Beyond currencies: exploring the range of assets in Indian forex trading

A decentralized global market where all currencies of different economies are traded—sold and bought—is called the forex market (also known as foreign exchange or currency trading.) Suppose you live in India and want to trade forex. In that case, you will either deal with a SEBI-regulated broker who sells exchange-traded currency derivatives or a foreign broker who offers retail forex from a margin account. 

India has a good chance of making money through FX trading. The forex market is bigger than the combined size of the stock, futures, and options markets. Yet, there are several things to consider before investing in currency derivatives.

Understanding Asset Classes

An asset class is a group of investments that share similar characteristics and features and are governed by the same regulations and laws. Therefore, the items that constitute asset classes usually display similar market behavior. Asset classes include items like currencies, commodities, real estate, equities (such as stocks), fixed income (such as bonds), cash, and cash equivalents. 

Since they are meant to reflect various risk and return characteristics, the major goals of asset classes are to diversify portfolios and lower risk. For instance, if equities are declining, bond prices could increase, and vice versa.

Stocks

The collective markets and exchanges where regular transactions involving the purchase, sale, and issue of shares of publicly traded firms take place are known as the stock market. A stock market is a marketplace where investors can purchase and sell the ownership of such assets. A share of ownership in a corporation is represented by stocks, also known as equities. The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are India’s two stock markets where most trading occurs. 

The National Stock Exchange (NSE), founded in 1922 in Bombay, is India’s major stock exchange, where one can sell and purchase shares of publicly traded companies. Stocks have the greatest potential for gain for investors over the long term. Long-term stockholders have often been rewarded with strong, profitable returns. Let’s imagine they choose to stick to their equities for 15 years.

Commodities

Commodities are fundamental or intermediate products primarily used in trade and commerce. The following subcategories have been established for them:

1. Valuable metals
2. Energy
3. Basic Metals 
4. Soft Products
5. Agriculture

Unlike equities currently traded on the stock market, commodities are referred to as fungible. This suggests that despite coming from different producers, there is little to no variation between any two goods in the same subcategory. The benefits of holding commodity shares are:

They are extremely liquid assets that can give investors substantial returns in comparison to other assets

They can protect investors from inflation, and commodities can help diversify any portfolio.

Metals, particularly gold, are fungible commodities. This can be purchased and kept in physical form. You can sell the asset for a profit if the price rises quickly.

Indices

On a stock market, thousands of companies are listed. How do you distinguish between each of those and decide which one or two to purchase? How do you categorize them? It is an instance of finding a needle in a haystack. This is where indexes come into play. Based on important factors, including size, sector, and industry, among others, companies and their shares are categorized into indices. 

When trading indices, you only need to initiate one position to gain exposure to a whole economy or industry. Selecting an index that supports your trading strategy is essential.

Cryptocurrencies

The cryptocurrency markets, which have recently caught the attention of investors, present the share market with some fierce competition today. This relatively new asset deals with digital cash. Certain cryptocurrencies are payment instruments because they are used to purchase and sell goods and services. 

Of all cryptocurrencies, Bitcoin is the most liquid. You can exchange cryptocurrencies in a few straightforward methods. You can start by opening a digital wallet. Investors will be able to use cryptocurrency currencies for payments as a result. Secondly, you are permitted to exchange contracts for a difference. The advantages of cryptocurrency investment include the following:

• They help you diversify your financial portfolio;
• They offer a moderate level of liquidity; and
• You can trade cryptocurrencies using a variety of methods.

Advantages of Trading Multiple Assets

One of the ways to merge several distinct asset classes into a portfolio of assets is multi-asset trading. Multi-asset trading increases the portfolio’s diversification by spreading assets across several classes.

The benefits of multi-asset trading are as follows:

Tactical Asset Management

Not all trading instruments consistently perform well; some deals succeed while others fail. Trading professionals know which trades to switch out to maximize the performance of each instrument they trade, allocating capital to the asset classes that are currently outperforming.

For instance, investing in trades like gold, government bonds, or maybe foreign currencies is wise during a worldwide economic downturn.

Using the power multiple asset trading offers, you may profit from market changes and pursue higher income generation.

Many Possibilities

One market may be rising while another is falling. Your prospects of making money from other high-performing assets are minimal if you trade just one financial instrument.

With access to various financial instruments, multi-asset trading allows you to profit from rising markets while avoiding falling ones because you can always switch to instruments and asset classes that are trending upward.

For instance, you may invest in a long-term equities transaction while purchasing day-trade futures, allowing you to profit from both the stock and futures markets simultaneously.

Risks of Trading Multiple Assets

Professional traders with in-depth knowledge of various asset classes are suitable for multi-asset trading because only they can monitor and evaluate many markets simultaneously. One must develop their knowledge and abilities over multiple classes. It can be very difficult for newcomers, and one poor choice might cost them a lot of money. 

The intricacy of multi-asset trading is the second-biggest problem. Risk, volatility, and liquidity are characteristics unique to each asset class. Trading several asset classes requires thoroughly comprehending these traits and the capacity to control risk in various markets. Each asset in a multi-asset class has fees, which could result in greater fees or transaction costs over time. This problem must also be kept in mind as you trade multiple assets. 

The regulatory barrier is another significant risk in addition to all the above difficulties. Due to the assets’ diversity, traders must adhere to various regulatory regimes. Although experienced traders may handle it easily, it can be difficult and time-consuming for new traders. Thus choosing a trusted broker for forex trading is a must.

Choosing the Right Asset Classes

• Allocating assets strategically: The base policy mix, which is a proportionate combination of assets based on anticipated rates of return for each asset class, is established and maintained using this strategy. Your risk tolerance and time horizon for investing must be considered. You can decide on your goals and periodically rebalance your investment portfolio.
• Allocation of assets with constant weighting: Strategic asset allocation typically entails a buy-and-hold approach, even when the asset values change, and the initial policy mix is removed. You might choose to use a constant-weighting strategy for asset allocation. Using this technique, you continually rebalance your portfolio. For instance, you might purchase more of a particular asset if its value decreases. And if the asset’s worth increased, you would sell it.
• Tactical Asset Management: A strategic asset allocation plan could appear rather strict over time. You could occasionally find it necessary to engage in short-term, tactical deviations from the mix to take advantage of unique or outstanding investing opportunities. This adaptability gives the portfolio a market-timing element and enables you to take advantage of economic situations that favor some asset classes more than others.
• Allocating Assets Dynamically: Dynamic asset allocation is another active asset allocation method. With this approach, you continuously modify the asset mix in response to economic and market conditions changes. This technique involves selling declining assets and buying rising ones. Be mindful that allocation techniques involving reacting to market volatility necessitate a high level of expertise and aptitude in using certain instruments for timing these swings. You can get assistance from reputable forex trading brokers in India in selecting the appropriate asset classes.

Conclusion

Whether you invest in the stock market today or any other investment, you should always consider your long-term goals before deciding. What you invest in will depend on the returns you hope to achieve. Joining a reputable brokerage and opening a demat account is the best way to start. 

Whatever investable class of assets you choose, you must consider diversifying your portfolio to maximize your holdings and reduce potential risk. While some assets, like stocks, perform well over time, others could be very liquid and provide you with quick rewards. We hope you enjoyed this blog and will make the most of its practical application.