Before becoming a trader, one must choose the financial instrument that will be traded. This is not an easy decision, or it is decided in a hurry. A prospective trader should understand the characteristics of all online trading instruments, ranging from stocks, forex, commodities, and so forth. Then choose the most suitable for him.
A “trading instrument” is actually any tradable asset. It could also be a contract that can be bought or sold on the financial market. There are various trading instruments that can be selected for trading, for example:
Shares are ownership of a company. These shares may be traded or become long-term investments. Shares can be traded intraday, for one day, for a week, for a month, or held for years.
- FOREX (Foreign Exchange)
Trading forex means trading one currency with another currency. Traders take profits from rising or declining currencies.
Many types of commodities that can be traded, such as gold, silver, oil, to agricultural products such as, cocoa, wheat, and others.
Bond is a bond that can be traded.
Stock exchange indexes may also be traded.
The option is a derivative of shares. Basically, the option is the right to buy or sell shares at a certain price and up to a certain time limit. This right can be traded. Usually, trading options require fewer funds than direct stock trading.
ETF is a derivative of stock. Usually shaped mutual funds index but can be traded as easily as stocks. The advantages of ETFs are having lower costs than regular mutual funds.
REIT (Real Estate Investment Trust) is a type of securities that invest directly in property projects. These securities can then be traded.
Mutual funds are not trading instruments, as they tend to be investments. Mutual funds have redemption rules and also prohibit buying and redemption in the short term.
If you are just starting out trading, you need to understand all aspects of the selected trading instrument. Often, novice traders are drawn into trading instruments that go far beyond their skill level and understanding. They are not aware of a number of trading instruments have a considerable risk. For beginner traders, I would recommend trading in the local stock market first. Usually, beginners more easily understand companies listed on the local stock market, because the company has products and services that are well known in the community. In addition, trading risk in the stock market is also more measurable than in other trading instruments because there is less leverage that is too large.