Stock trading has been a popular investment vehicle for years, allowing investors to increase financial portfolios. However, traditional stock trading strategies may not be enough to maximise returns in volatile markets or take advantage of certain market conditions. That’s why more investors turn to alternative stock trading strategies such as options, futures, etc. Options can help you manage risk by allowing you to hedge your investment and profit from price declines. In contrast, futures allow you to capitalise on market changes and anticipate future prices.
In addition, other strategies can be used for different goals and objectives depending on the investor’s needs. This article will discuss these alternative strategies in detail so that you can start using them to your advantage.
Options are contracts that give the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price within a specified time frame. It makes them attractive to investors looking to hedge their positions against market changes and protect their portfolios from losses. With options, you can limit your maximum downside risk because you have already determined how much you are willing to lose in advance.
Another benefit of buying options is that they don’t require as much capital as stocks, allowing you to make more speculative trades with less money. Options are flexible instruments since they offer a variety of expiration dates and strike prices for traders to choose from.
Futures are contracts that obligate the buyer to purchase an asset at a predetermined price on a specified date. They can be used to speculate on market movements and capitalise on potential gains or losses. Futures provide leverage, so investors don’t need as much capital to make trades compared to stocks. It allows traders to take more prominent positions and increase their returns with less money at risk.
In addition, futures offer more liquidity than stocks since they have shorter expirations and are traded on exchanges with high volumes of buyers and sellers. With futures, you can also get out of your position before expiration if the price moves against you, meaning you won’t necessarily take a loss if the market changes direction.
Commodity trading involves the buying and selling of raw materials such as metals, grains, energy, and agricultural products. Commodities diversify investors from stocks and bonds, which is vital for managing risk. Commodities can also be used to capitalise on price movements since they are influenced by supply and demand and other factors such as weather conditions, current events, and economic data.
Purchasing physical commodities is optional, as many traders rely on futures contracts to speculate on prices without owning the underlying asset. It allows them to benefit from market movements while avoiding the hassle of storing goods.
Spread trading is an investment strategy that involves simultaneously buying and selling two different assets. It creates a spread between the purchase and sale prices; if the spread narrows, traders can benefit from capital gains. Spread trading has low margin requirements since it’s considered less risky than traditional strategies such as stock trading.
Spread trading allows you to make money during both bull and bear markets because it doesn’t rely solely on market direction; instead, it takes advantage of imbalances in asset prices. When looking for stocks to trade, choose assets with high liquidity and low spreads to ensure you can exit your positions when needed.
Forex trading is the process of exchanging one currency for another. It’s an attractive option for traders because it’s a liquid market with high liquidity and low transaction costs, allowing you to make more trades without spending too much money. Forex is also volatile so traders can profit from drastic price changes.
Another benefit of forex trading is the inherent leverage; since currencies are traded in pairs, buying one currency while selling another allows you to increase your returns without needing as much capital upfront. You can also make short-term investments with forex since you can open and close positions just as quickly.
CFD trading is a popular investment strategy that involves buying and selling contracts for difference (CFDs). CFDs are financial products that enable traders to wager on the price fluctuations of underlying assets without possessing them. Leveraged products can amplify your profits with less financial risk, making it an excellent tool for short-term trades.
CFDs offer flexibility; you can trade stocks, commodities, forex, and indices, giving you more options to diversify your portfolio. Plus, you can quickly liquidate your positions with minimal slippage due to the high liquidity of these markets. CFDs also have lower margins and commissions than traditional investments, allowing traders to keep more profits.