In this article we will see which are the best markets to start trading.
What are the best markets to start trading for a beginner or for those who are starting to approach this vast and complex world. Many, over the past few years, have come across various tools created for trading by brokers who have focused heavily on offering very attractive proposals, including the famous and finally disappeared binary options, highly speculative instruments similar to actual bets.
Over time, however, we have seen the offer of many different instruments, from Forex to pure stocks up to ETFs, all of which are still valid instruments from a trading point of view. But which are the “best” ones to start seriously approaching this activity? There are some markets that are better than others due to some characteristics but at the same time, despite being the best, they hide some pitfalls that we could identify as real risks that characterize each specific market. So instead of focusing on the positive features, we’re going to look at the risks associated with each market.
A blast from the past, binary options
In the early days of online trading, the one offered to the retail public on the wave of the strong liquidity introduced into the markets following the collapse due to the Lehman Brothers crisis, we saw the flocking of many brokers who offered financial instruments that would now be immediately identifiable as highly speculative instruments ( fortunately) by most of the public.
Among the financial instruments offered, we certainly have those that were defined as binary options, later banned by the ESMA (European authority for financial instruments and markets) as they can be assimilated to real bets. In practice we are talking about instruments that were literally used to "bet" on the rise or fall of a specific financial instrument (generally a change in the currency market or a raw material) within a certain time span, usually short and which fell within the ’in the day, sometimes a few minutes. In practice we are talking about tools where you "wagered", like in the casino.
Unfortunately, many have approached these financial instruments thinking that they were real financial instruments as they had within their definition the name "options", which refers precisely to financial instruments that are actually used by professional operators from both a speculative and risk management perspective (we are talking about “call” and “put” options). In addition to the name "options" which has effectively diverted the perception of the reliability of these instruments, we have had the fact that these options were linked to the performance of financial instruments which clearly refer to the financial markets, such as for example the Forex exchange rates and Raw materials.
In practice it was possible to buy these options which bet on the performance of a certain instrument which was linked to the financial markets, thinking precisely that one was doing "trading" on traditional financial instruments. The damages done to small savers were really many and huge, as it was easy to run into the logic of the game of bets, complete with future demonization of the entire panorama of online trading, erroneously associated with this type of instrument. In practice, the lack of financial literacy (which is not a fault) has played a decisive role in this area, therefore ESMA has preferred to ban these instruments from public offerings.
The arrival of Cryptocurrencies
In the post-Lehman period we have also seen the creation of Bitcoin, the first ever cryptocurrency that opened up the retail world to what we can define as the opportunity of the century. In fact, cryptocurrencies were born at a time when trust in the financial system was at an all-time low, especially after what happened in the US and later in Greece with the debt crisis. In practice, an alternative to traditional currencies (defined as "fiat") was sought that could circumvent the logic and policies implemented by central banks, seen at that time as absolute evil.
Here comes the offer to the public of tools that replicate the trend of Bitcoin and other cryptocurrencies born on this wave. Punctually, with every sharp increase in this crypto, a very strong "hype" (moment of collective euphoria) was created which led everyone to wonder if it was the moment not to be missed to invest in crypto. In these moments we have seen people who were completely ignorant of the financial world, approaching the world of cryptocurrencies, seen as an opportunity not to be missed.
In these moments there was a heavy collapse of Bitcoin and consequently also of the other cryptocurrencies. In practice, a real extermination of the "oxen park", here too exploiting the gaps regarding the basic financial culture regarding financial instruments and investments. There are many documented damages regarding the crypto world, the most recent linked to real Ponzi schemes and some failed cryptocurrency exchanges such as one of the largest in the world until recently, namely FTX.
Is there one tool better than another for trading?
The risk component, as in all investments, is the main discriminating factor. For example, markets such as Forex, or the stock market, are markets where it is possible to start trading without problems, but it is also true that one must have adequate preparation for the type of market we are facing.
For example, we must know that the currency market is one of the least volatile markets that exists, yet it has been considered for a long time as a very volatile and dangerous market. This is because the financial leverage offered by brokers was so high that it multiplied the risk on our capital to such an extent that in a few minutes you could literally burn your account.
Fortunately here too Esma has taken measures in this regard by obligatorily reducing the financial leverage offered to the retail public.