Best markets to trade for beginners
Reading time: 8 minutes
Trading can, at first, seem overwhelming to beginners. There are many different trading options, including forex, shares, metals, commodities, indices, digital currencies, bonds and ETFs. Some assets move fast and opportunities disappear within minutes, and some assets take longer to yield results. The first thing to do as a beginner trader is pick the market you wish to trade. But to do so, you need to understand how each market behaves. After that, check your trading psychology (does volatility cause stress?), risk tolerance (how much can you afford to lose on a single trade) and your trading goals. This will help you understand which market will suit you best.
Here’s an introduction to the best markets suited to beginners to help you make an informed decision.
The forex market
Forex trading is the act of buying one currency while simultaneously selling another. It is the largest and most liquid market in the world. It is also fairly accessible through CFD trading.
High liquidity, especially among major currency pairs, is one of the key reasons why beginner traders choose this market. High liquidity means you are likely to find a counterparty whenever you are ready to buy or sell these currencies. Moreover, since you can trade forex through CFDs (and leverage), you may only need a relatively small amount of capital to get started. In addition, the market is open 24 hours a day, five days a week, allowing you to trade around your schedule.
Remember: The forex market can be quite volatile. Prices may suddenly move because of important economic data releases, geopolitical events, or other major news. Staying updated with the latest global news will help you make better decisions about currency movements. This is especially important if you’re trading forex CFDs with leverage. When using leverage, even a small price movement can lead to significant gains or losses.
The stock market
You can participate in stock trading by directly buying and selling shares on an exchange or you can choose to trade stocks via CFDs. CFD trading lowers entry barriers due to the availability of leverage, where you only need to fund a fraction of the total position. So, even the shares of giants like NVIDIA, Apple, or Tesla become accessible to traders with smaller amounts of capital.
The advantage of stocks is the brand familiarity. It is often easier to understand why a company like Amazon is performing well compared to understanding why the Japanese yen is weakening. In addition, companies are required to release earnings reports every quarter, which gives insight into the company’s past performance and future expectations. Some stocks also offer dividends, which can provide an additional source of income.
Keep in mind: Stock trading needs stock exchanges to be open. For example, the New York Stock Exchange (NYSE) is open from 9:30am to 4:00pm (ET) from Monday to Friday. When markets are closed, liquidity may decrease. This can cause wider price swings, if important news breaks.
Index trading
Do you feel unsure about analysing and choosing individual stocks? Then, index trading might be for you. An index tracks the performance of a group of stocks belonging either to a specific sector or an economy. Some of the most popularly traded indices are the S&P 500 and NASDAQ 100.
Some traders prefer index trading because it offers broad market exposure in one trade, instead of managing multiple positions across individual stocks or assets.This also means that a single stock declining sharply may not make a big dent in your account balance. Let’s say you trade the NASDAQ 100. This includes 100 stocks listed on the Nasdaq stock exchange. Price volatility in a stock or even a few stocks will usually not lead to large movements in the index itself. You can also trade indices via CFDs too, which gives you the flexibility to trade both rising and falling prices. In addition, index trading can be more cost effective than trading individual stocks, since you gain exposure to multiple stocks with a single trade.
Remember: Since indices are diversified, you are unlikely to see the kind of massive 20% rallies that individual stocks sometimes experience in a single day. It is important to keep an eye on the news since interest rate changes and geopolitical developments tend to impact their performance.
Commodities
Commodities are raw materials or primary agricultural products that can be bought and sold on global markets. Common examples include precious metals such as gold and silver, energy products such as crude oil and natural gas, and agricultural goods such as wheat, coffee and sugar. Commodity prices are typically influenced by factors including supply and demand, geopolitical events, weather conditions and global economic trends.
Commodities are often used by traders and investors seeking exposure to global markets or diversification across different asset classes. Some market participants use commodities as a hedge against inflation or currency fluctuations, while others trade them to speculate on short-term price movements. Commodities can be accessed through various instruments, including futures contracts, ETFs and CFDs, depending on the provider and market.
Keep in mind: It is also important to note that commodity markets can be highly volatile, particularly during periods of economic uncertainty or supply disruption. Prices may fluctuate rapidly in response to political developments, natural events or changes in global demand. In addition, certain commodity-related products may involve additional costs, such as spreads, commissions or overnight financing charges.
Cryptocurrency market
Cryptocurrencies have rapidly gained popularity among traders of all experience levels due to their low correlation with many traditional asset classes. This is why digital currencies are often included for portfolio diversification. Plus, the market is open 24/7/365. CFDs are a popular way to trade cryptos as steep price movements can create more attractive opportunities.
Remember: However, note that high volatility can also mean higher risk. It isn’t uncommon for a crypto to drop 10% or 20% within a few hours. Furthermore, regulations related to digital assets are still evolving. As a result, any news related to new regulations could lead to major price fluctuations.
Exchange-traded funds
Exchange-traded funds (ETFs) are investment funds that hold a basket of assets, such as stocks, bonds or commodities, and are typically designed to track the performance of a specific index, sector, commodity or theme. Like shares, ETFs are traded on stock exchanges throughout the trading day.
ETFs are often used by investors and traders seeking broad or targeted market exposure through a single instrument. Because an ETF can contain multiple underlying assets, it may provide a level of diversification compared with investing in a single stock or asset. ETFs are also generally considered more accessible and cost-efficient than some other investment vehicles, although costs and features vary between providers.
Keep this in mind: It is also important to note that ETFs are subject to market risk, and their value can rise or fall in line with the performance of the underlying assets. In addition, many ETFs charge an annual management fee, commonly referred to as an expense ratio.
Bonds
Bonds are debt instruments issued by governments or corporations to raise capital. When investors buy bonds, they are effectively lending money to the issuer in exchange for periodic interest payments and the return of the principal amount at maturity.
Bonds are generally considered lower-risk investments compared with many other asset classes, although their level of risk depends on factors such as the issuer’s financial strength and broader market conditions. Government bonds issued by financially stable countries are typically viewed as lower risk, while corporate bonds tend to carry higher levels of credit risk. Many bonds also pay regular interest payments, known as coupons.
Government and corporate bonds are both fixed-income instruments, but they differ in terms of risk and potential return. Government bonds are often associated with lower yields and lower risk, while corporate bonds may offer higher yields to compensate investors for the additional risk of default.
Remember: Some traders and investors also use bonds as part of a diversified portfolio because bond markets may react differently to economic events and market uncertainty than equities. However, bond prices can still fluctuate significantly, particularly in response to changes in interest rates, inflation expectations and central bank policy.
Compared with markets such as forex, commodities or equities, bonds are often associated with lower volatility and slower price movements, although volatility can increase during periods of economic uncertainty or changing monetary policy. It is also important to note that rising interest rates typically reduce the market value of existing bonds.
Matching the market to your personality
As mentioned earlier, different markets may appeal to different types of traders depending on factors such as trading psychology, goals, risk tolerance and preferred trading style. For example, some traders are drawn to forex because of its nearly 24-hour trading cycle, while others may prefer stocks due to their connection to company performance and economic news. Traders seeking higher volatility may be interested in commodities such as oil, whereas bonds and indices are often associated with broader market exposure.
Trying to trade too many assets at once can make it difficult to develop a deeper understanding of how individual markets behave. Focusing on one or two asset classes may help traders become more familiar with price movements, market drivers and strategy development over time.
From demo to discipline
Before you start out on your trading journey, familiarise yourself with your chosen market and your trading platform. This is where a demo account can be your best friend. It allows you to practise in real market conditions without using real money. It also gives you the opportunity to build your trading strategy and put in a strong risk management plan. Use the demo account to build the confidence needed to transition to live trading.
Although the world of trading is more accessible than ever today, that doesn’t mean it’s easy. Whether you choose the massive liquidity of forex trading, the familiarity of stock trading, or the diversification of index trading, your journey will be defined by two things: education and discipline.
The 'perfect' market doesn’t exist. Experienced traders suggest taking the time to learn, practise and constantly monitor and refine your trading strategy. Patience and discipline are also considered crucial values while trading. This may help you avoid impulsive or emotional decisions.
Start trading with FP Markets
We believe that every trader deserves a professional-grade environment, regardless of their experience level. This is why we offer seamless access to all the major global markets, including forex, stocks, indices, commodities, bonds, ETFs and cryptocurrencies. Choose from the most popular trading platforms, like MetaTrader, TradingView and cTrader, and gain access to institutional-grade liquidity and competitive spreads with FP Markets. Don’t just watch the markets move; be a part of the movement. Start your journey with a broker that puts your education and execution first. Open an account with FP Markets today.
