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Gain new insights and broaden your understanding of financial markets. Trading in a variety of asset classes will expand your appreciation of how different macroeconomic and microeconomic factors can exert market influence.
A bigger view across markets
In the asset class section, we’ve looked at Currencies/ Forex, Stock Indices and Bullion, but there are other asset classes you might want to consider. By diversifying your portfolio, it’s possible to avoid some of the negative psychological biases that we explored in the section on trading psychology. Trading in a variety of asset classes and markets makes it possible to have a broader view of what is happening across financial markets, and appreciate how different macroeconomic and microeconomic fundamental events, or central bank or geopolitical factors exert their influence. Given some markets have strong direct or inverse correlations, it can be useful to see how price action in one market could have an impact on the other markets you’ve chosen to trade.
Type of other financial markets
Interest rate markets: These markets look at the short-term interest rates for various major global economies. This might mean anticipating the interest rate for the next 3, 6, or 9 months for the US economy, the European economy, or the UK. It’s also possible to see short-term interest rate markets going out much further in time than this. Clearly, the anticipation of what the central bank in each economy is going to do with the interest rate is one of the key market drivers.
Bond markets: Bonds are effectively loans issued by corporations or governments over a set duration, with a fixed income paid to the bond holder at set times throughout the duration of the bond. You would typically look to monitor the movements of the major government bond markets, including the US, the major Eurozone nations, and the UK. Bonds – and government bonds in particular – are seen as a safe haven asset when compared to equities or shares.
Individual stocks or stock sectors: Although you may trade in stock indices or averages, it’s also important to monitor individual stocks, particularly the large capitalisation shares in any index that you trade.
When Amazon share prices move, it invariably has an impact on the major US stock averages, and in turn the main global equity indices. Similarly, share sectors such as Banking or Oil can help drive the broader averages.
