Technology has played a huge role in our lives, especially the financial markets. If you're looking to invest, your first decision is to select a suitable trading vehicle. With such a wide and diverse range of options to choose from, this consideration is as important as it is time consuming and challenging.
Two of the most alluring opportunities lie within the forex and futures markets, which also happen to be diametrically opposed in terms of their set-up. When considering which option is best for you, the key is to research both thoroughly and keep in mind the delicate balance of minimizing risk while maximizing your returns.
Forex Trading and Future Commodities Trading: Things to Bear in Mind
There are fundamental facts about each method of trading that can assist you in making the right decision. Consider the following:
- The Difference between Margin and Physical Trading: The first thing to bear in mind about forex trading is that profit and loss is determined by margin, which dictates that any potential gains or losses may be far greater than your initial investment. In contrast to this, the future commodities market dictates that physical financial instruments are traded on specified future dates, with the value and performance of your products being pivotal in determining your success or failure. So while some may feel more secure speculating on the value of physical commodities, others prefer the liquidity offered by marginal trading.
- Regulation within the Market Place: Your choice of trading vehicle will often be determined by your individual characteristics, as these inherent traits must be suited to a specific financial market. For example, an individual who is independent and unconcerned with convention is far more likely to embrace forex trading, as the market has minimal regulation and a great deal more scope for profitability. The future commodities market is extremely well regulated, however, and far more likely to independent traders who prioritise structure and rules ahead of fluid thoughts and actions.
- The Risk and Reward Conundrum: No choice of trading method or individual transaction should ever be made without giving due consideration to the importance of balancing risk against reward. Even though your chosen trading platform will offer you numerous risk management tools through the course of trading, there is still a perennial threat that your investment will ultimately prove to be fruitless. This danger is slightly more tangible in the future commodities market, whereas the option of short selling allows traders to profit even when their currencies lose value in the world of forex.
The Bottom Line for Novice Traders
It must be remembered that while these two options are both viable for aspiring traders, they are part of a far wider range of investment methods. Assessing these two very different vehicles at least helps you to understand more about specific financial markets, however, and the individual risks and be benefits associated with each. You may even find that options such as CFD trading, which allows investors to speculate on the future movement of prices regardless of underlying market performance, may well provide a middle ground that offers you a greater degree of comfort.