We all want to generate money trading or investing in the financial markets. But not all of us do. Sometimes we simply make the wrong investments, or markets suddenly reverse. The financial markets are brimming with possibilities. Many of the opportunities that exist are in plain sight, with things like imminent IPOs of popular private companies that you know will do well, or innovative companies that are about to launch a new product range.
The key to successful investing is knowledge. This knowledge of financial markets can be leveraged for maximum gain when you invest your hard-earned money in stocks, commodities, indices, or currency pairs. You can avoid the most treacherous errors by focusing your energy on the contents of this guide.
Without further ado, let’s get started with 4 ways to make money on the financial markets.
- Understand What Your Options Are
Let’s take the beginning of June 2017 as our starting point. Global financial markets are currently anxious about the upcoming British election. The Tories have an advantage over Labour, and all the polls suggest a likely win for Prime Minister Theresa May. This calmed investor fears in the UK, and led to a strengthening of the GBP/USD pair.
As a trader or an investor, you can use this knowledge to your advantage by placing call options on the sterling. If the tide turns against the incumbent, we could see increased volatility in the markets, manifesting in weakness for the GBP. An important correlation exists between the performance of the GBP and the FTSE 100 index – the UK all share index. When the pound strengthens, the FTSE 100 index weakens. This is due to 70% of the reporting revenues on the FTSE 100 index coming from global operations. When these revenues are repatriated back to the United Kingdom, they translate into less in GBP terms.
There are many such geopolitical events taking place in financial markets daily. Consider the ongoing tensions with North Korea, OPEC’s recent decision to sever ties with Qatar over terrorism, and weak US economic data. The recent NFP reports in the US led to a weakening of the USD, as evidenced by a declining US dollar index.
This will have repercussions on the Fed’s decision to raise interest rates on June 14, 2017, or later. Every major macroeconomic event has the potential to impact markets around the world. It is incumbent upon you as a trader to understand the basic interrelationships so that you can profit accordingly.
- Which Direction Are Asset Prices Going to Move?
This is a tough one to call. However, general theory can be used to make a speculative assumption. For example, if the Fed raises interest rates, you can safely assume that the USD will appreciate slightly. If the Fed does not raise rates, the USD may weaken. This has an opposite effect on foreign currencies which will appreciate. Dollar-denominated commodities such as crude oil, silver and gold tend to move in the opposite direction to rising interest rates, but not always. By choosing a direction, you are effectively placing a call or a put option.
- Practice before You Trade for Real
Some of the leading trading platforms such as 24Option offer traders a demo account. This is one of your most valuable resources since it mimics real market trading conditions without any attendant risk. Demo accounts serve clients well, since they allow you to experience real market trading conditions with a wide range of underlying assets. These typically include currency pairs, indices, commodities, and stocks.
- Consider Contrarian Investment Options
CFD trading is a derivatives financial option, where traders do not take physical ownership of individual assets – they speculate on the price movements of the underlying assets. This is increasingly popular in the trading community since clients are no longer required to sit with assets, waiting for them to appreciate over time. There are many unique trade ideas available to you in the financial markets, provided you are prepared to conduct the necessary research and use the full range of tools at your disposal.
With derivatives trading, you can easily speculate on the future price movements of the asset – up or down and collect a preset profit at expiry time. Provided the asset finishes in the money, substantial profits stand to be gained. If you opt for the traditional form of investing at a bricks and mortar broker, asset depreciation needs to take place. This is the slow growth paradigm and it may not be right for traders looking to turn over large volumes of money.