Most of the time, Forex and CFDs are not the only assets offered by brokers. This article discusses on various types of alternative assets popularly traded in forex and CFD brokers.
The foreign exchange (forex) market is where global currencies are exchanged and traded against one another. The participants are traders or investors including retails, corporations, or institutions. Also, forex could be used for hedging because many companies doing business in foreign countries face high risk due to fluctuations in currency values.
The currency price is, of course, determined by supply and demand. Many sentiments which affect the fluctuations of currency price are like economic growth, interest rates, political situations (both locally and internationally), as well as the perception of the future performance of one currency against another.
According to a recent report from the Bank for International Settlements (a global bank for national central banks), daily forex trading volume reached more than $5.1 trillion on average. Therefore, the forex market has become the largest and most liquid asset in the world.
Forex market exists as spot (cash) markets as well as derivatives offering Contracts for difference (CFDs). CFD traders can use margin for trading in the CFD market. It means that the broker allows investors to borrow money to increase leverage to pursue gains. As a result, traders who trade on margin CFDs are on higher leverage than other players in conventional markets. You may trade in the CFD market with leverage as low as a 2% margin requirement and as high as a 20% margin. With fewer rules and regulations, traders can have lower capital requirements in a brokerage account.
See also: Forex Brokers with the Lowest Deposit
Other than that, traders can diversify their funds into a wide range of assets like stocks, bonds, commodities, ETFs, and cryptocurrencies. Hence, there are more and more forex and CFD brokers offering such assets as an alternative opportunity to trade in other markets. Here are further descriptions on each popular alternative assets commonly found in the forex and CFD brokers:
A stock is evidence of ownership of shares issued by a corporation. It represents a share where it determines the proportion of a corporation’s equity. The owner of stock will get a dividend equal to how much stock they own. Moreover, corporations issue stocks to raise funds to scale up their businesses. There are two main types of stock: common and preferred.
See also: Forex Brokers Offering Stock Trading
Common stocks are bought and sold on stock exchanges, while preferred stocks can be private sales. These transactions have to comply with government regulations meant to protect investors from fraudulent practices. Stocks can be also purchased from online stock brokers.
Historically, investing in stocks market can outperform other investments in the long term. Stockholders have the right to vote in shareholder meetings, receive dividends, and sell their shares to others.
A bond represents a loan made by a borrower (typically corporate or government) to a creditor (investors and traders). It is a fixed income instrument that can be paid with variable or fixed interest payments from the borrower. Other than that, investors will receive back the principal of the loan. Bonds are usually issued by states, sovereign governments, municipalities, and companies to finance projects or operations. They are also securitized as tradable assets.
Bond's price varies inversely with interest rates. When interest rates rise, the bond's price tends to fall. Similar to any other publicly-traded security, the bond's price fluctuates on a daily basis. It is determined by supply and demand at any given sentiment. A bondholder can sell bonds at any time in the open market. If a bondholder holds bonds to maturity, they will get the principal of the loan plus interest.
A commodity is usually used as an input in the production of goods and services. It is traded on an exchange when meets specified minimum standards, also known as a basis grade. There are only little differences between a commodity coming from one producer as compared to another producer.
For instance, a barrel of oil has a similar product character regardless of the producer. Some traditional examples of commodities including gold and other precious metals, grains, beef, oil, and natural gas. In fact, gold trading is sometimes more popular than currency trading as traders can analyze XAU/USD price directly on their platform.
See also: Forex Brokers Offering Commodity Trading
Similar to mutual funds, an exchange-traded fund (ETF) is a basket that includes a collection of securities like stocks or bonds. ETF is listed on exchanges and investors can trade ETF shares on a daily basis.
See also: Forex Brokers Offering ETF Trading
As a new form of digital asset, cryptocurrency is distributed across a large number of computers. It depends mostly on a network and is built on Blockchain technology. As it can exist outside the control of the government, cryptocurrency's structure is decentralized. Bitcoin is the most popular example of cryptocurrencies, and its price is commonly used as a reference to the cryptocurrency market as a whole.
The abovementioned assets are generally popular among forex traders as the majority of forex and CFD brokers have varied their instruments offering to other assets. To choose the best brokers based on their instrument types, our Advanced Search for Forex Brokers is available for you. Not only based on the instruments, you can also choose the most ideal broker by its spread, leverage, minimum deposit, and other traits that you deem important for a good broker.