A world of opportunity
Shocked by the recent meltdown in sharemarkets? Perhaps it’s better to change yourself rather than wait for the markets to change.
The gold old days of the 2000s bull market is behind us. And, rather than leaving the market altogether, investors and traders fleeing rapidly falling local sharemarkets may be better off looking at other markets such as forex, commodities and futures.
Or maybe it’s the case that we need to change our investing mindset to a trading mindset.
But don’t think the last few months have been a breeze for traders. They haven’t.
Don’t fall for the old trap that traders love volatility. They don’t. Like Goldilocks’ porridge, you don’t want too little volatility, but you don’t want too much either.
Currency, commodity and futures markets are a good alternative because they are so large and there is always an opportunity to trade somewhere in the world. And, to all intents and purposes, trading forex uses the same skills as trading shares.
That said, traders need to be serious about protecting themselves. There is no excuse for not using stop losses and other forms of protection when trading currency.
However, it’s this focus on risk control that helps traders at times of market madness such as we’ve seen recently.
Most importantly, because of the ongoing importance of risk control, traders should be always ready for the market moving against them.
So, even if you aren’t thinking of trading, maybe it’s time to start thinking like a trader.
Apart from the mindset, here are five other key reasons to think about trading rather than investing:
There is always a trend, somewhere. In falling or volatile markets it can be difficult to find a clear upwards or downwards trend for trading. In currency markets there is always a clear trend somewhere. Individual currencies may exhibit volatility, but with a bit of time and effort traders will always be able to find opportunities both long and short at any given time.
There is always a buyer. Liquidity is less of an issue with forex, commodities and futures than stocks. For example, currency markets are among the most liquid in the world. You can almost always get out quickly at the price you want to get out.
This is a huge advantage over shares because small cap stocks, such as the small mining stocks which traders love so much, can be tough to exit.
No suspensions or de-listings. Unlike the shares of companies, such as Babcock and Brown, currencies cannot be taken off the market. During the GFC we saw several companies taken off the market and this meant that traders and investors are left with nothing.
These kinds of events don’t occur in forex. They might fluctuate, sometimes alarmingly, but countries will always need something to exchange for goods and services. The same goes for commodities and futures contracts. From this perspective, there’s a lot less risk in trading these instruments than shares.
Currency is a pure market. Currency is rare because it is a global market traded 24 hours a day. The size of the market and the fact it is 24 hours a day makes it a pure market. It is also a reflection of a nation’s economy and this information is freely available so there is little room for insider trading or market manipulation as can happen with shares, especially smaller cap stocks.
Risk control. While trading has a reputation for being risky, it can also provide some of the best risk control techniques. The liquid, 24-hour nature of forex means you can be certain stop losses will be triggered during market hours, unlike share markets where markets are closed 18 hours a day.
Don’t forget that risk control is the number one difference between winning and losing traders. Check out what’s out there. Many brokers offer a trading ‘safety net’ that ensures you are never exposed to margin calls or larger-than-expected losses.
When fear rules it can be best for traders to broaden their horizons. Many traders forget that there are options when their local market is suffering. There are always opportunities to trade outside of the sharemarket.
