What I want to do is have in one place (e.g., this thread) all the advantages and disadvantages of the various trading instruments. A one-stop place where both newbies and veterans can get info to decide "what should I trade (next)?" If this has already been done, please provide link(s). Specifically, I seek answers from the knowledgeable members here answers to the following questions. What are the pros and cons of trading stocks? What are the pros and cons of trading bonds? What are the pros and cons of trading mutual funds? What are the pros and cons of trading ETFs? What are the pros and cons of trading options? What are the pros and cons of trading futures? What are the pros and cons of trading forex? What are the pros and cons of trading cryptocurrencies? What are the pros and cons of trading any other financial instruments I failed to list above? All constructive inputs are welcomed. Trolls will be dealt with via the complaint button. Thank you.
PROS: Liquidity Crazy leverage Nice intraday price action Nice long-term trends and moves The online forex industry is growing really fast, hopefully we one day soon can get to a point of little bucket shops and more serious or legit brokers CONS Retail trading is very hurt by bucket shops, try to avoid those brokers that let you open an account with 100 usd Metatrader: Most common platform but imo is the most used platform by tiny traders and bucket shops Crazy leverage No centralized exchange for trading activity Just my humble opinion
Mea culpa. I messed up the OP. Everywhere you see "instruments", it should read "markets". I apologize for any confusion or irritation these errors have caused.
Pros: There are thousands and thousands of stocks so the trader can ALWAYS find the exact winning chart pattern or trade setup he is looking for... every single day! For me it is a huge advantage that Forex or Futures traders (like myself) simply do not have. Cons: No leverage (or 2 to 1 at best), so a large starting capital is required. For example if the trader makes 15% a year with his system, he will need to have $200,000 just to earn $30,000 a year (taxes not included!). For me it's a big no no!
Here are some, this post taking longer than expected... Pros: - Choice, you can choose how much security risk you want to take on (or how risky of security you want to trade) - you can choose higher Beta for higher volatility; lower beta for lower volatility - Dividends - you can use fundamental, technical, event-driven, or whatever your favorite trading method is - volatility can help you - Liquidity if you choose wisely - Capital Appreciation Cons: - volatility can hurt you - Security Risk -- you can lose very fast (specially if a strong-sell rating is slapped on it) - if company goes bankrupt, your holdings could be worth zero - Many securities to research if you're a fundamentals driven trader Pros - If you trade the actual bonds, you can hold to maturity and get your principal back - regular Interest payments - US Treasuries are virtually default-risk-free (debatable for some) - Use Munis for tax efficiency - Helpful to balance market systemic risk when combined with other assets classes (like stocks) Cons - Interest rate risk (higher rates, lower prices and lower rates,higher prices) --if you sell before maturity you could be selling at a loss - Default risk--you could lose your principal - No capital appreciation pros: - good for passive investors that don't want to learn how to invest - choice of risk tolerance to meet your style cons: - pay management fees (expense ratio) and other hidden fees pros: - good for passive investors - choice of risk tolerance to meet your style - Higher liquidity in some ETFs - can be traded like stock cons: - lower cost than Mutual Funds (expense ratio) - If treated as long term investments, you need to understand ETF benchmark Index, so you can rebalance as needed - some ETFs have very low liquidity - poor performing ETFs are usually closed so long term investors can be force to liquidate at a loss pros - leveraged product, allows you to make more efficient use of your capital - can be used to limit risk or to increase risk as needed - can be combined with underlying to reduce the risk exposure of the underlying position - many strategies to choose from to take advantage of market conditions: directional, market neutral, volatility plays, gamma scalping, etc. - you can passively capture time decay and rake-in profits - liquidity cons - leveraged product, you can lose money very fast - complex to understand and takes time to master and use effectively - suffer from time decay (can be used as advantage) - lack of liquidity
There is no such thing as "crazy" leverage. I trade the Forex with 50 to 1 leverage but I only risk less than 2% on each position. In fact the amount of leverage offered by your broker does not matter a bit, what truly counts is the percentage of your capital you allocate to each trade. Most traders have a hard time understanding this simple concept.
@kut2k2 each of those questions can probably be a separate thread; also you might want to add CFDs, Warrants, LEAPS, Convertibles
Yes but then those threads would be scattered all over this website rather than sitting in one nice little spot here in Trading. This website has some really big threads, including some on complete nonsense like "Why is the obvious not obvious?" So I'm confident this one thread can handle the title subject. No need, that's what the final question was for. Each contributor chooses for himself or herself which market(s) he or she wishes to address. No pressure.
If you're applying 50:1 leverage to 1% of your account, then you're risking 50% of your account. So. I would say leverage does matter. Over-leveraging is how many trading accounts get blown up.