In this brief overview of global bazaars, I will analyze certain major bazaars in which it is possible to trade and show several conditions that should be taken into account, first of all, before making your selection.
Monetary units are considered to be the largest and most active traders in society because treasury promises, promotions, and commodities are guided by them. Even though for a long period currency trading has been dominated by large global banks and institutions, it is the most well-known and easily accessible for personal traders.
Currency trading activity is differentiated from trading in other asset classes. Trading in other assets implies selling in 1 trade together with gains and losses based on perfect profitability (gained – increased, gained, lost – lost).
The trading activity of a currency unit is carried out in pairs if one currency unit is traded against another. Profitability in monetary bazaars is considered comparative, income and losses are formed together with the way one monetary unit leads itself according to the relationship to another. For example, in a concrete period, the buck of the United States of America (USD) is capable of increasing according to mutual relation to currency (EUR), Swiss franc (CHF), and English pound (GBP), however, to decrease according to mutual relation to Japanese yen (JPY), Canadian buck (CAD) and Australian buck (AUD).
As the buck of the United States of America is considered an international additional monetary unit, trading activity in pairs, conjugated together with it, is a base of monetary trading on the market forex in absolutely all society. The more valid cheats (besides being popular equally as “major”) include EUR/USD, GBP/USD, USD/CHF, and USD/JPY. Money vaporizations, in which the United States dollar does not take part, are called cross pairs. Common cross pairs include GBP/EUR, EUR/JPY, and AUD/CAD.
Pricing in monetary twos is based on 1 monetary unit in two, besides popular as the base monetary unit. In the case of EUR/USD, this means how much $ the United States of America will need to purchase 1 currency. If the EUR/USD direction increases, it means that the currency increases in value, and if EUR/USD decreases, it means that the currency loses in value or the buck increases in value.
Trading activity in commodity currency units, such as AUD/USD and USD/CAD, is also in demand, because the price of these currency units, as well as the currency units of other resource-producing countries, such as the New Zealand dollar (ZND), Norwegian leaf (NOK) and South African unit (ZAR), usually affect the value of commodity products, which form a significant share of the products traded by these countries. It should be emphasized that the CAD and NOK, as well as the principle, are most sensitive to energy prices, AUD and NZD to alloy and seed prices, and ZAR to precious alloy prices.
The United States dollar and the Japanese unit, as well as the principle, look at the property of the most protective monetary units. Because of low profitable ponds traders choose to capture funds in these countries according to the lowest rates and try to acquire the most significant income in other countries, which is widely known as trading activity by transferring the currency unit. At stages, if traders are interested in taking a notch in themselves, the “carry trade” increases and the main capital flows from USD and JPY to other currency units. If the fear increases and traders become more risk averse, they, as well as the principal, realize their dangerous asset and give the amount in USD and JPY.
Just as in other bazaars, the price of currency units is dependent on demand and regulation. In full traders give an advantage to the states and monetary units together with the most profitable rates, socio-political and economic stability, and the greatest rates of financial increase (the greatest possibility of extracting income from investments) in comparison with the states together with the lowest profitable rates or the slowest rates of increase. As economic stagnation decreases the price of paper money units with the period, money units together with probably a large degree of economic stagnation in our period or the future tend to be avoided. Monetary units together with high socio-political or economic risks (large budget deficit, large degree of governmental obligation, or difficulties together with the banking concept) also tend to decrease in a direction together with the consideration of these issues.
There are two key types of participants in commodity bazaars: hedgers and resellers.
Hedgers are those who wish to fix a value in a product that they intend to install or use in the future. For example, a farmer who is going to plant wheat may wish to fix the value during the delivery period in September, while a baker who needs grain in June may wish to fix the value up to this stage for planning and budgeting. In this group, as well as the principle, members of the sphere dominate.
The prices of raw materials are mainly dependent on changes in demand and the prescription of certain products, which are the object of trade. Resellers – These are those who are interested in receiving income from the change in value in the presence of changes in demand and prescription and have no plans to deliver or carry out physiological products. This group includes the majority of traders.
Commodity products, as well as the principle, are divided into several companies that have a similar impact:
Precious metals (gold, silver)
Although most people analyze precious alloys as filigree products, precious metals, and silver, in particular, have been used for centuries as currency. In conjunction with this, precious alloys are usually viewed as a price base and stimulate interest in stages, if traders are afraid of a fall in the price of paper money (in particular, the United States dollar).
Energy (crude oil, natural gas, gasoline, heating oil)
Energy costs as well as the weather are almost always the subject of heated discussions, as they have a similar impact on the everyday life of many people.
Energy costs and the need for them, as well as the principle, are united together with the increase of the international economy, because in suitable stages society is prone to use more energy, and in negative stages – to reduce. For example, companies have a chance to work in the shortest changes, and customers have a chance to travel more in suitable stages. Atmospheric demands have a chance to affect the cost of energy carriers used for heating buildings, such as natural gas and heating oil.
A significant share of the world’s energy supply, especially crude oil, as well as the principle, is carried out in or through politically unstable areas. In connection with this, socio-political dangers have a chance to affect the price of oil, especially in stages, if its supplies have all chance to be cut.
Even though black gold is considered a mass trade, its value, as well as the principle, is most susceptible to financial circumstances in the United States of America and China – the largest global buyers of energy resources.
Base metals (copper)
Alloys with industrial use are also susceptible to international financial activity, and the need for them, as well as the principle, increases according to the edge of economic growth. The demand can increase due to the result of the research of new mines and be bypassed as a consequence of strikes or other production problems.
In the past years, the demand for multi-colored alloys was determined by the needs of countries with emerging economies, such as the Celestial Empire, India, and countries, that are engaged in the construction of infrastructure.
Grains (wheat, corn, soybeans)
In line with this, just as in the past decades more and more countries have switched from natural farming to developing industrial communities without exception, the demand for agricultural products is constantly increasing.
In the value of the seed as well as the principle, the greatest impact is caused by changes in the trade from the edge of the regulation. Actions that hurt the recommendation can cause shortages and increases in value (e.g. droughts, frost, and floods). On the other hand, if values increase, the farmers, as well as the principal, will harvest more crops, for this reason, the impact can be weakened during the longest phase of the period.
Several other raw materials can be traded, including expresso, granulated sugar, beverages, and almost all others. Differences in any of the bazaars, as well as the principle, are combined with weather criteria in the regions of production and changing demand in the society.
Another type of diversification is investment in packages of promotions of different spheres, which allows acquiring access to the most extensive ability to conduct business and reduces the risk that one sphere can meet with difficulties periodically.
For example, traders who examine only the electric power section, have a chance to meet with difficulties in the presence of a fall in the cost of raw materials, but this danger can be reduced, case of investing resources in these areas, which will win with a fall in the cost of energy, in particular, in motor transport companies and all those who exactly use fuel.
Even though in the past years without exception significant popularity acquires trading activity by sections, trading activity by broad trading indices is considered to be the key tool that traders use in promotions to increase diversification in comparison with separate promotions.
Most of the traded indices are based on a basket of the largest and most rapidly traded companies in a particular exchange or a particular country. Another superiority of index trading is considered in such a case, that they are usually widely covered in the press, for this reason, concerning them, as well as the principle, there is a lot of data.
The more popular indices include:
FTSE 100 (UK)
CAC 40 (France)
IBEX 35 (Spain)
FTSE MIB (Italy)
Dow Jones Industrial Average/Dow Jones 30
Hang Seng (Hong Kong)
Nikkei 225 (Japan)
S&P/ASX 200 (Australia)
As well as the principle, indices of the 1st and the same area have similar dynamics, as the largest companies, as well as the principle, have multinational companies located close to each other.
Certain differences among the indices have a chance to be conditioned together with the fact that the spheres have the maximum mass in the basket. For example, the index S&P Five Hundred tends to increase the weight of narrow consumer products, economic services, technology, and health care. In the Canadian and Australian indices, commodity and energy sectors have the largest weighting. In the Hang Seng Index, economic firms, including real estate, play the largest role. The FTSE 100, on the contrary, has a huge mass in banking, pharmaceuticals, alloys, and oil.
Municipal loan capital, also popular as treasury promises, is another very active trader’s trade, providing traders with the opportunity to trade against the most extensive macroeconomic trends in different countries.
Most of the big traders, such as banks and institutions, acquire loan capital to hold them until closing and analyze the profitable rate according to the loan capital as well as the main return on investment. With the period the cost of loan capital fluctuates in connection with the financial situation, which forms suitable abilities for traders.
Reimbursement in the variant of profitable ponds, which traders call for to obtain loan capital, as well as the principle, is conditioned by 2 key conditions – economic stagnation and closing risk. For this purpose, to acquire profits over a long period, traders should ensure that the profitability of their bonds is no further than the degree of economic stagnation in the issuing country. In addition, traders usually call for a premium due to the risk of non-compliance by the bond issuer of obligations according to the payment of the principal or %, because in the majority of countries, debtors cannot be thrown into prison earlier.
Proceeding from this, traders, as well as the principal, call the biggest profitable pond from the states together with the big degree of economic stagnation. Just as the European decline of the independent obligation has shown, such difficulties, as well as a big lack of the government budget or a big degree of government obligation, have all chances to increase the danger of insolvency and force traders to demand the biggest profitable ponds to compensate for their danger.
In case traders in promotions have all chances to love their promotions and to be the most tolerant to misfires, in this case, traders in loan capital, as well as the principal, very definitely observe because of the quality of their investments and in some cases are called “vigilant”.
As the profitable amount according to a large number of bonds is fixed already after their issue, the values in them change with the course of the period due to the change of profitable ponds. Let’s assume that the ten-year paper is released at about 5,0%, and using the time the newest nine-year bonds are issued at about 4,0%. Since the profitable amount according to the loan capital issued around 5.0% is earlier, in the presence of other similar circumstances traders will be inclined to pay because of its more. On the other hand, if traders had the opportunity to acquire 6.0% according to the newest nine-year bonds, they would not start paying such an amount for a 5.0% bond.
Loan capital as a rule is issued according to the cost of One Hundred and Zero, popular as well as par value, and, as well as it is supposed, will be redeemed according to the same cost in the presence of coming closing time. In case profit rates according to the newest bonds increase, in such case the value of existing bonds, as well as the principle, decreases, and they are traded according to the value further than One hundred,0, or together with a discount. The possibility of increasing the price of funds will be compensated by the decrease in the profit rate. Similarly, in case the profitable sum according to the newest bonds decreases, in such case the value of the existing bonds, as well as the principle, increases and they are traded together with the premium to the face value, and the losses of funds with the period will compensate the most significant profitable rate.
Representation of this opposite relationship between profit rates and loan capital rates is considered basic for traders.
The period up to closing is also considered to be a significant condition. The main banks as a rule apply short-term rates to force or restrain the financial increase. In connection with this difference, short-term and long-term rates can vary greatly. In most situations, long-term rates are earlier to reflect the danger of changing conditions throughout the period, but in some cases, short-term rates have a chance to rise earlier than long-term rates, especially if the main banks are trying to slow down the financial growth or control the stagnation of the economy.
The majority of people first got acquainted with the investment society through single promotions and stock markets. Firms according to the whole society issue promotions for public offering according to most circumstances, mainly to attract funds to expand their own business. The auxiliary advantages of the public offering of promotions for companies include the increase of recognition among possible buyers and wide population, risk sharing among a great number of traders, reduction of important expenses of the company, and drawing up a succession plan for founders and the inspector. The realization of promotional shares from the company’s treasury to the shareholders is called the main trade.
Even after this, as well as the company has laid the main location of the promotions, its promotions are usually traded in the classical stock exchanges, such as NYSE (New York), FSE (Frankfurt), or LSE (Rainy City), or go to an OTC exchange, such as NASDAQ (New York), in which place the operations are conducted directly among brokers. Both of these types are familiar as secondary bazaars.
Individuals seeking to get into stock trading, usually try to accomplish these 2 methods. Growth of funds due to the result of extracting income in the presence of a good movement of value or the long term (acquisition of low and realization of the largest), or in the short side (realization of large and acquisition of the lowest). Profit is also able to be acquired in the version of dividends, which firms pay their shareholders with net income.
In full traders are predisposed to increase the value of promotions in such options, if it is assumed that together with the firm will be made positive actions, such as increasing profits in the long term due to the result of increased trading or new contracts, or an increase in dividends, or a recommendation regarding a takeover, or other actions. On the other hand, the anticipation of unfavorable events, such as a slowdown in the rate of increase of commercial activity, changes in legislation, loss of contracts, and socio-political changes, can provoke traders’ desire to sell promotional shares and cause a decrease in their value.
As in any transaction will take part consumer and trader, in each period, the value in promotions, as well as the principle, reflect the balance of hopes of all the co-participants of the trade. Costs in the promotion have all chances to change according to the verge of changing hopes.
The conditions that have a chance to influence the bazaar hopes include macroeconomic conditions that have a great influence on the requirement to conduct business, industry conditions, such as the change of value in raw materials, and conditions that are distinctive for a certain company, such as income, dividend changes and other actions in business.
One of the regular events that have an impact on sales is a report on the gains and losses of the company. As a rule, the deadlines for the release of this information are published in advance, and the specialists observing the company lay out their expectations. Almost all firms also publish their expectations, called monitoring. In such a case, as well as the results of the firm’s work and its upcoming monitors correspond with expectations and can show a significant impact in the short-term and long-term trading directions.
As soon as a company trades in promotions, they often find that they are exposed to the risks of the particular business they are trading. For example, the one who trades in promotions of oil and gas companies can find out that even though the costs of black gold and other raw materials fully rise and fall together with the tariffs of black gold, his profitability is also able to be influenced in such a case, to what extent a certain enterprise, whose promotions one trades in, copes together with reconnaissance and exploitation. For example, one company may be able to achieve significant success in exploration, while another may drill a few dry holes or reduce production rates due to equipment issues.
A key method of reducing the risks associated with certain firms is trading activity is not a single promotion, but a team of promotions, what is called diversification. One of the methods of diversification is considered to be trading activities of some promotions within one general industry category.
For example, in the oil and gas sector, trading activities of a “basket” of promotions provide the possibility to participate in the search programs of some firms and at the same time reduce the risk of issues with one of them. In addition, such trading activity allows being in a huge level of dependence on the dynamics of the cost of raw materials.
Which markets should I trade?
Deciding which markets to trade in may seem like a complicated process, but several factors can make it easier to make a decision.
Trading what is familiar
Most investors start trading shares of companies they know or companies located in the same country, and then enter the international market or trade various asset classes.
Trading similar asset classes
After you gain some trading experience in one area, you may want to expand the scope of your activities. For example, switch from trading stocks to trading indices or from trading stocks of resource companies to trading related goods.
Small picture vs. big picture
Investors interested in taking advantage of broad national or global trends may find currencies, treasury bonds, or indices more attractive. On the other hand, for those who want to dig into themselves and find unnoticed opportunities, investing in stocks may be more interesting.
The opening hours of the markets at the time of day, when you plan to trade, may also affect your decision. If you plan to trade during the working day, then the best opportunities may open up in the markets of your region. If you plan to trade in the morning or the evening, then perhaps there will be more opportunities in other regions.
Do not forget that one of the reasons for the growing popularity of trading indices, commodities and currencies in recent years is that many of them are available for trading 24 hours a day.
The relationship between markets
Although the details of investing in different markets or asset classes may differ, the main driving forces of movement in all markets are usually the same: interest rates, inflation expectations, GDP growth, risk factors, etc. As you master some markets, you may find others where you can apply your knowledge.