Smart Investing: What To Consider in Stocks, Bonds & Forex

Making investment decisions today is as challenging as the process of investing itself. Active traders have access to a growing number of asset classes. As diversification becomes more prominent, it’s more challenging for traders to decide which of these investments is the right fit for them. The blue-chip stocks market is considered less volatile, with a steady return on investment (ROI) potential for investors. Conversely, foreign exchange assets with high liquidity and leverage are considered more volatile. These assets have specific characteristics that set them apart from their peers. To help you choose wisely, we’ve compiled the top five things to consider when making strategic financial investment decisions.

Volatility                                    

Volatility is considered a measure of short-term price changes, and it has a lot to do with the profitability of an asset. Markets like foreign exchange (forex or FX) are volatile, so traders could benefit heavily from quick price increases. Although there is a possibility of the opposite happening, most investors rely on this volatility to benefit from quick price swings in the market. As such, we see more short-term traders attracted to the forex market.

Some of the most volatile currency pairs today are AUD-USD and CAD-USD, while the least are EUR-USD, AUD-CHF, and EUR-CAD. Buy-and-hold investors often populate the stocks and bond market because they prefer the stability and gradual changes attached to blue chips. So the question is, are you a short-term trader or more of a buy-and-hold investor? The answer would help you determine what’s best suited for you.

Leverage

The leverage offered in these markets often varies. For stocks in the United States, participants have about 2:1 leverage, which might not be a lot. The foreign exchange scene, on the other hand, offers participants as much as 50:1 in leverage. This brings into question the factor of capital and how much you’re willing to invest from scratch. Leveraging in forex might help you multiply your position size by five, 10, or 20 of your initial outlay. It could be an excellent approach to build equity using a smaller investment. However, if you’re going in with a heavy capital and are considering a less volatile market, you could consider the blue chips.

Trading Hours

Trading hours are not as limited in forex as on the stock market. Stock market trading sessions are limited to exchange hours, from Monday to Friday, generally from 9:30 am to 4 pm Eastern Standard Time (EST). On the flip side, the currency market is open and active on weekdays and around the clock from 5 pm EST to the same time the next day. This factor is a bonus that most traders find appealing; hence, they consider the currency market. There is more flexibility for market movers and an added time to trade, make profits, and explore their assets to their full potential.

Liquidity

The forex market is considered the most liquid market in the world, with over $7 trillion in turnover every day. The market traders trade 24 hours a day, excluding weekends, and we see people actively trading every hour. If you’re considering liquidity, there is no doubt the currency market is doing better in this regard. Getting in and out at any time is easy, but this could majorly affect your profitability. It also means that participants can open and close their positions at their preferred time and avoid unnecessary losses. Other marketed securities like stocks and bonds are highly liquid but not as much as currency exchange. Liquidity also determines how volatile market prices can be; hence, it’s a significant factor to consider when making these decisions.

Financial Roadmap

Financial roadmaps are vital because they give you a clear direction for your long-term trading plans. This factor is more personal and depends on you as an investor than the market. Sit back and have a good outlook on your expectations, goals, risk tolerance, and other relevant factors. There is no guarantee that having a plan will help you make more money. However, it sets you on a clear trajectory and would ultimately help you choose an asset class that fits your goals. In the long term, you’ll see the benefits and be able to manage your assets better.

Navigating Diverse Assets in The Financial Market

Simply reading the points above should mean you’re one step closer to making a strategic financial decision. Considering its volatility and liquidity, short-term traders might find forex a more appealing option. The blue-chip market could be better for people looking into long-term holding. There is also the option of diversifying your assets and having some holdings in more than one asset class. You could look into asset diversification and its contribution to your risk management and profitability.