How to benefit from the various trading instruments in the stock market?

In the present time, investors have access to various trading instruments comprising blue chip, indices, and forex markets.

Compared to investment instruments like Certificate of Deposit, Bonds, Fixed Deposits, etc., stocks offer the investor the potential to earn a better return. They have the potential to protect investors from inflation. By investing in stocks, investors have exposure to dividend-paying companies. Many companies pay monthly, quarterly, half-yearly, and final dividends. Stocks are also an additional source of income.

Despite the several advantages of investing in stocks, many people are not able to invest in stocks. Some of the reasons are:

1. Lack of awareness

2. Not willing to take risk

3. Lack of knowledge

4. Lack of capital

5. Lack of time

6. Unwillingness

7. Preference towards other trading instruments.

These are some reasons investors could not invest in the stock market. In the above list, one of the reasons why investors could not invest in stocks is the lack of time or the unavailability to study any particular stock due to their professional and personal commitments. As a result, these investors look for alternate investment options like forex trading, cryptocurrency, commodity trading, etc.

Features of forex trading, cryptocurrency, commodity trading:

While forex trading, cryptocurrency, and commodity trading allow investors to trade at their convenience, there are certain opportunities they might miss, which they can get from shares.

Forex, cryptocurrency, and commodity trading is highly risky and can result in huge losses. Thus, require huge expertise. In forex trading, investors buy and sell foreign currencies and try to make profits. It is challenging to predict movements in currency. In forex trading, even a small change in the market can have a huge impact on the profit. Some other risks linked with forex trading include:

• Volatile exchange rate: Exchange rates are highly volatile. They tend to move around a lot, even within a small-time frame.
• Currency markets are difficult to predict as several factors impact the exchange rate.
• Also, there is limited protection from risk management systems. Stop-loss orders will help to cap losses, but at the same time, the investor also needs to pay the premium price to guarantee stop loss.
• In the case of forex trading, there is also a possibility that investors may lose all their money if the forex provider becomes insolvent.
• Investors can be impacted by trading delays. Investors can also not trade in case of a lack of liquidity in the market, execution risk, or any problem in the system, and many more technical issues.

Like forex trading, cryptocurrency trading can be done anytime. Since the market is open 24 hours, the traders can trade according to their convenience and when they feel it's the right time to take up a position. However, cryptocurrency trading is highly risky. Any unexpected change in the market sentiment can lead to sharp and sudden movement in prices. These are susceptible to error and hacking.

Crypto trading is highly volatile. It can offer huge profits, and at the same time, people may experience huge losses. In order to trade efficiently in cryptocurrency, people should be familiar with the trading strategy to avoid losses.

Forex trading Vs Cryptocurrency Vs Stock Trading:

Any form of investment involves risk. However, the extent of risk may vary from one another. However, if one diversifies their portfolio with different asset classes, the risk of losing huge money may reduce to a huge extent.

Those who are into this business full time can easily diversify their portfolio. However, those investors who are not available during the trading session can study which stocks to include in their portfolio and can take assistance from various stock market experts or various research reports, which can help these investors in their trading journey.

At Kapitales, we offer services in the form of research reports. We also offer special services that give access to different categories of research reports and phone and email support. You can subscribe the services and get assistance from our experts.

A peek into Forex trading Vs. Cryptocurrency Vs. Stock Trading performance

As discussed above, we said that forex trading and cryptocurrency are comparatively riskier than stock trading. Let us see this via charts.

Forex trading:

When we look into forex trading, the three most popular indexes in focus are Dollar, Euro, and Pound.

Lately, US Dollar has been gaining strength against various currencies of major economies. The dollar is stronger because the US economy is healthier than many countries globally, and the increase in the interest rate by US Federal Reserve subsequent to the Russia-Ukraine war.

A strong dollar impacts stocks of the US companies that operate internationally and helps stocks of the companies that export products to the US.

Currently, the US dollar is strengthening because the Fed adopted a hawkish monetary policy to curb the inflation rate. The stronger growth and the higher interest rate have made the dollar stronger and attractive to investors. Also, the existing economic factors have pushed the dollar up and weakened the currencies of major economies like the Euro and pound. Other than this, the nearing winter season and rising energy prices in the European countries have impacted the Euro and Pound values. The below charts indicate the same.

US Dollar Currency (DXY):

Euro/US Dollar FX Spot Rate (EUR):

UK Pound Sterling/US Dollar FX Spot Rate (GBP):

Cryptocurrency trading:

When it comes to cryptocurrency trading, one cryptocurrency most popular amongst investors is bitcoin. Investors trading in bitcoin have made huge profits. At the same time, investors have made huge losses as well as it is highly volatile.

Bitcoin/US Dollar FX Spot Rate (BTC):

If we look at the above chart, investors who invested in bitcoin in 2015 might have made huge profits if they sold their holdings in 2021.

At the same time, we see that since 2021, bitcoin has been highly volatile. In June 2021, bitcoin crashed after Elon Musk tweeted that Tesla would no longer accept bitcoin as payment because of environmental reasons about heavy energy use. However, by the end of 2021, bitcoin prices again moved up following the launch of bitcoin ETF in the US. A bitcoin ETF enabled investors to gain exposure to the biggest cryptocurrency by market cap without actually owning any. This fluctuation within a short time frame shows bitcoin's highly volatile nature.

As of November 2022, the bitcoin prices have dropped significantly and reached a level that existed during 2018.

Stock Trading:

As compared to forex trading and cryptocurrency, stock trading is less risky. If we look at the below two charts (S&P/ASX 200 and NASDAQ-100), we can see that over the long term, both indexes have grown significantly. In some instances, the indexes have crashed historically. These were Financial Crisis in 2008 and COVID-19 in 2020. However, over time the market bounced back.

S&P/ASX 200:

NASDAQ-100:

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