Trading instruments are instrumental for the traders in making a profit. Most traders use two or more types of trading instruments to choose their favorite among them. The benefits of using this method are very much like those of investment in stocks and shares. This is especially true if you are a novice trader who might not be able to make any decisions on his own.
One of the most common trading instrument is the leveraged trade. It is used for making gains during small fluctuations in the market. These types of trading instruments are known to be the easiest to use. But with their use, caution must be taken. There can be risks when you use these instruments.
Another common type of trading instrument is the day trade. These are basically short term instruments which are traded only in one day. These instruments do not trade by themselves but instead are paired with other instruments.
Currency trading is another popular one where investors invest in large amounts and get a long term trading advantage. You can only trade this with a fund that is well managed and is backed by the currency exchange. In other words, your trading cost would go up for a few years.
A volatility trade is also quite popular among the investors. It is similar to the leveraged trade but with the main difference that you need to place a lesser amount for a bigger gain. Some volatility traders use this to earn a big fortune.
Other types of trading instruments include stocks, futures, swaps, bonds, currencies, options, etc. The more important thing about these instruments is that they are all used to generate income. Some instruments have varying basis prices and usually trade within narrow ranges.
Although all of these instruments have a significant difference in the base price, the profit you would be making will differ from instrument to instrument. Before buying any trading instrument, you need to first decide what kind of profits you are hoping to make.
Now let us look at the different types of instruments and their uses. Leveraged trade is mostly used for making big gains. So traders use leverage and these instruments are referred to as ‘leveraged trades’. Stock exchange or share market makes huge profits every year.
These profits are generated due to the increase in shares. This profit is known as ‘shareholder’s dividend’ and is given by the shareholders. When the value of the shares goes up then the profit for the trader is also increased. The profit of this instrument is dependent on the number of shares being traded, the buying and selling rates of these shares, liquidity and so on.
Day trading is the same as trading in stocks. It is a short-term instrument that is traded daily. It makes you make a profit every day.
For day trading, you need to learn how to accurately calculate the buying and selling price of stocks. There are so many financial institutions where you can trade stocks. You can even make your own broker who will take care of all the transactions.