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Facts You Might Not Know About Online Trading

 

Trading online involves a whole lot of knowledge. That’s why it is recommended to always stay in touch with recent news, trends, figures and other elements that can affect how the markets perform. However, there’s more to it than that. As a trader, you also need to know the ramifications of events that shape market movements. In other words, if something is happening, you need to not only know about it, but also to understand how it is going to affect your investing portfolio.

The first quarter of 2022 has been negative for markets, with both stocks and bonds ending in negative territory. What is in store for the next few months? Only time will tell, since it depends on many factors. However, there are some aspects less known to most traders, which tend to be ‘game-changers’. Here are three examples that you should be aware of, the sooner the better.

#1: Stocks can go up even when interest rates are rising

One of the biggest traps traders fall into has to do with the relationship between interest rates and stock prices. Unfortunately, more often than not, traders believe that stocks go down in correlation with rising interest rates. Even though the price of money can influence where capital flows, you should look at this relationship into a broader perspective. There is a big difference between nominal rates and real rates.

For instance, the Federal Reserve recently hiked rates by 25 basis points, while inflation in the United States moved up at a faster pace. This means that financial conditions are still highly accommodative, in terms of short-term interest rates, which is why stock market indices have not moved far from all-time highs, despite the circumstances.

Bond yields are front-runners, implying what central banks like the BoE, ECB, and Federal Reserve are projected to do over the course of the year, but the interest rate spectrum includes other rates as well. This could have a meaningful impact on the mortgage market, for example. One way or another, stocks seem resilient at the time of writing.

#2. Liquidity risks can pop up so traders need to work with regulated brokers

Working with a well-regulated broker should be a top priority, if you are looking for competitive trading terms in a secure environment. The provider easyMarkets is one example of a multi-jurisdiction regulated broker with tools and trading conditions to help manage risk. In 2015, 2019, and 2020, there have been occasions when US Dollar shortages prompted emergency liquidity assistance. If you are working with a regulated broker, however, this is not something you need to worry about, because your funds are held in segregated accounts.

#3. Some assets outperform even when sentiment is deteriorating

Traders tend to get overly confident or unsure based on the latest news, as well as according to the average performance of the market in question. For example, you’ve probably heard about recent general pessimism in the markets, due to the ongoing conflict in Ukraine. There is a perception, not to say misperception, that “stocks” as a whole are not a good investment in these times, since the revenue of these companies is affected for the worse.

However, several stocks such as those belonging to the utilities, staples and energy sectors, are not affected by these events – and sometimes even tend to grow from them. There will always be a market with upside potential. You just need to find it.

As you can understand by now, generalizing and adopting a narrow-minded approach when trading can cause you to miss out on a lot of potential trade opportunities. Instead of following the crowd, don’t be afraid to do your own research and follow a personalized set of rules, regardless of what others are saying.

Source: https://unsplash.com/photos/D4LDw5eXhgg

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