What are the Top Financial Markets to Trade?
2020 was a turbulent year to say the least and, whilst 2021 has begun with more of the same, there is also a sense of growing optimism of things to come. However, make no mistake, we are certainly set for another historic year for the financial markets.
With the United Kingdom officially out of the European Union, a new president in the White House and vaccination drives being implemented around the globe there is certainly a lot going on in the world which have ramifications in the markets. Whether you are interested in trading Foreign Exchange (Forex), investing in the stock market or speculating on the direction of the commodities market, 2021 is the year to start.
In this article, you will learn all about the different types of financial markets available to trade and which ones could be worthwhile focusing on in 2021. You will also learn how to get started trading in the financial markets in just a few simple steps!
Table of Contents
The Financial Markets Explained
The financial market is a marketplace where financial securities are traded on both a national and global level. Traders buy and sell those securities to gain potential profits while trying to limit their risks.
Many traders tend to focus on one particular financial market, for example, trading stocks or Forex, but it is important to have an overview of all the different markets available to trade on because they can all impact each other. This section reviews the most important financial markets and explains their global role.
The financial market is, at its core, not much different to other markets, where goods and produce are bought and sold. But rather than the exchange of vegetables, clothing, or computers for the local or national currency, the financial markets are focused on the buying, selling and holding of financial securities, products and instruments. The financial market has expanded exponentially over the past few decades and now offers many types of financial instruments.
The Different Types of Markets
In this section, we will look at some of the different types of financial markets which are available for trading in 2021. The markets we will be looking at are:
- The Forex market
- Capital markets
- Derivatives markets
- Commodity markets
- Money markets
- Cryptocurrency markets
- Mortgage market
- Insurance market
Some of these financial markets are by their own nature more long-term focused, short-term oriented or a mixture of both. The mortgage market, for instance, is where many long-term loans take place, whereas money markets are focused on the short-term. Forex, stocks and commodities can be traded both short and long-term. Professional traders can decide to engage in investments or trading, depending on their own approach and trading style.
The Forex Market
The growth of the Forex market has been enormous in recent years, as it cements its status as the most heavily traded financial market in the world. In 2019, the daily turnover in the Forex market averaged in excess of $6 trillion! Compare that to less than $1.5 trillion a day in 2001. There are some key factors which have contributed to this trend:
- The growth in international trade
- Advanced computers
- Easier access to financial markets via online brokers
- More trading tools and better access to information
Forex is a type of market that is popular with traders who are looking for short and medium-term trading opportunities, who can take advantage of it being opened 24 hours a day, 5 days a week.
The Capital Markets
Capital markets include the stock and bond markets (both private and public sector bonds). There is a primary market, where companies and governments issue new securities, and a secondary market, where previously issued stocks and bonds are traded.
The Stock Market
Like the rapid growth of the Forex market, another such trend could be found in global stock markets, where the US stock markets have arguably become much more important compared with other parts of the world. The US stock market was a major winner in the 20th century, according to the book Triumph of the Optimists (2002), written by Elroy Dimson, Paul Marsh, and Mike Staunton. Their research indicates that three important changes have occurred within the last 100 years:
- The US has achieved market dominance.
- The exchanges were consolidated.
- Secular (market activities occurring over the long term) sector rotation occurred.
Here are some graphs that display information pertaining to the world's stock markets in both 1899 and 2016:
Source: Yahoo Finance 27 November 2019
These graphs show how the US stock market grew from 15% at the end of 1899 to 53.2% at the end of 2016. Their share more than tripled.
The UK dropped from 25% to 6.2% and even Germany dropped from 13% to 3.1%. Some countries disappeared from the list, whereas others entered the list for the very first time.
Canada was not on the list in 1899 but had a 2.9% share in 2016. However, most notably Japan was not on the list either but rose to 8.4% by the end of 2016.
The Stock Market's Industry Sectors
Business sectors changed substantially between 1900 and 2017. Sectors that were very strong in 1900, such as railroads, lost substantial market share one century later.
Source: Yahoo Finance 27 November 2019
In the United States, railroads dominated the US stock market with an industry weighting of more than 50%. In 2017, this weighting fell to just a few percentage points. However, other industries such as banks, finance and health rose significantly while some sectors that were large in 1900 did not have any market share in 2017.
The trends of the past century do not have to be the trends of this century. Luckily traders do not need to know what the future will look like 100 years from now. They can choose to simply trade on a shorter time scale. Ultimately, it is simpler to understand what the financial markets might be doing in the short-term rather than in the long-term, especially when analysing an entire century.
The table below shows how the US stock market sector weightings have changed over the years:
Did you know that with Admirals you can trade CFDs on publicly listed companies from a wide range of sectors such as banking stocks, technology stocks or energy stocks? In fact, with the MetaTrader 5 trading platform, you can also view different timeframes of share prices from 1-minute charts to monthly charts, helping you to trade both short-term and long-term.
We will go through how to start trading financial markets and how to place a trade on the MetaTrader 5 trading platform provided by Admirals in a later section. However, you can start your free download now so you are well prepared to follow through the examples. To do this, simply click on the banner below:
The Derivatives Market
Derivatives are a class of securities whose value depends on (or is derived from) an underlying asset. Options, futures and CFDs are all examples of commonly used derivatives. Speculators can use these instruments to hedge against risk or to take on risk in order to potentially make a financial gain.
CFDs in particular have grown in popularity amongst the online trading community in recent years. As with most other derivative products, CFDs allow traders to speculate on both rising and falling markets, without ever owning the underlying asset in question. Other benefits of trading with CFDs include:
- Leverage - a retail client can trade positions five times their balance. A client who is categorised as a professional-client can trade positions twenty times their balance.
- No additional charges on short sales (attempting to profit from falling prices)
- Advanced risk management tools - use stop loss orders to minimise risk
- Access to global financial markets such as Forex, Stock CFDs, Commodity CFDs, Index CFDs and more
The Commodity Market
The commodity market is comprised of hard commodities, such as gold and oil, and soft commodities such as agricultural and livestock products. Market participants can invest directly in commodities, by purchasing the physical asset in question, or indirectly by purchasing stocks or trading derivative products.
Money Markets
Money markets are focused on very short-term debt, and involve banks lending to each other for short-term liquidity purposes.
The Cryptocurrency Market
Although a relatively new market, cryptocurrencies, particularly Bitcoin, have had their fair share of headlines in months. Towards the end of 2020, we saw an unprecedented surge in price of several cryptocurrencies fuelling global interest in the coins, most notably from Tesla CEO Elon Musk.
What the future holds for this new form of digital currency and how the market will continue to develop remains to be seen.
Insurance and Mortgage Markets
Mortgage markets revolve around long-term loans that are provided for buying a property. In the US, these loans can also be traded on secondary mortgage markets.
Insurance markets involve the insurer and the insured, where the risk is transferred for a premium. Insurance companies have substantial cash reserves which they invest in stocks, bonds, and derivatives markets.
Let's take a look at how some of these markets are shaping up for 2021 and some possible trends to look out for.
Financial Market Trends in 2021
In this section, we will highlight several financial markets and trends to look out for in the markets as the year develops.
It is important to note that successful trading is not just about spotting the best market trend. After all, trends can change. Risk management is a key ingredient for long-term trading success.
1. Will the US Dollar to Continue to Fall?
Since the outbreak of the pandemic led to lockdown measures throughout the world, the US dollar has been on a downward trend against other major currencies.
The US dollar usually enjoys status as a safe-haven asset, meaning that in times of global uncertainty or economic hardship, investors flock to the dollar because it tends to hold its value or even increase. So why, amidst the economic upheaval caused by the coronavirus pandemic, did the US dollar lose value in 2020?
This decrease in value was down to a couple of major factors, the first of which was that 2020 was an election year. Election years in the US are synonymous with market uncertainty and volatility and, given the background of last year's election (coronavirus and contested election results), these traits were especially prevalent. Increased uncertainty over the future of US politics dissuaded investors from investing in the US dollar and the US in general.
The second factor was the Coronavirus Aid Relief and Economic Security (CARES) Act which was passed in March 2020, a stimulus package worth around $2.2 trillion. This stimulus package pumped more US dollars into the economy to increase the money supply in an attempt to stimulate economic growth through increased consumption and investment.
However, whilst increasing the money supply can indeed cause the economy to grow, it usually does so at the detriment of the domestic currency, which is what happened in the US.
The US dollar’s decline has continued into 2021 and now, a year after the CARES package was passed into law, newly elected president Joe Biden has recently had a fresh stimulus package, worth $1.9 trillion, approved by both Congress and the Senate. The enacting of this new stimulus package will no doubt exert further downward pressure on the US dollar against other major global currencies.
EURUSD
In no other currency pair has the devaluation of the US dollar been more visible than in the EURUSD, which, between 20 March 2020 and 10 March 2021, saw an appreciation of more than 11.5%.
As we await the new measures which will be brought in with the new stimulus package, we could see even further appreciation in this currency pair.
The US Dollar Index
The US dollar index measures the value of the US dollar against a basket of foreign currencies and is widely watched and speculated on by traders and fund managers alike.
To further confirm what we have already explained above, here we can see the downward trend of the US dollar index, which despite some recent relief, remains below its 200 session moving average.
If the price breaks above this long term moving average we could see the beginning of a new trend, however, the imminent arrival of the US stimulus package is likely to continue exerting downward pressure on this index.
Whichever way you look at things, 2021 is likely to be an interesting year for the USD and currency traders. How will you be trading it?
One of the best ways to get started in the financial markets is by practicing your trading and testing your ideas in a risk-free environment. Admirals provides you with the ability to open a free demo trading account and trade in real market conditions with virtual currency! Click the banner below to open an account today:
2) GBP and UK Indices to Benefit From Vaccine Success?
Over the course of 2020, as well as facing the global pandemic, the UK and the EU were also engaged in lengthy negotiations regarding their future relationship once the UK officially left the EU at the end of the year.
The UK is now out of the EU and whilst the long term ramifications of this on the UK economy are still yet to become clear, the short term outlook is currently fairly positive.
This is due to the success of the vaccination process, which has seen the UK become one of the global leaders in terms of proportion of population who have received a vaccination. This success stands in contrast to the vaccination process in the EU, which has yet to really get off the ground.
The continued success of the UK’s vaccination drive could lead to it becoming one of the first major economies to emerge from the Covid pandemic.
EURGBP
The difference in the success of their respective vaccination programmes has seen the GBP appreciate more than 5.5% over its European counterpart since vaccinations began in the UK on 8 December 2020 (indicated by the vertical red line below).
If the UK continues to roll out Covid vaccinations at a quicker rate than EU member states, investors may continue to favour the GBP over the euro.
FTSE100
Another beneficiary of the UK’s emergence from the pandemic could be UK stock indices, such as its benchmark index, the FTSE100.
Unlike the major indices in the US, the FTSE100’s recovery from the first wave of the pandemic in March 2020 has been far more modest. It is still a long way from regaining its pre-pandemic levels.
Given the positive outlook for the UK’s economy, it is worth keeping an eye on how the FTSE100 develops over the coming months.
3) Is the Technology Bubble Set to Burst?
Not many other industries flourished in the stock market during 2020 to the extent of the technology sector. Many US tech stocks experienced unprecedented growth during 2020 and played a major role in the subsequent end of year success in the US stock indices.
However, many of these tech stocks have experienced such rapid growth that some now appear overvalued, leading some commentators to opine that this sector is set to unravel in 2021.
Particularly as global economies begin to emerge from the pandemic, investors may decide to unwind positions in tech stocks for opportunities in industries which were hampered by covid-19.
There are many stocks we could look at which would reflect this surge in interest over the past 12 months. Zoom Video Communications in one such stock.
It is safe to say that a large proportion of us had probably never heard of Zoom before March 2020. However, as coronavirus swept across the globe, closing down economies and leaving the majority of us stuck at home, this application became a staple in many of our lives.
Businesses began relying on the video conferencing software to hold meetings and maintain face to face contact with employees. Similarly, outside of work, many of us counted on Zoom for our social lives and staying connected with friends and family.
This surge in popularity was reflected in the share price of the publicly traded company. Even after a fairly strong correction in October 2020, Zoom’s share price has increased over 425% since the beginning of 2020.
If mass vaccination campaigns are successful in curbing covid-19 infection rates and restrictions on social interaction are lifted, will Zoom continue to be in such high demand?
4) Commodity Boom Spurred by Post-Covid Recovery?
Many commodities suffered gravely in 2020 as a result of the change in consumer behaviour caused by global lockdowns.
However, as the year progressed, many began to recover strongly and have continued growing in 2021. This growth in the commodities market reflects investor optimism about economic recovery post-pandemic and can particularly be seen in Brent, WTI and copper, all of which are likely to benefit from the reopening of society.
Investor optimism is not the only factor in play here, as the increase in demand for commodities has also been fueled by the weaker US dollar, which provides a perfect example of how the financial markets are intertwined.
The majority of commodities are officially priced in US dollars. This means that when the USD weakens, these commodities become relatively cheaper to consumers using foreign currencies, increasing demand and subsequently pushing up the price. Of course the opposite is true when the USD strengthens.
Copper, due to its excellent conductivity, is used in the building and manufacturing industries. For this reason, it tends to have a positive correlation with economic growth and is viewed as a measure of global economic health.
Since its lows in March 2020, copper has recovered and not only surpassed its pre-pandemic price level, but has also gone on to record a nine year high.
As economies continue to recover from the effects of the pandemic, we could see copper prices push even higher in 2021. However, we must be wary of copper substitutes such as aluminium, which will become more attractive if the price of copper gets too high.
With Admirals, you can trade CFDs on copper, Brent, WTI, gold and a whole range of other commodities! Click the banner below to find out more and open an account today!
How To Start Trading With Admirals
Now that you know the top financial markets to trade in 2021, opening either a live or demo trading account with Admirals will allow you to trade them!
Whilst not all types of financial markets are available to speculate on, traders with a Trade.MT5 account from Admirals can trade CFDs across a range of different markets, including Forex, stocks, commodities and cryptocurrencies.
To start trading the financial markets, follow these three steps:
- Open an Admirals trading account
- Download your free trading platform
- Create a new order and make your first trade!
Opening an Admirals Account
In order to open a trading account with Admirals, head over to the sign up page on our website and enter the details requested to open a ‘Dashboard’ account.
Once this is done you will have instant access to the Dashboard! From here, you can open either a live or demo trading account. If you are new to trading, it is recommendable for you to open a demo trading account to begin with until you get comfortable trading the financial markets.
Opening a demo account is as simple as clicking ‘Open New Demo Account’, selecting the type of account you want, the desired amount of leverage and the amount of virtual funds you would like in the account.
In order to open a live trading account, you will need to follow these steps in order to complete an application:
- Click the ‘Open Live Account’
- Add and verify your phone number.
- Add your details over the following pages. These details will include contact information, tax identification details and your passport number.
- Read and accept the confirmation notice.
- Verify your identity by uploading the requested documents.
Once you have completed these steps, Admirals will review your application after which you will be contacted by email with the results. If your application is successful, you will receive your account details by email. Now you need a trading platform in order to start taking positions in the financial markets!
How to Download the MetaTrader 5 Trading Platform
From the Dashboard's homepage, select ‘Trading Platforms’ from the left hand side of your screen, before clicking on the relevant download button for MetaTrader 5 (Admirals also offers the use of the MetaTrader 4 trading platform).
Once downloaded, open your trading platform and log in using your Admirals account details.
How to Place a Trade in MetaTrader 5
In order to place your first trade in the MetaTrader 5 trading platform, follow these steps:
- Open the Market Watch window by selecting View from the menu at the top of the platform or by pressing Ctrl+M on your keyboard. This will open up a list of tradable symbols on the left side of your chart.
- Right-click on the Market Watch window and select Symbols or press Ctrl+U on your keyboard.
- This will then open the window shown below which details all the markets available for you to trade on. From here you can add a wide variety of markets to your Market Watch window by selecting them and clicking Show Symbol.
After clicking the OK button in the Symbols window you can now view the different instruments in the Market Watch window. To view a price chart of a particular market, simply left-click on it in the Market Watch window and drag it onto the chart area. From here you can now open up a trading ticket:
- Right-click on the chart.
- Select Trading.
- Select New Order, or press F9 on your keyboard.
- A trading ticket will open for you to input your entry price, stop loss and take profit levels and volume of your trade.
Depicted: Admirals MetaTrader 5 - New Order GBPUSD. Date Captured: 12 March 2021.
If you are interested in learning more about trading with the MetaTrader 5 trading platform, you might want to watch the video below.
Conclusion
Now you are armed with a better understanding of the financial markets, some of the top trends to focus on for 2021, how to access the best trading platforms and tools in the business and how to place a trade, you can begin to make 2021 your year!
If you are feeling inspired to start trading, or this article has provided some extra insight to your existing trading knowledge, you may be pleased to know that Admirals provides the ability to trade with 80+ Forex pairs and a wide selection of CFDs! Not to mention access to the world’s number one multi-asset trading platform and free market analysis and data. Click the banner below to open your live account today!
About Admirals
Admirals is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!
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