After a post-pandemic period of relatively fast growth, the global markets are set to slow down somewhat over the first few months of 2023. Experts are predicting that financial conditions are tightening due to global events such as the natural gas crisis in Europe and the covid policy in China.
Fortunately, the decline in inflation is likely to kickstart some degree of growth, staving off a global recession, but more pessimistic commentators are predicting some degree of recession before the end of the year. For those that want to make the most of the potential volatility of the current market, there are plenty of ways you can use trading to generate a profit even in a market that’s on the downturn.
There are a number of markets and trading types that investors can choose from, including:
- Commodities – these are goods that can be exchanged for one another, such as grain, oil, gold, beef, or natural gas
- Stocks – these give the purchaser the ownership of a percentage of the issuing company
- Derivatives – these are contracts whose value is derived from an underlying asset or group of assets
- Options – these are a specific type of derivative that take the format of a contract to buy or sell the underlying asset at a pre-agreed price during a specified time period
- Foreign Currencies – trading one currency against another allows investors to take advantage of fluctuations in the values of global currencies relative to one another
- Cryptocurrencies – speculating on the value of digital currencies that exist in cryptographical form using a decentralised system of user verification
- Mortgages – investors that want to capitalise on the property market can choose to invest in mortgages through a unit trust, corporation, syndicate or other vehicle
- Money markets – these tend to be relatively low-risk investments in short-term debt using funds that are managed by brokers to ensure stability and minimise risk.
What type of trading is best for you?
Of these types of trading, there are some that are easier and more likely to be profitable than others, with options often coming in at the top spot for new investors. This is because they are relatively low risk as an investment vehicle, and they require less in the way of financial commitment than some of the alternatives.
Options meaning are generally considered one of the most cost-efficient choices for investors as they offer the chance to open a position similar to that of a stock position but using a contract that only costs a fraction of the price of the underlying shares. Anyone that wants to diversify their portfolio may wish to purchase options instead of stocks in order to free up the rest of their capital for alternative investments.
Options are also considered to be the best defence against catastrophic market changes that could have a devastating effect on your investment value. Even a stop-loss order cannot protect the value of a position if it falls between the closing of the market and the time that it opens again, whereas a put option protects the contract with 24-hour protection that is still operational even when the market is closed.
Options also offer higher potential rewards compared to purchasing stock itself, largely due to the fact that the option requires a much smaller investment but can replicate the profits of the stock itself. This means that the return percentage is higher, allowing investors to take advantage of stock movements without exposing themselves to the risk of owning stock.
Options are a versatile way to invest money in products that can be used to replicate the activity seen in other positions. As a flexible investment tool, they provide some degree of security against the most dramatic losses, but they can also be used as a trading strategy to circumvent brokerage rules on shorting stocks.
With so much information about the way the markets are moving, traders can arm themselves with as much knowledge as possible to help them determine which investments are the most appropriate for their risk level and available capital.
You can use historical data to see how markets have responded to major events, compare information about different products to see how their performances stack up, and catch up with the latest news from industry experts. From setting up alerts to give you warning of when changes are afoot, to using social media to gain insight into different markets, the more time you spend immersing yourself in relevant information, the better your understanding of the market will be.