Spreads, bears, bulls, re-corrections, market capitalisation, and interest rates. Do you feel as if you are beginning to descend down the rabbit hole when these terms appear on the latest business news segment? The financial markets can appear to represent a daunting challenge and yet, understanding their mechanics is easier than you may think. Analysts have even shown that appreciating the fundamentals can help you become a better professional within the workplace. Let us take a look at some basic concepts in order to enhance your current skill sets.
The Psychology of the Financial Markets
It has often be said that the markets are built upon two sentiments: greed and fear. When investors are greedy, they purchase assets and the value of the markets increase. Should fear begin to take hold, sales will occur and the markets tend to fall (known as a re-correction). The markets were created by humans and regardless of the computerised algorithms involved, they are inevitably linked to human emotions.
Knowing the Attributes of Different Asset Classes
One of the reasons why the financial markets have always attracted investors is that there is something here for everyone. If you prefer short-term holdings, currency trades might represent a viable option. Long-term ventures can be associated with blue-chip stocks or commodities. One of the keys when learning to comprehend the breadth of the markets is to examine each asset class. You will therefore be able to develop a more well-rounded perspective of what options are the most appropriate for your trading desires.
The Technical Side of Trading
As opposed to what may be illustrated on the silver screen, investing has less to do with gut instinct or raw emotion when compared to understanding the technical factors that determine the movement of a specific underlying asset class. This is why becoming familiar with basic market mechanics is critical. Some examples of metrics that may influence the value of a holding can include):
- The economic status of its home country.
- Recent news regarding interest rate changes.
- News releases related to company earnings and profits.
- Changes in dividend payments.
- The value of an underlying currency.
- The performance of the industry sector as a whole.
This is why astute investors will keep up to date with the latest movements. Large trading portals such as CMC Markets feature comprehensive Forex trading news (amongst other informative articles), so obtaining accurate information is only a click away.
Knowing When to Buy and Sell
From the most basic standpoint, an asset should be purchased when the majority of investors are pessimistic. Sales will often occur when optimism dominates the marketplace, as a re-correction could be on the horizon. Having said this, you should also ask a handful of questions before committing to a decision such as:
- Why did the value rise of fall?
- Did similar assets experience the same movement?
- What is the status of the sector as a whole?
- What level of returns (or losses) am I likely to accrue?
Improving your understanding of the financial markets will take time and effort. Still, it is entirely possible if you are able to appreciate the suggestions mentioned above.