Which Market should you Trade as a Beginner?
When you start trading, many questions may arise. Is it better to trade stocks or bonds? Should you even consider futures? And, are American markets more intriguing than European ones for trading opportunities?
When beginners start trading, choosing the right market can be challenging, especially since experienced traders often have conflicting opinions on the matter!
The truth is that there is no “best market for trading.” This is because choosing the best market depends on the individual’s trading strategy, goals, and preferences. In short, the market choice is a personal decision.
Indeed, each financial market has its own characteristics. Some will be liquid, others less so. Some will be calm, others volatile. Some will be open continuously, others have much more limited trading hours.
Understanding each market’s unique differences, details, and nuances is key to finding the best fit for you. Are you ready to dive into the financial markets and find your preferred trading ground?
Let’s get started with this guide!
Key Takeaways
- A financial market is a space where various financial instruments, like securities, derivatives, and structured products are traded. These can range from the very simple to the extremely complex.
- Selecting the appropriate market for trading is a personal choice, influenced by factors such as your availability, trading strategy, and objectives. Each market features its own specifics such as trading hours, the types of products available and associated fees.
- These markets operate either through formal financial exchanges or over the counter (OTC) markets. OTC markets are venues where transactions are made directly between investors and traders without standardization.
- Day traders often prefer trading futures on indices due to their flexibility, while long term investors might opt for holding equity directly or through Exchange-Traded Funds (ETFs) to build their wealth over time.
Trading exposes you to the risk of losing more than your initial investment and incurring financial liability. Trading is suitable only for well-informed, sophisticated clients able to understand how the products being traded work and having the financial ability to bear the aforementioned risk.
Transactions involving foreign exchange instruments (FOREX) and contracts for difference (CFD) are highly speculative and extremely complex. As such, they are subject to a high level of risk due to leverage. Please keep in mind that CFD trading is banned in the US.
Information published on the NewTrading.io website is for informational purposes only and should not be construed as offering investment advice or as an enticement to trade financial instruments.
Choose the Market That Matches Your Trading Goals
| Trading Strategy | Preferred Markets | Examples |
|---|---|---|
| Day Trading and Scalping | Futures on indices | Dow Jones Nasdaq Dax |
| Swing trading | Futures on commodities | Gold Silver Coffee |
| Position trading | Stocks | Nvidia Tesla Apple |
| Buy and Hold | Cryptocurrencies | Bitcoin Ethereum BNB |
Rather than chasing every shiny new trend, self-employed traders prefer to focus on a market they know inside out to beat the competition.
With the boom of new technologies and the financialization of the economy, new financial markets continually emerge and offer new trading opportunities.
Best Markets for Day Trading
Day traders favor highly liquid markets, with stock indices being among the most popular due to their substantial trading volumes and accessibility. They commonly trade these indices using
Futures contracts
which are particularly well-suited for scalping.
Choosing indices over individual stocks offers several advantages. Primarily, it provides better liquidity , allowing easier entry and exit from positions. This is crucial in day trading, where speed and the ability to react to market movements quickly are essential. Moreover, trading indices help eliminate the specific risks associated with individual stocks, such as the impact of company news or financial discrepancies that can cause dramatic price fluctuations.
Experienced day traders might also explore markets with renewed volatility such as currencies and cryptocurrencies. These markets offer high liquidity and extended trading hours, making them attractive for those looking to capitalize on fast-moving price changes. However, while these markets can provide significant profit opportunities due to their high volatility, they also pose a greater risk of substantial losses.
Every day, individual stocks may plummet to zero or skyrocket by several tens of percent, a scenario that rarely occurs with stock indices!
Best Markets for Swing Trading
Swing traders, much like day traders, favor stock indices for their reliability and the broad exposure they offer to the financial markets. However, many also find the commodities market appealing due to its unique price fluctuations that can span several days or weeks, offering opportunities for substantial gains that align with a medium-term trading strategy.
In addition to commodities, swing traders often participate in spot trading of stocks, particularly focusing on highly liquid, large-cap stocks—commonly called blue chips. These stocks provide the stability and volume necessary to execute larger trades without significantly impacting the price, a crucial aspect of swing trading. This preference helps them avoid the volatility and potential losses associated with trading low-volume stocks, such as penny stocks, which can be unpredictable and less transparent.
Best Markets for Position Trading
Position traders operate with a much broader time horizon than day or swing traders, holding positions for several weeks to months. This longer investment horizon opens up more market opportunities, allowing traders to engage in nearly all markets, including less liquid stocks. This strategy benefits from the potential for significant long-term growth, which can outweigh the risks associated with liquidity over extended periods.
The choice of financial products is particularly crucial as it directly influences the costs associated with maintaining positions over time. Position traders typically avoid derivatives with high rollover fees, such as CFDs, to minimize these costs. Instead, they prefer financial products like ETFs , Futures, or options, which are more cost-effective for long-term holding strategies.
Best Markets for Long-term Investors
Long-term investors focused on properly managing their wealth by building a diversified investment portfolio tend to avoid complex derivatives and favor direct securities such as stocks and bonds. These traditional investment vehicles offer stability and the potential for steady growth, aligning well with the goals of preserving capital and achieving long-term financial returns.
Long-term investors often turn to simpler derivative products like ETFs to diversify their portfolios effectively while keeping costs low and minimizing complexity. Exchange-traded funds (ETFs) allow for broad market exposure and are ideal for implementing straightforward trading strategies such as Dollar-Cost Averaging (DCA). This technique involves regularly investing a fixed amount of money into a particular asset, regardless of the share price, which can reduce the impact of volatility on the overall purchase.
Finally, the cryptocurrency market offers an alternative for those seeking more speculative investment options. Long-term strategies like buy-and-hold are particularly prevalent among crypto investors, who aim to benefit from potential high returns over time despite the high volatility and risks associated with these digital assets.
How to choose the best marketing for Trading
Trading is an extremely grueling and competitive activity. To stand out, choosing a market where you feel most comfortable is very important.
Instead of copying a ready-made strategy or mimicking the latest trading influencer, it’s better to take the time to assess your personal situation, objectives and constraints.
Take the necessary time to complete your trading plan carefully. It will greatly help you select the most suitable financial market, asset class, and financial product.
Aligning Trading Hours with Your Schedule
Different exchanges have different trading times. It should be noted that the trading hours of European exchanges differ from those of the American stock markets, which are also not aligned with the trading hours of the Japanese exchanges.
This variation in trading hours across different global markets means that the choice of which exchange or over-the-counter (OTC) market to invest in largely depends on when you are available to trade.
Consider your schedule and determine when to monitor the markets and make trades. This will help narrow down which markets are accessible to you during your available hours. If you work in your local time zone during the day, you might explore active markets during your evening hours.
If you are located in the US and work during the day, consider trading in Asian markets during your evening hours. Conversely, trading in American markets after work hours could be a suitable option if you are in the EU. Forex and cryptocurrencies operate 24/7, making them an interesting option for trading anytime, especially for those with non-traditional schedules. Always consider regulations in your area before trading, as some markets may have restrictions.
If you are located in London:
If you are located in New York time zone:
Pick an Asset Class
The financial markets have five primary asset classes: stocks, bonds, currencies, commodities, and cryptocurrencies. Each can be traded through brokers, but understanding their unique technical aspects is essential.
| Asset class | Key concepts to know as a Trader |
|---|---|
| Stocks | Dividends IPO (Initial Public Offerings) Takeover offers Stock Splits P/E (Price-to-Earning ratio) Buybacks |
| Bonds | Coupons Convexity Duration Maturity Yield curve Credit Risk Interest rate risk |
| Commodities | Contango Backwardation Storage costs Rolling Yield |
| Currencies | Central Banks Carry Trade Interest Rate Parity |
| Cryptocurrencies | Blockchain technology Staking “On Chain” |
Among the markets open during your available hours, you should choose the asset class that best fits your profile and preferences and then select the appropriate investment account type to manage your trades and taxes efficiently.
Types of Investment and Savings Accounts
Investment accounts are specialized financial tools designed to meet various savings needs, from building wealth over the long term to planning for retirement and funding future expenses such as university tuition. The table below lists some various investment account types.
| Investment Account Types | Location | Description |
|---|---|---|
| Brokerage Accounts | Globally | A standard brokerage account, often referred to as a taxable brokerage account, is a type of investment account that individuals use to buy and sell securities. |
| Retirement Accounts | US – 401(k) or IRA | A retirement account is an investment account specifically designed for savings and investing towards retirement. These accounts offer tax advantages that encourage long-term saving. |
| Tax-Exempt Accounts | UK – ISA | There are tax efficient savings and investment accounts available. They offer a way for individuals to save and invest without paying income tax on interest or capital gains earned within the account. |
| Junior Investment Accounts | UK – Junior ISA | These are tax-advantaged investment accounts designed to help parents save and invest for their children’s future. It is available to children under 18. |
Choosing Financial Products
Directly owning stocks, which give you ownership in a company, and bonds, which represent a loan to the company, is straightforward but may not always be the best approach to capitalize on market changes.
For example, many traders seeking broader market exposure with mitigated specific risks prefer trading in stock indices rather than individual stocks. Stock indices, aggregating the performance of multiple stocks, offer a buffer against the specific risks associated with single companies, such as sudden bankruptcies or hostile takeovers, which can cause brutal price movements.
Since you cannot own a stock index directly—it’s just a calculation based on the performance of its constituent stocks—traders often turn to derivatives like futures or Contracts for Difference (CFDs). These instruments mimic the movements of the indices and allow trading with leverage, increasing both potential returns and risks.
Derivatives enable trading across a broader array of financial assets and simplify the management of trading positions. They can also reduce transaction costs. However, due to their complexity and the broader trading opportunities they provide, it’s essential to use derivatives carefully to prevent significant losses or accumulating debt, especially when using leverage.
Important Note: Trading derivatives through a regulated exchange and a Clearing house is vital as it provides protection against the risk of the other party not meeting their financial obligations, whether due to financial difficulties or unwillingness.
To better illustrate the variety of derivatives available and their characteristics, here is an overview of some common types along with their complexity, trading venue, and whether they typically involve the use of leverage:
| Types of Derivatives | Complexity | Market Type | Leverage |
|---|---|---|---|
| ETFs | Moderate | Exchange-Traded | No |
| Futures | Moderate | Exchange-Traded | Yes |
| CFDs | High | Over-the-counter (OTC) | Yes |
| Options | High | Exchange-Traded | Yes |
| Warrants | High | Over-the-counter (OTC) | Yes |
| Turbos | High | Over-the-counter (OTC) | Yes |
Structured products, which are combinations of financial assets and derivatives, are not widely used by traders who prefer to manage their own trading positions. However, they are popular among wealthy investors looking to customize their portfolios or optimize risk-return profiles and taxes.
Final word
Overall, selecting the right market for trading as a beginner depends heavily on individual preferences, trading goals, and availability. Whether you’re drawn to the rapid movements of day trading in stock indices or the long-term potential of holding cryptocurrencies, understanding the nuances of each market is crucial.
It’s important to align your trading hours with your schedule, pick an asset class that resonates with your interests and risk tolerance, and choose financial products that best fit your strategy. By taking the time to carefully plan and understand the different markets and their dynamics, you can set a solid foundation for your trading journey.
It’s important to understand that no universal “best” market exists. Each market has its own technical characteristics and trading rules.
Once you’ve shortlisted a market based on the information provided in this article, take the time to confirm it suits you by conducting a few sessions of paper trading.
Maxime holds two master’s degrees from the SKEMA Business School and FFBC: a Master of Management and a Master of International Financial Analysis. As founder and editor-in-chief of NewTrading.fr, he writes daily about financial trading.
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ProRealTime Paper Trading Simulator.
