trended sideways to lower.