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Different Markets |
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Posted by: Administrator - 03-04-2022, 02:15 AM - Forum: THE "Forum" / CONTENT
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The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all aspects of buying, selling and exchanging currencies at current or determined prices. In terms of trading volume, it is by far the largest market in the world, followed by the credit market.[1]
The main participants in this market are the larger international banks. Financial centers around the world function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the exception of weekends. Since currencies are always traded in pairs, the foreign exchange market does not set a currency's absolute value but rather determines its relative value by setting the market price of one currency if paid for with another. Ex: US$1 is worth X CAD, or CHF, or JPY, etc.
The foreign exchange market works through financial institutions and operates on several levels. Behind the scenes, banks turn to a smaller number of financial firms known as "dealers", who are involved in large quantities of foreign exchange trading. Most foreign exchange dealers are banks, so this behind-the-scenes market is sometimes called the "interbank market" (although a few insurance companies and other kinds of financial firms are involved). Trades between foreign exchange dealers can be very large, involving hundreds of millions of dollars. Because of the sovereignty issue when involving two currencies, Forex has little (if any) supervisory entity regulating its actions.
The foreign exchange market assists international trade and investments by enabling currency conversion. For example, it permits a business in the United States to import goods from European Union member states, especially Eurozone members, and pay Euros, even though its income is in United States dollars. It also supports direct speculation and evaluation relative to the value of currencies and the carry trade speculation, based on the differential interest rate between two currencies.[2]
In a typical foreign exchange transaction, a party purchases some quantity of one currency by paying with some quantity of another currency.
A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial markets as commodities.
The term "market" is sometimes used for what are more strictly exchanges, organizations that facilitate the trade in financial securities, e.g., a stock exchange or commodity exchange. This may be a physical location (such as the New York Stock Exchange (NYSE), London Stock Exchange (LSE), JSE Limited (JSE), Bombay Stock Exchange (BSE) or an electronic system such as NASDAQ. Much trading of stocks takes place on an exchange; still, corporate actions (merger, spinoff) are outside an exchange, while any two companies or people, for whatever reason, may agree to sell the stock from the one to the other without using an exchange.
Trading of currencies and bonds is largely on a bilateral basis, although some bonds trade on a stock exchange, and people are building electronic systems for these as well, to stock exchanges. There are also global initiatives such as the United Nations Sustainable Development Goal 10 which has a target to improve regulation and monitoring of global financial markets.[1]
Types of financial markets
Within the financial sector, the term "financial markets" is often used to refer just to the markets that are used to raise finance. For long term finance, the Capital markets; for short term finance, the Money markets. Another common use of the term is as a catchall for all the markets in the financial sector, as per examples in the breakdown below.
- Capital markets which consist of:
- Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof.
- Bond markets, which provide financing through the issuance of bonds, and enable the subsequent trading thereof.
- Commodity markets, The commodity market is a market that trades in the primary economic sector rather than manufactured products, Soft commodities is a term generally referred as to commodities that are grown, rather than mined such as crops (corn, wheat, soybean, fruit and vegetable), livestock, cocoa, coffee and sugar and Hard commodities is a term generally referred as to commodities that are mined such as gold, gemstones and other metals and generally drilled such as oil and gas.
- Money markets, which provide short term debt financing and investment.
- Derivatives markets, which provide instruments for the management of financial risk.[2]
- Futures markets, which provide standardized forward contracts for trading products at some future date; see also forward market.
- Foreign exchange markets, which facilitate the trading of foreign exchange.
- Cryptocurrency market which facilitate the trading of digital assets and financial technologies.
- Spot market
- Interbank lending market
The capital markets may also be divided into primary markets and secondary markets. Newly formed (issued) securities are bought or sold in primary markets, such as during initial public offerings. Secondary markets allow investors to buy and sell existing securities. The transactions in primary markets exist between issuers and investors, while secondary market transactions exist among investors.
Liquidity is a crucial aspect of securities that are traded in secondary markets. Liquidity refers to the ease with which a security can be sold without a loss of value. Securities with an active secondary market mean that there are many buyers and sellers at a given point in time. Investors benefit from liquid securities because they can sell their assets whenever they want; an illiquid security may force the seller to get rid of their asset at a large discount.
A stock exchange, securities exchange, or bourse, is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds, and other financial instruments. Stock exchanges may also provide facilities for the issue and redemption of such securities and instruments and capital events including the payment of income and dividends.[citation needed] Securities traded on a stock exchange include stock issued by listed companies, unit trusts, derivatives, pooled investment products and bonds. Stock exchanges often function as "continuous auction" markets with buyers and sellers consummating transactions via open outcry at a central location such as the floor of the exchange or by using an electronic trading platform.[1]
To be able to trade a security on a certain stock exchange, the security must be listed there. Usually, there is a central location at least for record keeping, but trade is increasingly less linked to a physical place, as modern markets use electronic communication networks, which give them advantages of increased speed and reduced cost of transactions. Trade on an exchange is restricted to brokers who are members of the exchange. In recent years, various other trading venues, such as electronic communication networks, alternative trading systems and "dark pools" have taken much of the trading activity away from traditional stock exchanges.[2]
Initial public offerings of stocks and bonds to investors is done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets are driven by various factors that, as in all free markets, affect the price of stocks (see stock valuation).
There is usually no obligation for stock to be issued through the stock exchange itself, nor must stock be subsequently traded on an exchange. Such trading may be off exchange or over-the-counter. This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are part of a global securities market. Stock exchanges also serve an economic function in providing liquidity to shareholders in providing an efficient means of disposing of shares.
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Portfolios |
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Posted by: Administrator - 03-04-2022, 01:54 AM - Forum: THE "Forum" / CONTENT
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Making an investment plan involves more than just choosing a few stocks to put money in. You have to consider your current financial situation and your goals for the future. It’s also important to define your timeline and how much risk you’re willing to take on in order to determine your optimal asset allocation. All of these steps help to mitigate any risk you might encounter in the stock market.
Step #1: Assess Your Current Financial Situation
The first step in making an investment plan for the future is to define your present financial situation. You need to figure out how much money you have to invest. You can do this by making a budget to evaluate your monthly disposable income after expenses and emergency savings. This will allow you to determine how much you can reasonably afford to invest.
It’s also important to consider how accessible, or liquid, you need your investments to be. If you might need to cash in on your investment quickly, you would want to invest in more liquid assets, like stocks, rather than in something like real estate.
Step #2: Define Financial Goals
The next step in making an investment plan is to define your financial goals. Why are you investing? What are you hoping to earn money for? This can be anything from buying a car in a few years to retiring comfortably many years down the road.
You must also define your goal timeline, or time horizon. How quickly do you want to make money from your investments? Do you want to see quick growth, or are you interested in seeing investment growth over time?
All of your goals can be summed up in three main categories: safety, income and growth. Safety is when you are looking to maintain your current level of wealth, income is when you want investments to provide active income to live off of and growth is when you want to build wealth over the long term. You can determine the best investment path for you based on which of these three categories your goals fall into.
The next step in crafting your investment plan is to decide how much risk you are willing to take. Generally speaking, the younger you are, the more risk you can take, since your portfolio has time to recover from any losses. If you are older, you should seek less risky investments and instead invest more money upfront to spur growth.
Additionally, riskier investments have the potential for significant returns – but also major losses. Taking a chance on an undervalued stock or piece of land could prove fruitful, or you could lose your investment. If you are looking to build wealth over years, you may want to choose a safer investment path.
Determining your time horizon is fairly simple compared to its risk counterpart. The term essentially means about when do you want to begin pulling from your investments for your ultimate financial goal. For the vast majority of Americans, time horizon is basically synonymous with retirement.
By figuring out your risk tolerance and time horizon, you can build a reliable asset allocation for yourself. This entails taking your investor profile, figuring out what you should invest in and what percentage of your overall portfolio each investment type should take up.
Step #4: Decide What to Invest In
The final step is to decide where to invest. There are many different accounts you can use for your investments. Your budget, goals and risk tolerance will help guide you towards the right types of investment for you. Consider securities like stocks, bonds and mutual funds, long-term options like 401(k) plans and IRAs, bank savings accounts or CDs, and 529 plans for education savings. You can even invest in real estate, art and other physical items.
Wherever you device to invest, make sure to diversify your portfolio. You don’t want to put all of your money into stocks and risk losing everything if the stock market crashes, for example. It’s best to allocate your assets to a few different investment types that fit in with your goals and risk tolerance in order to maximize your growth and stability.
Just like anything else in the realm of personal finance, becoming a good investor requires research and experience. If it’s your first time investing, the experience will come, so focus on soaking up information about the different types of investments that are available to you.
You should also take some time to consider all of the potential brokerages you could open an account with. In your comparisons, be sure to look through each firm’s trading fees, available investments, mobile and online features and more.
Investing Tips for Beginners
If you’re new to the investment game, don’t hesitate to ask for help from a professional. Financial advisors typically specialize in investing and financial planning, making them great partners for newbies.
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When creating an investment plan for your portfolio, diversification is the most important rule. Diversification essentially means spreading your assets among a variety of investments. Doing this helps to limit the risks and provides the potential to improve returns. A financial advisor could help you optimize an investment strategy for your financial needs and goals.
A diverse portfolio is one that’s made up of a mix of investments. Assets are allocated both among different types of investments, like stocks, bonds and mutual funds, and within those investment types, like large-cap and small-cap stocks in different sectors. Diverse portfolios reflect the investor’s goals and risk tolerance.
How to Diversify Your Portfolio
The first step in developing a diverse portfolio is defining your investment goals, risk tolerance, financial situation and timeline. Figure out how much money you have to invest. Also consider how much are you hoping to earn, how soon you want to see returns and how much risk are you willing to take on. The answers to these questions will help to determine your appropriate asset allocation.
Generally, stocks are more volatile than other types of investments, providing both a high potential for growth and a high risk of loss. Bonds or short-term investments are less risky, but their stability means slow growth.
Your timeline also factors into what investments are right for you. Because of the volatility of stocks, many experts recommend holding onto them for a long time, so your investments grow over time to mitigate losses. On the other hand, bonds and other stable investments tend to grow steadily and at a low rate, and may be better for short-term investments.
Once you figure out the best investments for your situation, you must decide how you want to spread your assets among them. An example would be 60% of your portfolio in stocks and 40% in bonds.
By diversifying your portfolio, you minimize the risk of your investments, as compared to putting all of your money into one asset. To build a diversified portfolio, you look for assets that haven’t historically moved in the same direction at the same time. That way, if one portion of your portfolio is in decline, the other portions are ideally growing or maintaining wealth.
A diverse portfolio’s goal is to keep your investments in balance, with gains mitigating any losses. Having a mix of investments helps to manage risk while still maintaining exposure to market growth.
Maintaining a diverse portfolio also helps you dodge the temptation of chasing well-performing investments in a market upturn and moving your money to lower-risk options in a downturn. Staying balanced within your portfolio’s diversification can lead to higher gains in the long run, as opposed to investing in the hot commodity of the moment.
Periodically, you should also reassess your investment plan. As you get older, you may want to move money into less risky investments to preserve your wealth. Or you may be reaching your goals ahead of schedule or not on pace to reach them at all, and thus need to adjust. Revisit the questions you considered when setting up your plan, and be sure to adjust your asset mix appropriately if your goals or financial situation have changed.
You must also make sure to manage your taxes on your investments. It may be best to work with a financial advisor or other financial professional who can advise you on the most tax-efficient ways to manage your portfolio and minimize losses.
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