Trading Online: Basics That Every Investor Should Know

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(The following is a post by T. Williams)

Before beginning investing, every investor should know about the common investing options and the differences between them. This will ensure that they are making an informed decision when they decide which types of investments to pursue.

Forex Trading

Forex trading with MXT, short for foreign exchange trading, allows investors to invest in the currency market with the click of a mouse through online brokerage accounts. It is one of the least volatile financial markets around and positions can be opened and closed within minutes or can be held for months. Before the internet made Forex trading widely available to the masses, the only investors in the Forex market were large financial institutions, corporations, central banks, hedge funds and extremely wealthy individuals. Currency prices cannot be manipulated easily because the size of the market is so large that even the largest players cannot move prices at will.

Market Indices

Another important trading option is market indices. These indices track the performance of a specific group of stocks that represent a particular market or economic sector. Investors will be pleased to know that there are market indices for nearly every area of the stock market and the economy, allowing the investors to investing in markets that they are personally interested in. Some well-known market indices include:

  • Dow Jones Industrial Average (DJIA) – an index of 30 “blue chip” stocks of U.S. industrial companies
  • NYSE Composite Index – tracks the price movements of all common stocks listed on the New York Stock Exchange
  • S&P 500 Composite Stock Price Index – a capitalization-weighted index of 500 stocks chosen for market size, liquidity, and industry group representation
  • Wilshire 5000 Total Market Index – a capitalization-weighted index of all U.S.-headquartered equity securities with readily available price data
  • NASDAQ-100 Index – tracks the performance of the 100 largest and most actively traded non-financial domestic and international securities listed on The NASDAQ Stock Market

Commodities Trading

Investors can diversify beyond traditional stocks and bonds by investing in the commodities market. Each commodity contract requires a different minimum deposit, depending on the broker, and the value of your account will increase or decrease with the value of the contract. A popular way to invest in commodities is through a futures contract. A futures contract is an agreement to buy or sell a specific quantity of a commodity at a specific price in the future. Due to the enormous amounts of leverage in the market, small price movements in either directions can mean huge returns or losses and a futures account can be bankrupted or doubled in a matter of minutes.

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