You have heard about the advantages of trading with futures and options trading, but you are confused as to what are trading instruments. This can be a tricky subject, if you do not know where to start. Here is a short explanation of the different types of trading instruments used in trading.
Commodity trading refers to the buying and selling of commodities. For example, you may buy wheat at one place and sell it at another. You use the commodities as a trade to profit from a fluctuating price. The only problem is that it does not give you a guaranteed profit.
Short selling refers to the buying and selling of assets (stocks, shares, and bonds) at a specified strike price and reduce the value of the asset until the strike price is reached. It can be done to cover for your own losses or to create a new asset. Sometimes you can get the asset for less than the strike price.
Option trading refers to the purchase of an option. A call option gives you the right to buy the underlying asset at a specific price before expiration, while a put option gives you the right to sell the underlying asset at a specified price before expiration. These options are used in all kinds of financial transactions. The best thing about this instrument is that you can get the option contract at any time of the day.
Security trading refers to selling of securities. Many times, the seller gets the securities at a reduced price because the seller has purchased the entire stock in quantity. When you need cash immediately, then this is a good option.
All these are just trading instruments. Here are some other trading instruments:
– Decentralized market. This type of trading is where traders are able to enter and exit a specific market without using the company’s real time market information.
– Futures trading refers to the buying and selling of a future. Futures trade offers an income opportunity when one is able to trade in a stock, bond, or other common stock. The main reason why many traders enter this market is because of the interest gained.
– Forex trading refers to the buying and selling of foreign currencies. There are many reasons why traders choose this market and many reasons why they are interested in this type of trading.
– Online trading platforms. The use of online trading platforms has allowed many traders to take advantage of the liquidity and convenience offered by the trading sites. It is a good platform for beginners, since it provides a full and complete instructional guide on how to use the platform.
In conclusion, there are a lot of trading instruments available in the market, but you should remember that trading should only be done based on fundamental economic analysis and not on the market trends. One can develop their own trading strategy based on fundamental economic analysis and their market background.
Since trading involves risks, it is always advisable to invest in one’s self a little in order to develop a solid foundation in fundamental economic analysis and later on use that experience to make money. As you learn more about the market, you will be able to develop more sophisticated strategies and learn to keep your trading strategies and portfolio with you in order to avoid losses.