Thanks to the internet and electronic transactions, investors have access to many financial markets and exchanges offering a wide range of financial products. Some markets are always open to private investors, while others are still reserved for major international banks and financial experts until the end of the twentieth century.
These markets are not the same because each market requires unique skills and knowledge. Therefore, investors need to determine the right market that best suits their ability, personality and investment objectives; then develop specific skills to profit in that market. Here's a new look at the financial markets available to private investors and what you need to know when trading in those markets.
In general, private investors can easily access capital markets and create favorable conditions when trading in this market. However, because there is a limit to leveraging financial leverage, potential profits are also limited. Every government or business needs capital (funds) to finance its long-term investments and activities. To do this, a company must mobilize capital through the sale of stocks , stocks and bonds , in the name of the company. These securities will be bought and sold on the capital market.
Individuals are seizing investment opportunities more than ever: according to the "Overview of the US Economy" (2001) by Christopher Conte and Albert R. Karr, and the US State Department, "rate of households American families own shares, directly or through intermediaries such as pension funds, up from 31% in 1989 to 41% in 1995 ". Due to the increase in private participation, US capital markets are now strictly managed by the Securities and Exchange Commission (SEC).
The active participation of private investors, the diversity of products, the limits of deposit and the strict management of the government together, make the capital market become relatively safe. with amateur investors. But low risk will lead to limited profit potential - a typical example of a trade-off between risk and profit . This is partly because there is often a physical limit to the growth of a company or an economy and partly due to the limited leverage. For example, most private investors are not allowed to borrow more than 50% of their shares in their margin account.
Many private investors participate in financial transactions in the capital market often through the first stock market. The reason is that this market is quite easy to understand, offers many choices, there are many famous companies and products, easy access and good liquidity thanks to the large volume of transactions, allowing investors to exit. relatively convenient. Given these factors, it is not surprising that the annual trading volume on the New York Stock Exchange has increased almost 15 times between 1980 and 1998 - from 11,400 million shares to 169,000 million shares (according to "Concept."). generalization of the US economy ”, 2001).
Bonds are debt securities that are bought and sold by investors in the credit market worldwide. According to the Bond Market Association, this market (also known as the debt market, credit market or fixed income market) trades 45 trillion USD worldwide and 25.2 trillion dollars in the United States in 2006. It is much larger than the nominal value of the world stock market. The bond market is considered passive, less risky, and less volatile. This market also has lower profitability than the stock market in the long term.
In the late 1990s, the proportion of households in the United States holding mutual funds increased significantly, from only 6% in 1979 to 37% in 1997. Why is this sudden increase? The mutual fund is an attractive method for private investors wishing to invest in a large basket of stocks. The amount of money collected for mutual funds will be invested by professional financial managers in various sectors and sectors while increasing scale allows mutual funds to work actively in their investment process. On the other hand, mutual fund investors are protected somewhat from the inherent chaos of the stock market due to diversification. Profit of mutual fundsStock investment is quite solid, if not spectacular. Investing in mutual funds helps investors without basic analysis, but knowledge of asset allocation and diversification of sectors will help investors maximize profits with a certain level of risk.
Many private investors cannot beat the "large-scale market" indicators like the S&P 500 so they believe that it is safe and easy to buy the whole index. This argument sounds reasonable, but investors must also remember that these indices are fundamentally sensitive to market fluctuations.
However, a small investor with limited time and capital can still achieve higher levels of diversity by buying indices instead of buying individual stocks. Luckily for those who want to invest according to the index, they have two simple and inexpensive options: indexmutual fund and portfolio swap (ETF) . Both have low cost rates and high transaction volumes, leading to high liquidity. Invest in indexes without many analytical skills.
MONEY MARKET OR SPOT MARKET
Investing in the cash or name market is more familiar than the complex spot market, the probability of large profits and large losses is high. In the spot market, goods are exchanged for money and delivered immediately. Similarly, the spot market contracts are effective immediately. Prices are immediately determined based on market prices. This is especially different from other markets where transactions are determined at the forward price.
The spot market is quite complex and sophisticated, so it is generally not suitable for inexperienced investors. Spot markets tend to be dominated by so-called "organized players" such as hedge funds, partnerships and corporate investors. The nature of products traded in this market requires extensive network of contacts, detailed information, macro analysis skills and high-level transactions.
Despite this, more and more private investors are rushing into this market due to the high leverage available and the potential for profit. Ironically, the high rate of leverage followed by high risk knocked many young new soldiers. Professional investors often do not trade entirely on leverage. Instead, they apply disciplined money management principles. Therefore, those who intend to trade in this market must first take the time to accumulate experience and learn about it before risking their capital. Another viable option for investors who do not want to miss this "fun" opportunity is to invest in an account managed by an experienced professional.
The student is given such a name for reasons: its value is based on one or more properties. A birth must be a contract, but in this case, the contract price is determined by the market price of the underlying asset. It sounds complicated, but it is. Obviously, the derivatives market is more complex than the above market so it is not suitable for inexperienced traders who want to speculate. However, it has a very effective defense function .
Financial leverage is also available in derivative markets, so private investors are also very interested in this market. However, they should invest in professionally managed funds or accounts by derivative investments that require high-level analytical and mathematical skills as well as a deep understanding of macroeconomics.
Examples of common derivatives are forward contracts, futures contracts, option contracts, swaps and price difference contracts (CFDs). These tools are not only complex but so are the strategies adopted in this market.
There have been huge losses made public in the derivatives market. Therefore, US political and management agencies have expressed their concerns about derivatives, as well as investment activities in this market.
There are also many other derivatives, such as structured products and mortgage obligations, mainly in the decentralized market ( OTC market ). Professional investors, organizations and mutual fund managers use them to varying degrees, but private investors hardly look at them.
The penetration of private investors into different markets is not a flat path, they have many choices but are also easy to make mistakes. Every available market, even those dominated by traders or private investors, requires specific knowledge as well as a comprehensive understanding of market dynamics. Tools such as internet or electronic platforms only make the importance of market research increasing and perhaps the most important factor that makes investors' success the most appropriate market choice. with your own ability