The Forex market allows traders to earn by forecasting the price movements of an asset for a certain period of time. Trading is performed using certain strategies, the choice of which depends not only on the trader’s preferences, but also on the selected asset.
People who are encountering information about the Forex market for the first time think that it is just a currency market. In practice, the list of trading assets offered by forex brokers is very diverse and is not limited to currency pairs only.
Forex brokers typically offer an assortment of over 60 basic assets from 5 groups:
- Currency pairs;
- Precious metals;
- Energy carriers;
There is a lot of information about currency pairs trading on the Internet, so this article will be devoted to the features of trading other non-currency assets.
The main feature of trading with non-currency assets is that the success of a trader depends only on the correct choice of the entry point and maintenance of the position with the help of technical analysis, and 70% is a detailed and thorough fundamental analysis of the market situation.
It is necessary to process quite large amounts of fundamental information, to understand the economic and political issues of individual countries and the world at large. Below we will consider in more detail the features of working with the most popular non-currency assets.
Oil is the most important raw material asset. It has a significant impact on the economy and is a key factor in international politics. It affects almost all financial assets. There are 4 types of oil that are available for trading on financial markets:
- Light Sweet.
The most profitable and interesting for traders are the first 2 oil assets.
The value of the asset is influenced by natural and geopolitical factors, which should be taken into account even before making a decision to buy or sell it. In addition to force majeure, similar to military and political conflicts, oil trade is strongly influenced by statistics on the number of oil reserves in the U.S. and other major countries.
It used to be thought that it was simply impossible to suffer losses on oil, but the past few years have proved the opposite. Due to fundamental factors, the intraday volatility of oil can reach up to 300 points, and even cent deposits can be “rocked” on this asset. That is how influence factors that are difficult to systematize – military conflicts, problems of interaction between OPEC members, price regulation for political purposes.
Oil is the most politicized commodity asset, so the largest traders are the states. All transactions under oil contracts are concluded in USD.
Everyone knows that gold is a safe asset, and its price is a popular political instrument. In all crisis situations, large investors extract their capital from risky deals and invest in gold to save them.
The London Gold Fix involves gold dealers from London’s five biggest bullion banks establishing a common transaction price for a large pool of purchase and sale orders. They do this twice each business day – first at 10:30am (the Morning Fix) and then again at 3pm (the Afternoon Fix).
The participating bullion banks will be acting both on their own behalf and for those customers of theirs who have issued limit orders for them to trade at the London Gold Fix price. No-one knows what the Gold Fix will be before it is declared.
Between non-currency assets, Gold is the most suitable for forecasting with technical tools. But even though technical analysis helps in precious metals trading, it is simply dangerous to work with XAU/USD without knowledge of fundamental analysis.
Beginner traders in gold are attracted by the high volatility and point value, but it should be remembered that for the safety of a beginner it is not recommended to work with leverage above 1:50.
Gold assets have a strong correlation with currency pairs EUR/GBP, USD/JPY, AUD/USD. Gold has a direct correlation with the dollar index and oil price. To a greater extent, the dependence appears with the brand WTI, with Brent – weakly. We can only take into account the relationship between oil and gold in the days when there were no other associated fundamental factors. Gold has a multi-factor relationship with the markets for securities, commodities, derivatives and politics, so it is difficult to predict the exact reaction of this asset to the news release. Gold is not suitable for news trading as it is difficult for brokers to ensure market execution without slippage during an important publication.
In contrast to gold, which is a means of accumulation, silver is a technological raw material. Almost 45% of all silver sold in the market is consumed by industry. Natural reserves of the asset are falling rapidly, so its price in the market is constantly growing. The greatest liquidity of CFD on silver falls on joint European-American and American sessions up to 9PM (according to MSC). When the American market closes, silver liquidity falls sharply before the Asian stock exchanges open. Their trading results have a strong impact on silver CFDs. When the Asian session ends, silver trades in the European session are made only for risk insurance reasons.
One of the largest producers of industrial silver is Canada, so the USD/CAD rate and stock trading on silver have a serious impact on the asset. A strong correlation of silver is also observed with USD/JPY and cross pairs on the yen.
Annual fluctuations in the price of silver can reach 60-80%. Such volatility is bad for technical analysis, so profit on trading silver can only be stable in the medium term.
A stock index is a value that reflects the relative change in certain indicators. It is based on the market value of an “index basket”. Indexes are a handy indicator that track the market dynamics of a particular group of instruments that are combined on some basis. The index value is not important to the trader, as it changes over time. Such changes make it possible to predict the general direction of price movement in the “index basket”. By comparing the indexes with each other, you can get an idea of how certain industries work.
Stock indices are not securities, so it is customary to speak not about their value, but about the level of the stock index. The most popular indexes are AUS200, FRA40, JPN225, UK100, GER30m, USA500M, WS30m, US100m. These assets, compared to other non-currency assets, are characterized by high volatility, low point value, and small spread. If the trader understands the dynamics of the respective indices, he will get an effective additional indicator for trading other underlying assets. If the index level grows, it means that the market strengthens, and if the index falls, we can talk about an unstable situation in the market.
Cryptocurrency is digital money, which is generated in special peer-to-peer networks by users. Cryptocurrencies are not linked to national currencies, they are not influenced by any state or the Central Bank. The number of cryptocurrencies is initially limited by the algorithm. Profits from trading in a crypto asset can be obtained both on the growth of its quotes and on the fall.
The price of the cryptocurrency depends on supply and demand, so this asset is an excellent method of diversifying the portfolio of assets. Digital currency has almost no correlation with real economy and politics. It is highly volatile, and you can trade crypto around the clock, even on weekends.
Thanks for sharing your introduction into Forex trading.
I would suggest that you add information that FOrex trading is not easy by just predicting where the price will go in the future. It demands to be patient and disciplined in order to succeed.
It takes time to learn what is needed to start trading.
There is a risk where each trader can lose all what it has invested. To prevent losing all money fast there are rules you should use in trading and that is risk management.
Risk management defines how much you can lose on each trade. The goal should be 1% so you can sustain bad trades and return money back with wining trades.
On the other side there is money management where you define how much money you will earn by each trade. This should be done in a proper way so you make more than you lose when you combine all trades you open in certain period of time.