Investing is the act of allocating monetary resources to an asset with the expectation of generating an income (e.g., from rent, dividends, or interest) or a capital gain (because its price appreciates) or both. It is a way to potentially increase the value of your money in the future. Investing always involves bearing risks with the hope of a return. You can buy or sell different assets, such as stocks, bonds, commodities, real estate, etc. These assets and the marketplaces where they are traded are referred to as investing markets.
In this guide, we explain what the investing market is and offer our top picks for the best investing markets in 2021.
Where Can I Trade the Various Investing Markets?
Owing to improvements in technology and the availability of electronic communication networks, you can participate in any investing markets via the relevant online brokers or trading platforms. For equity market securities, you can use online stockbrokers, while you will need a futures broker to trade most commodities. If you want to trade currencies, you will need a forex broker.
Interestingly, there are online multi-asset brokerages and trading platforms that allow you to participate in different markets. As already mentioned, contracts-for-difference (CFD) and spread betting platforms typically let you place “bets” on the price movements of many markets, including equities, commodities, and currencies.
Based on access to different investing markets, speed of trade execution, fees, and security, we have shortlisted the best brokers:
What Are Investing Markets?
Investing markets are marketable financial assets and derivatives that market participants can publicly trade or invest in, according to their needs. These include various financial products, such as bonds, currencies, stocks, futures contracts, option contracts, exchange-traded funds, forward contracts, swap contracts, commodities, and cryptocurrencies.
Investing markets also refer to the exchanges and marketplaces where those financial products are traded, such the stock exchanges, futures exchanges, money markets, forex markets, and others. These markets help to facilitate the distribution of resources across different asset classes while creating liquidity for businesses and entrepreneurs.
Investing markets exist to satisfy the economic needs of participants that include individuals, corporate organizations, and governments. Depending on the objective, these participants approach the investing market for mainly three reasons: to save, invest, or borrow money. For example, governments and corporations come to the markets to raise money through bonds and debt instruments or issue new equities through IPO. Some individuals — Warren Buffet, for example — have also amassed wealth investing in the various markets.
Trust is important in any investing market, so government agencies (such as the SEC and CFTC) and practitioner associations (such as the NFA) regulate the markets and the financial actors in the markets.
What Are the Trading Hours for the Various Investing Markets?
Investing markets are traded at different times depending on their categorization and asset classes. Certain markets, such as equities, fixed instruments (bonds), and exchange-traded funds are traded on weekdays only — the specific trading hours depend on the exchange. Commodities, such as natural gas and crude oil, are traded between Sundays and Fridays, while cryptocurrencies are traded round the clock.
Trading the Investing Markets in 3 Steps
Choose the Investing Market to Trade
Each investing market is unique with its own cycles and seasonal patterns. While all investing markets are risky, some are less risky than others: bonds are considered a safe-haven investment, while cryptocurrencies are extremely volatile. While investing in stocks requires some basic knowledge that can easily be found online, participating in the commodity market requires special knowledge. So, carefully choose the investing market that suits your situation.
Open a Trading Account with the Right Broker
The investing market you choose will determine the broker or online trading platform you open an account with. If you choose the equity markets, you open an account with a licenced stockbroker, but if you want to play the commodity market directly, you may have to open an account with a licenced futures broker. Contracts-for-difference (CFD) and spread betting platforms typically let you place “bets” on the price movements of many markets, including commodities and currencies.
When you’ve opened an account with the right broker, you can check the trading platform to see the securities available for trading. Select the securities you want to invest in and hit the buy button. Ensure you understand the market you are trading. Some of the commodity markets are cyclical, while the forex market reacts to short-term events. Equities (stocks) favour a combination of fundamental and technical analysis. For the bond market, interest rates are key factors. Remember to only invest with an amount you can afford to lose.
Which Is the Best Investing Market to Trade?
These are the best investing markets to trade in 2021 owing to their high liquidity, stability, and potential for good returns. Our top 10 investing markets to trade are:
- Individual stocks
- Mutual funds
- Bonds funds
- Real estate
- Commodity funds
This is by far the most popular investing market. Individual stocks allow investors to have part ownership of a company they invest in. This ownership comes through shares acquired by the investor. Individual shares are traded on exchanges such as Nasdaq and New York Stock Exchange. The total market capitalization of the US stock exchange is $50trn as of 2021.
Stock Mutual Funds
A stock mutual fund is a carefully selected portfolio of stocks, which is traded as a single unit. Mutual funds are created by investment firms, banks, and financial instutions, and they are managed by professionals. In some cases, the funds are created to mimic the composition of the popular market indexes, and these are called index funds.
An exchange-traded fund (ETF) is like a mutual fund, but it is traded actively on the stock exchange just like stocks. ETFs are not actively managed by a professional and are often created simply to track the performance of a particular market index, such as the S&P500 Index and the Nasdaq composite index. Stock ETFs allow retail investors to own a diversified portfolio of stocks with relatively small capital. At the time of writing, the value of the U.S ETF market is over $5trn
Bonds are fixed-income debt instruments issued by governments or corporations to raise capital to execute projects or achieve investment goals. The bond issuer raises capital by borrowing from the bondholders. The issuer then makes regular payments to bondholders at a fixed (or variable) interest rate for a specified period. The size of the US bond market is roughly $8trn as of 2021.
A bond fund is a fund that invests exclusively in debt securities. Also known as debt funds, this investing market invests in multiple bonds and mortgage-backed securities. Bond funds usually make periodic interest payments to investors based on realized capital appreciation. The value of the US bond fund market is over $100trn as of February 2021.
Expert Tips for Investing in the Various Investing Markets“ Before participating in any investing market, you should understand everything about the market, including the cycles, seasonal patterns, and other factors that move the market. Also, try to understand how the performance of one investing market can affect another market. This is inter-market analysis. ”- Emmanuel Ekwomadu
Why Trade the Various Investing Markets?
There are many reasons to trade the various investing markets. Investing in the markets allows you to put your free cash to great use — you let your money work hard for you. Also, it provides you with passive income in the form of dividends or interest while your capital stands a chance to appreciate.
It may be wise to invest in as many of the markets as you can afford, to spread your risks across different markets, thereby reducing systemic risk and increasing the chances of making consistent returns.
Frequently Asked Questions
While the investing markets can be profitable, they can also be very risky. For any investing market, the ability to make profits depends on the skills of the investor/trader to manage risk and identify profitable opportunities.
The equity market offers the most returns over the long term. While cryptocurrencies tend to offer massive returns over the short term, the volatility in the asset is too high, and the losses can be as disastrous and fast as the returns.
Bonds, especially government bonds, are the safest investing market to trade because they are guaranteed by the government. Some corporate bonds issued by well-established companies that are in good financial health are also considered safe but not as safe as government-issued bonds.
The major difference between investing markets is the type of assets and securities that are traded in each market. Another difference is the structure and regulation. For example, the equity market is well structured, with central exchanges and proper regulation. On the other hand, the forex and cryptocurrency markets are over-the-counter markets without a central exchange.
Certain investing markets, such as stocks, real estate, and bonds are good for beginners. However, cryptocurrencies, forex, and commodities are not good for beginners because they are highly volatile and require special skills.
Only cryptocurrencies are traded 24/7. Other investing markets have their trading schedules. Stocks, for example, are traded mostly when the stock exchanges are open.