The best asset offers the best trading opportunities when it has a high degree of volatility, liquidity, and transparency. Volatility is the measure of how much the price of an asset moves up and down over time. Liquidity is the measure of how easily an asset can be bought and sold. Transparency is the measure of how much information is available about an asset’s price and value.
Based on this, which asset class offers the best trading opportunities?
We decided to ask our loyal readers on Twitter.
Which asset class offers the best trading opportunities?
Our readers have given their verdict:
Cryptocurrencies and futures shares #1. And to be honest, cryptocurrencies are a bit surprising given that we so far have not covered the crypto market much.
We suspect volatility is one of the reasons why trades like crypto. Why? Probably because assets that are highly volatile offer traders the potential to make large profits, but they also come with a higher degree of risk. Assets that are highly liquid offer traders the ability to easily enter and exit positions, but they may also have tighter spreads.
Some of the best asset classes for trading opportunities
Let’s look at the most obvious asset classes to trade:
- Stocks: Stocks are shares of ownership in publicly traded companies. They are one of the most popular asset classes for traders because they offer a high degree of volatility, liquidity, and transparency. They have an added bonus: tailwind in the form of rising prices over time.
- Forex: Forex is the market for trading currencies. It is the largest and most liquid financial market in the world. Forex traders buy and sell currencies based on their expectations for future exchange rates. In our opinion, we believe forex is one of the most difficult assets to trade.
- Commodities: Commodities are raw materials that are used in the production of other goods. Some of the most popular commodities traded include oil, gold, and wheat. Commodities are often volatile, but they can also offer traders the potential to profit from inflation and other macroeconomic trends. Just like
- Cryptocurrencies: Cryptocurrencies are digital or virtual tokens that use cryptography to secure their transactions and to control the creation of new units. Cryptocurrencies are a relatively new asset class, but they have quickly become popular among traders due to their high volatility and potential for large profits.
- Bonds: A bond is a loan that an investor makes to a borrower, typically a government or corporation. In return for the loan, the borrower agrees to pay the investor a fixed rate of interest over a set period of time, and to repay the principal amount of the loan on the maturity date. Just like stocks, a bond has a tailwind in the form of interest payments. Over time, bonds rise in value.
Trading and investing are about dealing with an uncertain future. This is why we backtest – to calculate the odds.
Here are some tips for finding the best asset offers the best trading opportunities:
- Consider your risk tolerance – risk and reward. Before you start trading, it is important to understand your own risk tolerance. How big a drawdown can you tolerate? Most traders tolerate a much lower drawdown than what they believe.
- Slippage and commissions: What can you expect in trading costs for that particular asset?
- Research different asset classes: How easy is it to research a particular asset class?
- Use quantitative analysis. Does the asset have historical and trustworthy data to backtest?