A stock, also known as a share or equity, is a partial ownership in a public corporation. Stock ownership entitles the holder to a portion of the company's assets and profits proportional to the number of shares held to the number of shares outstanding. Stocks are predominantly bought and sold on stock exchanges and each country has its own exchanges or multiple exchanges. Corporations sell stocks to raise money for business operations or expansion. Historically, stocks outperform most other asset classes. Stocks can also grant their holders the right to vote on corporate changes, such as board members, and some stocks pay dividends to their holders, making them a source of passive income.
The universe of stocks is in the tens of thousands and range from large multi-national corporations that may be household names, to small regional companies that most people have never heard of. The most popular stocks are understandably those larger multi-national corporations. Chances are most of the products you use are sold by companies in which you could buy stocks. These include technology companies like Apple and Microsoft, ecommerce firms such as Amazon, energy companies like Royal Dutch Shell, or retailers such as Walmart and Target. Some of the most popular stocks in 2021 include Tesla, Walt Disney, Apple, Ford, and Sundial Growers.
The word forex came from the combination of the words foreign and exchange. Forex is the process of exchanging one currency for another and it is the largest market in the world with over $6.6 trillion in daily transactions as of 2019. Forex is used for purposes of commerce, tourism, and of course speculation. Fortunes have been made and lost in the forex markets and speculation continues to grow even today.
Forex trading occurs in the global forex market, where supply and demand determines the ever-changing value of each country's currency relative to other countries. The liquidity is provided by the large global banks and there is no central market like there is with the New York Stock Exchange or the Chicago Board Options Exchange. Instead forex trading is conducted electronically over-the-counter. This trading occurs 24 hours a day and five-and-a-half days a week. Retail traders are able to gain access to this electronic market via brokers.
Because nearly every country in the world has its own currency that can be paired with every other currency in the world, there are literally thousands of different pairs, but the vast majority of these are very lightly traded. In practice, there are just a handful of currency pairs that are extremely popular and for retail traders, forex brokers rarely offer more than several dozen pairs.
With the United States having the largest economy in the world and the U.S. dollar being the reserve currency of the world, it should come as no surprise that nearly all of the popular currency pairs include the U.S. dollar. Below are the most popular pairs and their weight in the market:
A commodity is a raw material or agricultural good that can be bought and sold, and can be standardized in terms of quantity and quality. This makes commodities fungible, which means one unit of a given commodity is considered to be the same as another unit, regardless of who the producer or grower is. Commodities tend to be split up into the industrial commodities such as metals and energy products, and the agricultural commodities that include grains and other crops or animals that are in high demand.
There are a number of popular commodities, but by far the most popular among retail traders is gold. Its sister metal silver is also quite popular, as is crude oil. These are the major industrial commodities. Other popular industrial commodities include copper and platinum. In addition to the industrial commodities there are also agricultural commodities that are popular with traders. These include soybeans and corn, as well as more exotic commodities such as coffee and cocoa. In general, commodities are popular because they tend to have strong trends.
An index is a collection of assets, typically stocks/shares, that are meant to mimic the performance of a particular market sector, industry, commodity, or anything else investors might want to track. Indices can be broad, like an S&P 500 index, or they can be narrow, like a Dow Industrials index. The benefit of an index is that it allows investors to gain exposure to a broad group of assets without the need to buy all the individual assets separately. In addition to stocks there are also indices for bonds, commodities, and currencies.
There are many different global indices tracking stock market action. In fact, nearly every nation has at least one index, tracking the broad performance of its stock market(s). However, some of these indices are definitely more popular than others. For example, in the U.S. there are a number of popular indices that are followed closely by traders. These include the Nasdaq 100, which is a proxy for the technology sector, the Dow Industrials, which tracks 30 of the largest blue-chip companies in the U.S., and the S&P 500, which is a broad measure of the U.S. markets.
In Europe there are also a number of popular indices. This includes the FTSE 100 and the FTSE 250 in the U.K. The former is more internationally focus and contains primarily multi-national companies, while the latter is more focused on the domestic U.K. economy. Outside the U.K. other popular indices include the CAC 40 in France and the DAX 30 in Germany.
Asia also has a number of popular indices which include the Nikkei 225 in Japan, the S&P/ASX 200 in Australia, Hong Kong's Hang Seng Index, and the Shanghai Composite in China.
A benchmark index is an index that serves as a standard by which the broader market or even other indices are judged. In investing, nearly all benchmarks are indices, although not all indices are benchmarks. Deciding which index is a proper benchmark, can be a heated discussion amongst investing professionals such as fund managers. Broadly speaking, a benchmark is an index that serves as the measurement yardstick for a portfolio by comparing portfolio characteristics such as returns, risk, component weights and exposure to sectors, styles and other factors to the benchmark.
The value of an index will change based on the price movements of the individual shares used in the creation of that index. So, the factors that move indices are effectively the same as those that cause movements in individual equities, bonds, or commodities. The difference is that while certain events can have a large impact on individual companies, these same events will have only a minor impact on a broad-based index.
However, an economic or political event that is relevant to an entire industry or sector can have a large impact on any index used to measure that particular sector. For example, the S&P 500 Energy Index specifically tracks the energy sector. Any news that causes the price of oil to rise or fall dramatically will almost certainly have a large impact on the S&P 500 Energy Sector Index as well.
A cryptocurrency is a digital asset that is attached to a blockchain network and provides some type of utility. The function of the cryptocurrency can vary. In some cases, it is as simple as being a store of value, similar to gold. In others the cryptocurrency is meant to hold transactional value in the same way that U.S. dollars, or Euros, or Pound Sterling do. And in others the cryptocurrency is used to power the blockchain network and the decentralized apps that run on it. But no matter what utility or use the cryptocurrency has, there is one thing that all have in common. They are all traded openly in cryptocurrency markets based on supply and demand and on the perceived value of the cryptocurrency and its blockchain.
The traditional way to trade cryptocurrencies is on a cryptocurrency exchange. There are both centralized and decentralized versions of these, but they do share in common the need to work with cryptocurrency wallets, private keys, and wallet addresses. With CFDs, there is no ownership of the underlying cryptocurrency.
While various cryptocurrencies come and go from the top 100 and even the top 10 (there are nearly 10,000 cryptocurrencies), there are some that remain popular over time. The king of the cryptocurrencies is Bitcoin. It was the very first, created in 2009, and has remained the largest by market capitalization by far since then. The next most popular is Ethereum, and it is also the second largest by market capitalization. It is a smart contract blockchain and is used for a large number of things, including decentralized exchanges, decentralized applications, decentralized finance, and most recently non-fungible tokens. Beyond these two, you'll find out that there are several cryptocurrencies that have also stood the test of time so far. These include:
Cryptocurrency investors are more risk averse than traders. They fear losing money and are willing to give up some potential gains if it means that their capital remains safer. In addition, the investor has a longer time horizon. They may think of holding onto their cryptocurrencies for years, perhaps accumulating more any time the market dips. Traders on the other hand, rarely hold their positions for more than a few weeks, and it is far more common to see a trader buy and sell within the same week, or even within the same day. Because cryptocurrencies frequently make double-digit percentage moves it isn't difficult to capture significant gains in a single day. Finally, investors tend to focus more on the fundamentals, in the case of cryptocurrencies this would be the use case and adoption, whereas traders use technical analysis in their trading.
