How to trade commodities

Commodities trading is a popular way to speculate on a wide number of different markets and assets. Here, we take a look at what it entails and how you can get started.

Commodities trading

What are commodities?

The term Commoditiesis a broad umbrella that covers many products that are pretty much essential to everyday living. In this case, it’s raw, naturally occurring materials that are then processed in thousands of different ways, before turning into products everyone uses in their daily lives.

Crude oil, metals, gold, crops, sugar and so on are all part of the commodities family. These raw ingredients are taken away and turned into food, energy, and clothing.

One thing that sets commodities apart from other tradeable products is pricing. There is a higher degree of standardisation on prices worldwide. It doesn’t matter who is producing the asset or material in question.

For instance, gold produced in a Russian gold mine or Brazilian gold mine would have the same price.

This does change from asset to asset, however. It’s not a hard or fast rule. For example, certain crude oil blends are priced differently using different benchmarks, such as Brent Crude or West Texas Intermediate (WTI).

Why do traders like commodities?

There are a number of reasons why traders like commodities.

  • Variety – With plenty of markets to choose from, traders can select to trade across a wide variety of markets.
  • Safe havens – Some commodities, like precious metals, are strong value stores. They retain their physical value – even in times of global economic turbulence.
  • Speculation potential – Prices of some commodities can be quite volatile. Just look at how oil has changed over 2020-2021 for instance. That means there is a lot of potential for high profits if you speculate correctly. However, this does mean you could lose more money too.
  • Hedging against inflation – Commodities’ value is not pegged to currencies. If a currency’s value falls due to inflation, then a commodity may hold its value in contrast. As such, many traders and investors use them to hedge against inflation.

Adding commodities to an investment or trading portfolio is also a great way to increase diversification. A diverse portfolio, in theory, is more insulated against the risks inherent to financial trading. If one instrument or asset, say equities, falls, then the commodities could help cover those losses.

What commodities can you trade?

We briefly touched on this earlier, but there are lots of different options available to would-be commodity traders.

Generally, commodities can be split into four categories:

  • Metals – This incorporates precious metals like gold and silver, as well as more common, industrial ores like iron, copper, nickel, and lithium.
  • Agricultural products – This category includes both edible and non-edible products. Wheat, grain, cocoa, and sugar are edible commodities. Cotton, palm oil, and rubber are examples non-edible commodities.
  • Energy – The energy market covers crude oil, gasoline, natural gas, coal, and heating oil. It also include renewable energy like wind power and solar.
  • Livestock – Cattle, hogs and other live animals fall under the livestock category.

What drives commodity markets?

Price action in commodities markets is defined by supply and demand. Generally, the higher the demand the higher the price and so on. Low supplies coupled with high demand can lead to high prices too.

We’ve seen this recently with oil markets. Crude oil output had been negatively affected by the COVID-19 pandemic. Demand was low and output was minimal. As of October 2021, demand is high, but output is being kept relatively scarce by producers such as the OPEC+ nations to protect prices.

However, commodities prices can be more versatile than other assets. This is because there are lots of factors at play relating to their production. For example, livestock levels may be impacted by health issues, such as foot and mouth disease. A bad harvest will impact wheat prices. Weather can affect production of commodities, such as a hurricane shutting down natural gas infrastructure in the Gulf of Mexico.

Global economic trends can affect prices too. China and India’s emergence as industrial powerhouses has caused the availability of metals like steel to drop off in other nations.

The above trends make commodities prices hard to predict. Prices can show high levels of volatility. As such, it can be seen as riskier than trading or investing in other assets. Remember: you should only invest or trade if you can afford to take any losses.

How are commodities traded?

Commodities are typically sold on exchanges, in the same way stocks are traded on exchanges. In fact, many would say the birth of trading as we know it started with 18th and 19th century merchants trading crops.

At Markets.com, we offer commodities trading through contracts for difference (CFDs). These allow you to speculate on commodity price movements without owning the underlying asset. These are leveraged products, which means you can take a position with only a fraction of the trade’s value. This means your profits can be amplified – but so can your losses.

There are also commodity exchange traded funds (ETFs). These group together a number of assets into a single basket. Some ETFs will hold the physical assets they’re cover, for example a gold ETF might hold a certain amount of bullion or coins. Some are more complicated and synthetically mimic their underlying market.

A Markets.com account will give you access to a wide range of commodity markets, as well as thousands other assets. Open yours today and start trading your way.

A beginners guide to spread betting

Spread bets offer an alternative way to trade the markets compared with CFD trading. In this guide, we show you how to get started with spread betting.

Spread Betting 

What is Spread Betting? 

Spread betting is similar to CFD trading with some key differences. 

It is a tax-free, alternative to traditional trading or CFD trading. 

Spread betting lets traders speculate on the movements of stocks, shares, and other and instruments and assets without owning them. 

That makes Spread Bets derivatives, like CFDs. 

Instead, you are speculating on what’s called on a spread 

A spread is made around an underlying market, for instance, gold. In fact, spread betting originated in gold trading markets. 

With a gold spread, you would be betting on whether the price of gold would rise or fall. 

So, if the price of gold goes up, then you can make a profit. However, if it goes down, you can lose money. 

We will tackle the specifics later. 

Spreads are tied to a huge range of markets. Traders are able to pick from the usual range of markets, and instruments, such as forex, commodities, stocks, and so on. 

Remember: like CFDs, spread bets are leveraged products. Betting is inherently risky, so you should only start spread betting if you have enough capital and are clear of the relevant risks. 

The Spread 

The spread is the difference between the buy and sell prices of the underlying asset’s market price.  

In the context of spread betting, buy and sell prices are also known as the offer and the bid 

Spread bet costs are factored between the buy and sell prices. Usually, you’ll buy a bit higher than the marketplace and sell just below it. 

Let’s use the FTSE 100 as an example. As a market index, its performance is measured in points. 

If the FTSE 100 is trading at 6,000.5, and the spread is one point, the Offer Price (buy price) would be 6,001. The Bid Price (sell price) would be 6,000. 

Bet size 

Bet size is the amount you want to bet on a unit of movement of the underlying market you’re trading on. 

The way profit or loss is calculated on spread betting comes from the difference between the opening price and the closing price of your market multiplied by your bet value. 

Let’s look at an example. 

You open a £5 per-point bet on the FTSE 100. It moves 100 points in your favour. Therefore, your profit would be £500: 

  • £5 bet 
  • 100 point movement 
  • £5 x 100 = £500 = £500 profit 

The reverse is true for losses: 

  • £5 bet 
  • -100 point movement 
  • £5 x 100 = £500 = £500 loss 

Bet Duration 

Bet duration is the length of time that passes before your position closes. 

All spread bets have a fixed time duration. They can vary from just a day to several months, depending on the asset and market conditions. 

Short-term positions may just be daily, for example. These may subject to overnight funding charges, so please be aware of that.  

Why trade via Spread Betting? 

Spread Betting presents many benefits when compared against traditional share trading. 

Tax efficiency 

Spread bets are popular because, in the UK, you do not currently pay any capital gains tax on profits made when spread betting. 

UK traders who spread bet also do not pay any stamp duty on their profits. This is because they do not own the underlying asset they are trading. 

Please be aware that tax treatments are dependent on individual circumstances and can be liable to change. Other jurisdictions will have their own tax laws. 

Variety 

Spread bets can be placed across a wide variety of different markets 

Markets available include: 

  • Shares  
  • Foreign currency (Forex) 
  • Indices 
  • Commodities 

2,200 different options are available for you to bet on via the Markets.com platform giving you free rein to spread bet as you like. 

Low capital requirements 

Much like their cousin the CFD, spread bets are leveraged products. You bet using leverage and margin.  

This means you do not have to place down the entire value of the asset you wish to spread bet on, only a percentage. How much will depend on the margin, but it means you can start betting on a budget. 

For example, with 5% margin on a spread bet, you could open a position worth £30,000 for £150:

(5% x (£5 x 6000)) = £150

Even so, it is always best to consider if you have enough capital to spread bet with. Spreads are subject to market volatility. They can go up, but they can also go down. Always be aware of the risks when spread betting. 

Flexibility  

You can take long or short positions on spreads. 

If you think prices on the spread will rise, then you take a long position. 

Likewise, if you think prices on the spread will fall, you will take a short position. 

This means you can trade on markets that are going down as well as up and still potentially make a profit.  

This offers traders quite a lot of flexibility – another reason why spread betting is a popular way to trade. 

Hedge your share portfolio 

If you are already trading shares, and have an existing portfolio, then spread betting can help you offset some risk or limit your losses. 

In this case, you might want to use a spread bet against an asset that is moving in a different direction to your existing shares. 

Let’s say you own shares in Apple. The company has underperformed according to its latest earnings report, so its shares are sliding. You may want to open a short spread betting position on the Nasdaq technology index to offset your losses.  

This would mean that any loss to one position would be offset by profit to the other. 

Risks of Spread Betting 

Like any financial product, spreads hold inherent risks. 

Please read the below carefully and understand the potential risks you will undertake if you decided to start spread betting. 

Spreads are Leveraged Products 

Leveraged products like spreads give you market exposure for a percentage of the full trade you wish to make. This means that you can potentially make profits if the market moves in your favour. 

You can also lose money if the market moves against you and you are not using adequate risk management tools. 

Let’s look at an example. 

If you bet on a spread worth £1,000 with a margin rate of 5%, you would only have to put down a deposit of £50. 

However, if the price of the spread moves against you by 10%, you would lose £100, i.e. double your initial stake in your initial bet. 

This is because your exposure to the market, i.e., your risk is the same as if you had purchased £1,000 worth of physical shares, foreign currency, commodities and so on. 

This means that any move in the market will have a greater effect on your capital than if you had purchased the same value of shares.  

Some account types, however, such as retail client accounts have negative balance protection. That means losses will be limited to the value of the funds in your account. 

Market volatility & gapping 

Markets are inherently volatile. They can go up, but they can also go down. 

Small changes may have a big impact on returns when it comes to spread betting. 

These are similar to the types of external factors that can affect CFD trades, such as government policies, unexpected information and unforeseen changes in market conditions. 

Margin calls may also be applied due to negative effects on the spread’s underlying asset. If they cannot be met, the provider may close your position, or take a loss. 

Gapping may also occur. Gapping happens when prices of instruments suddenly shift from one level to another skipping any intermediate levels

The above may also mean stop-loss orders are applied to your open spread positions. 

Client Money Risk 

There are client money protection laws that apply to spread betting in countries where such trading is legal. 

They are designed to protect investors from potentially harmful practices from irreputable financial product providers. 

Money transferred to spread providers must be kept separate from the provider’s money. This is to prevent providers from hedging their own investment. 

Even so, some laws may not prohibit clients’ money from being pooled into one or more accounts. 

A provider withdraws an initial margin when a contract is agreed upon. The provider also has the right to request further margins from pooled accounts. If clients in the pooled account cannot meet margin calls, the spread provider has the right to draw from the pooled account. This can have a negative impact on returns. 

How to Start Spread Betting 

Here is a quick guide on how to start spread betting. 

Much of the basic principles of CFD trading also apply to spread betting, but there are some differences, which we’ll explain in more detail in this section. 

Margin & Leverage: a reminder 

As with CFD trading, margin and leverage are the two main concepts you need to know before you start spread betting. 

Margin is the money you need to lay down in order to open a leveraged trade, i.e. betting on a spread. 

Both the terms are related. Leverage, based on the leverage ratio, determines the amount of margin you need to have in your account to begin. 

Remember: margin rates vary across different regions and asset classes.  

Leverage lets you gain full exposure to a market without investing the full amount of an underlying asset. You only need a small fraction of the normal capital. 

Margin value is needed to open a transaction. It will be held as collateral until the relevant transaction is terminated. 

The amount of the margin payments is dependent on the leverage ratio of the CFD, the underlying financial instrument and the contract value of the transaction. 

Decide what you want to trade 

Markets.com offers thousands of assets you can place spread bets on, covering sectors such as: 

  • Shares  
  • Foreign currency (Forex) 
  • Indices 
  • Commodities 

Don’t forget to use the in-platform streaming service XRay and our Insights service for advice on the leading stocks, indices performance, and current affairs information, to help you decide.  

Build your trading plan 

Think about what you want to achieve from spread betting. Remember to ask yourself the key questions: 

  • How much profit are you hoping to make? Will spread betting help you achieve that? 
  • How much time can you realistically spend trading? 
  • How much can you safely spend? 
  • Are you comfortable assuming the risk?
  • What does acceptable loss look like to you? 

Answering them will give you a clearer picture of how you wish to proceed and what trading strategy you want to undertake. 

Open your first position 

When you’ve decided which market you want to trade, you’re ready to bet on a spread. 

The first thing to decide is whether you want to go long or short.  

  • If you think the spread will rise, you take a Long Position. 
  • If you think the spread will fall, you take a Short Position. 

Once you’ve taken your position, your profit or loss will move in line with the underlying market price. You can use the Markets.com platform to monitor all your open spread bets. 

Putting spread betting into practice 

Let’s look at a spread bet using Google as an example so you can see how the theory comes together in practice. 

In this example, Google is currently trading with a sell price of 11,550 points (£115.50). The buy price is £115.60. 

Because of its recent good earnings, you predict that Google shares are going to rise soon. As such, you decide to take a long position (or buy) Google shares for £10 per point of movement at the buy price, or 11,560 (£115.60). 

If your bet is correct, and Google share prices do rise, you might want to trade when the sell price hits 11,590 (£115.90).  

The market has increased by 30 points (11,560 – 11,590). As such, your bet would have turned a profit of £300 (30 points x £10 = £300). 

However, markets are volatile. They can rise as well as fall. Below’s an example of what would happen if the market moves against you. 

The price of Google shares has fallen to a sell price of 11,510. That would mean you would end up with a loss. 

The market has moved 50 points (11,560 – 11,510). Therefore, you would have made a £500 loss (£50 x 10 = £500).  

Start trading your way with Markets.com 

Now you know your way around spread betting and CFD trading, put your knowledge into practice with Markets.com. 

Remember: spread betting carries significant risk of capital loss. Only take part if you can afford to take any potential losses.

How to trade CFDs: a beginners guide

Trading CFDs is one the most popular methods of stock market trading. Learn how to do it in this beginners guide.

Trading CFDs 

What are CFDs? 

CFD stands for Contracts for Difference. 

A CFD is an agreement between two parties to exchange the difference in the value of a financial market between the time the contract (trade) is opened and the time it is closed. 

You can trade CFDs on markets like shares, foreign currency (Forex), indices, bonds, ETFS, and commodities. 

CFDs are what’s called Derivatives. That means the price you trade comes from the underlying market value.  

For example, if you were to trade US crude oil CFDs on Markets.com, the price would come from the underlying value of the US crude oil futures contract (WTI).  

You don’t own the underlying asset when trading CFDs. You buy or sell contracts by speculating on how you think the market will move. 

By trading CFDs you are taking a Position. A Position is your exposure to the market, i.e., the value of the CFDs you wish to trade.  

Benefits of trading CFDs 

CFDs are a great way to get started in the world of trading. They have lots of benefits that make them a smart choice for first-time traders. 

Efficient use of your capital 

Capital is the money you put down to start trading. With CFDs, you can use that more efficiently. 

You trade using your margin. This gives you leverageWe will go into more detail on these two aspects of CFD trading later. 

For now, it means you only have to put down a fraction of the trade’s full value to open a position. That lets you start trading with a small budget. 

Flexibility 

Because you are trading agreements to exchange differences in the opening and closing points of a position, CFDs offer flexibility in how you can trade. 

CFDs let you trade Long or Short. 

In CFD trading, you trade long is if you believe prices will go up 

If you think prices will rise, you buy your contracts and take a Long Position. 

You trade short if you believe prices will go down.  

If you think prices will drop, you sell your contracts and take a Short Position. 

This means you can trade on markets that are going down as well as up and still potentially make a profit. This offers traders quite a lot of flexibility. 

No Stamp Duty 

In the UK, you do notpay stamp duty on a CFD trade. This is because you do not take ownership of any of the assets you are buying and selling.  

Please be aware that tax treatment of CFD trading will depend on your individual circumstances and be subject to change. 

Variety 

As CFDs can be traded across lots of different markets, you have plenty of scope to choose sectors, companies, and geographies that you think will help you reach your trading goals. 

Markets available include: 

  • Shares – Shares in individual companies like Tesla, Apple, Amazon, Lloyds, Vodafone, Volkswagen etc 
  • Foreign currency (Forex) – US Dollars, Euros, Pounds, and so on 
  • Indices – Stock markets like FTSE 100, S&P 500, Dow Jones, DAX, etc. 
  • Commodities – Assets like oil & gas, crops, and so on 

Markets.com offers 2,200 different instruments for you to choose from on our multi-asset platform. 

Risks of trading CFDs 

There are inherent risks when it comes to trading any financial product like Contracts for Differences. 

Please read the below carefully and understand the potential risks you will undertake if you decide to start trading CFDs. 

CFDs are Leveraged Products 

Leveraged products like CFDs give you market exposure for a percentage of the full trade you wish to make. This means that you can potentially make profits if the market moves in your favour. 

You can also lose money if the market moves against you and you are not using adequate risk management tools. 

Let’s look at an example. 

If you place a CFD trade worth £1,000 with a margin rate of 5%, the margin requirement to open this trade would only be £50. 

However, if the price of the trade moves against you by 10%, you would lose £100, i.e., double your initial stake in your initial CFD trade. 

This is because your exposure to the market, i.e., your risk, is the same as if you had purchased £1,000 worth of physical shares, foreign currency, commodities and so on. 

This means that any move in the market will have a greater effect on your capital than if you had purchased the same value of shares.  

Market volatility & gapping 

Markets are inherently volatile. They can go up, but they can also go down. 

Outside effects like government policies, unexpected information and changes in market conditions mean prices can fluctuate.  

Small changes may have a big impact on returns when it comes to trading CFDs. 

Unfavourable effects on the underlying asset’s value may cause the trade provider to demand further margin payments. These are called Margin Calls 

If a margin call cannot be met, the provider may close your position. Alternatively, you may have to sell at a loss.  

Another risk associated with market volatility is Gapping. 

Gapping happens when prices of instruments, i.e., CFDs being traded, suddenly shift from one level to another skipping any intermediate levels.  

This may mean Stop-loss Orders are applied at an unfavourable price. A stop-loss order is a market risk tool that helps manage risk by closing a position once an instrument or asset reaches a certain price.  

Market volatility’s risk and impact can be lowered by applying boundary or guaranteed stop-loss orders to your trades.  

Client Money Risk 

There are client money protection laws that apply to CFDs in countries where contract trading is legal.  

They are designed to protect investors from potentially harmful practices from irreputable CFD providers. 

Money transferred to CFD providers must be kept separate from the provider’s money. This is to prevent CFD providers hedging their own investment. 

Even so, some laws may not prohibit clients’ money from being pooled into one or more accounts. 

A provider withdraws an initial margin when a contract is agreed upon. The provider also has the right to request further margins from pooled accounts. If clients in the pooled account cannot meet margin calls, the CFD provider has the right to draw from the pooled account. This can have a negative impact on returns. 

How to trade CFDs 

Here is how to get started trading Contracts for Difference. 

Margin & Leverage 

Before you get started, it’s vitally important you understand the concepts of Margin and Leverage. 

Margin is the money you need to lay down in order to open a leveraged trade, i.e., start trading CFDs. 

Margin and leverage are related terms.  

In short, the leverage ratio determines the amount of margin you need to have in your account. 

Margin rates vary across different regions and asset classes.  

Leverage allows you to gain full exposure to a market by investing only a fraction of the capital you would normally require.  

Upon opening a transaction, the margin value will be required and held as collateral to be maintained until termination of the relevant transaction.  

The amount of the margin payments is dependent on the leverage ratio of the CFD, the underlying financial instrument, and the contract value of the transaction. 

Let’s look at an example. 

If you are trading FX with a leverage ratio of 30:1 – equivalent to a margin rate of 3.33% – it means you can control a trade with a notional value of £3000 with only £100 of margin. 

The minimum level required for maintaining positions is 50%.   

In the above scenario, once opening the trade you would need to maintain at least £50 of available funds in your account to satisfy the margin requirements.  

Please note: if margin thresholds are not met, then your positions may be closed. 

Set your budget & fund your account on Markets.com 

Firstly, set yourself a trading budget. 

If you are a beginner trader, you might want to start low.  

£100 is the minimum amount of funds you need to start trading with Markets.com. This is just to open your account. You do not need to trade the £100. If you have the correct margin funds on an instrument or asset, you could trade £50. 

The other available currencies are: USD/EUR/DKK/NOK/SEK/PLN/CZK/AED

Got more experience and confidence? You may want to add more funds – but this is only advised if you have previously traded CFDs before. 

If you want to try your hand at trading without risking your money, then open a Demo account. No money will change hands and you can explore the Markets.com platform without any of the risk. 

Build your trading plan 

Think about what you want to achieve from trading. 

  • How much profit are you hoping to make?  
  • How much time can you realistically spend trading? 
  • How much can you safely spend? 
  • Are you comfortable assuming the risk? 
  • What does acceptable loss look like to you? 

If you can answer these questions, it will help you make more informed trading decisions that suit your individual goals. 

Research your opportunities 

With over 2,200 assets to choose from, you will find opportunities to suit you at Markets.com. 

In the platform, you can search across CFDs on various sectors, such as: 

  • Shares  
  • Foreign currency (Forex) 
  • Indices 
  • Commodities 

You can also use Markets.com unique XRay and Insights analysis to help you decide. 

XRay is our streaming service, featuring videos and content from market experts. It covers everything from leading stocks to currency movements, to current affairs information. 

Insights is much the same: market news delivered by professionals. 

These tools will aid you in choosing the correct CFDs for you. 

Open your first position 

When you have decided which market you want to trade, you are ready to start trading. 

The first thing to decide is whether you want to go long or short.  

In CFD trading, you trade Long is if you believe prices will go up.  

  • If you think prices will rise, you buy your contracts and take a Long Position. 

You trade Short if you believe prices will go down.  

  • If you think prices will drop, you sell your contracts and take a Short Position. 

Once you’ve taken your position, your profit or loss will move in line with the underlying market price.  

You’ll be able to monitor this on our platform using the various performance and analytical charts available. 

You can also do this manually by placing the same trade you originally placed but in the opposite direction. 

For example, if you opened your position by buying, you could close by selling the same number of contracts at the sell price – and vice versa. 

Your profit or loss is calculated by multiplying the amount the market moved by the size of your trade. 

Buy & Sell Prices 

Buy and Sell Prices are very important. 

When trading CFDs, you will be offered two prices based on the instrument you are trading’s underlying value. 

  • The Buy Price is what you bid to purchase an instrument 
  • The Sell Price is the seller’s offer 

Buy prices will always be higher than the instrument’s current underlying value. The price to sell will always be lower. 

The difference between the two prices is called the Spread 

Number of contracts 

A key aspect of CFD trading is selecting how many contracts you wish to trade.  

Each market has its own minimum number of contracts. 

For example, the FTSE 100 has a minimum contracts number of one. 

There is no maximum contracts number. The level you can buy will depend on how much capital you originally put down, your budget, and so on. 

Stops & limits 

Stops and Limits are put in place to minimize trading risk. 

Remember: CFDs are leveraged products. You only ever need to put down a small deposit to gain exposure to the full value of the trade.  

This means your capital goes further but also means that you could lose more than your initial outlay. 

To help restrict your potential losses, you might choose to add a stop. Stops automatically close your position when the market moves against you by a specified amount. 

Limits are the opposite to Stops.  

They close your position when the market moves a specified distance in your favour. Limits are a great way to secure profits in volatile markets. 

An example CFD trade 

Let’s put all the above into practice. 

You want to trade shares in Apple as CFDs. 

The Apple shares have an underlying market price of 314.6p. The sell price is 314.5p and the buy price is 314.7p. 

Apple is expected to make an earnings announcement soon. Market forecasts suggest Apple’s earnings release will be positive and the company is performing well.  

Because you think the price will go up, you buy 2,000 Apple share CFDs at the buy price of 314.7. This is equivalent to buying 2,000 Apple shares. 

As CFDs are leveraged products, you do not need to put up the full value of the shares you wish to trade. You only need to cover the margin. This is calculated by multiplying your exposure with the margin factor for the market you are trading. 

In this example, the margin factor is 20%. Your margin would be 20% of the total exposure of your trade: 

  • The total exposure is £6,294 (2,000 CFDs x 314.7p). 
  • 20% of £6,294 = £1258.80. 

If the CFD value rises 

Your prediction was correct! Apple’s earnings announcement shows the tech giant has had a very good quarter. Sales are up, and its share price has risen.  

You decide to close your position when it reaches 354.3p, with a buy price of 354.4p and a sell price of 354.2p. 

You reverse your trade to close a position, so you sell your 2000 CFDs at a price of 354.2p. 

Now you can calculate your profit. 

To do that, you multiply the difference between the closing price and the opening price of your position by its size: 

  • 354.2 – 314.7 = 39.5  
  • 39.5 x 2,000 (the number of your CFDs) = 790 
  • Your profit = £790 

Remember: You will also need to pay a commission fee, capital gains tax, and any potential overnight fees that have affected your trade. 

If the share price goes down 

Bad news. Apple’s earnings are worse than the market anticipated. Its share price has fallen, and you decide to cut your losses and sell your CFDs. 

The sell price is 288.7. That means your position has moved 26p against you.  

The process for calculating your loss is the same as profit: 

  • 288.7 – 314.7 = -26. 
  • -26 x 2,000 = 520
  • Your loss = £520 

Those are the basics of what CFDs are and how to trade them. 

What are IPOs and how can you trade them?

When a company decides to go public, it may do so by making an Initial Public Offering, or IPO. Here, we take a look at what that means – and how you can start trading on a company going live for the first time.

IPOs

What are IPOs?

Companies often do not start as publicly traded companies. They do not issue stock or may only issue shares to private shareholders.

However, many companies decide to go public. This means their stock will be listed on stock exchanges and be available for public trading. In theory, anyone could be a shareholder by purchasing shares in said company.

These tend to be some of the most exciting events for stock traders and investors. For instance, when Coinbase announced it was going public in February 2021, it created a wave of market interest.

There are a couple of different ways a busines can go public. One of the most popular is by making its Initial Public Offering.

There are a couple of reasons why a company may choose an IPO, including:

  • Raise capital
  • Pay off debts
  • Monetise assets
  • Improve its public profile

Once it goes live, the business’ stock will be available for retail traders and investors to buy and trade.

These tend to be medium-to-large cap companies. For example, when money sending service Wise was worth an estimated $5-9bn ahead of its IPO.

Smaller companies may use other methods to get access to public capital. The London Stock Exchange Alternative Investment Market (AIM), for example, is where small companies that have exhausted their private money, but are not at the level required of an IPO, can still be publicly listed.

How does the IPO process work?

The first part of an IPO is the audit. This is basically a review of all the company’s financial ins and outs.

The company will then have to file a registration statement with the relevant authorities. So, if a business were to launch on the London Stock Exchange, then it need to share its registration statement with the Financial Conduct Authority (FCA).

The stock exchange the company wants to list on will then review the business’ application. If successful, the company will move on and work with an underwriter to determine how many shares it should release to the public. If unsuccessful, it will have to go back, review its application, and try again.

The filing will also be read by traders and investors to get a flavour of a) the company’s financial health b) its IPO plans and c) what to possibly expect when it finally launches.

Generally, a business will work with an investment bank to determine its IPO share price, i.e., the price per share when the stock first goes public. Goldman Sachs was hired to price trading app Robinhood’s IPO, for example.

There is no set timeframe for an IPO. They require many different stakeholders and complex processes to reach fruition.

Trading or investing in an IPO

There are a couple of ways to trade and invest in a stock that’s gone public – even before the process is completed.

Grey markets

At Markets.com, we offer grey markets.

A grey market let’s use offer Contracts for Difference (CFDs) on a stock before it goes live. You can speculate on its price movements and estimated market cap up to the end of the stock’s first trading day.

A grey market CFD’s price will be determined by our pricing team, based on the company’s prior financial performance, its initial public offering filing, and predictions on how we think the stock will perform.

Trading is about speculating on price movements. CFDs allow you to do this without owning the underlying asset. These are leveraged products. That means you gain exposure for a fraction of the total trade’s value. However, profit and loss is gauged by the total size of your position, not your deposit, and can far outweigh your initial deposit. Your risk of loss is higher. Only commit capital if you can afford to take any potential losses.

Please note: a grey market will not be offered as an investment product. Investing is the act of buying shares to hold onto in the hope they gain value. Because the stock hasn’t actually launched yet, you would be unable to buy and hold a grey market CFD.

When the IPO launches

One the IPO goes public, you will be able to buy the stock to add to your investment portfolio. Alternatively, you will now be able to trade on its price movements using spread betting or CFDs in the manner mentioned above. To reiterate, you will not own the asset if you pursue a spread or CFD-trading strategy.

How do IPOs perform after launch?

That depends on a myriad of factors. Sometimes stocks come roaring out the traps. Other times, as was seen with Robinhood with its IPO launch, a company going public can be a bit of a damp squib and fall below market expectations.

The stock’s performance should also be gauged over different timelines.

We’ve split the table below into different stock categories to see how company shares tend to perform in their first day, first week, and first month after their first public offering.

The data represents a global overview for stocks in 2020, rather than IPOs stocks listed on a specific exchange. It also includes a comparison of IPO stocks against main market and AIM stocks.

Stock type Price movement- first day Price movement – first week Price movement – first month
All IPOs 6.6% 9.0% 1.5%
Main market 4.6% 4.4% 0.7%
AIM stocks 9.0% 14.6% 12.4%

 

Where can you find out about upcoming initial public offerings?

Generally, each stock market will have a dedicated calendar or page detailing upcoming debut stock listings. Here are some examples

London Stock Exchange

Nasdaq

New York Stock Exchange

We also inform our clients on upcoming IPOs. You can find more information in our news section.

A word on debut listings and risk

Please note that trading and investing carries with it the risk of capital loss. The value of your investments may go down. If you trade leveraged products like CFDs then you may encounter serious losses.

Do your research prior to committing any capital. Only invest or trade if you can afford to take any potential losses.

What is Forex trading and how can you start?

If you’re a newcomer to the world of forex trading, it might seem a bit intimidating. In this beginner’s guide, we run through the basics so you can start your FX trading journey.

Forex trading?

What is forex?

Forex, also shortened to FX, stands for foreign exchange. In practice, it’s the exchanging and trading of different currencies.

FX is the most popular trading activity in the world. Every day, $6 trillion – more than the GDP of the UK and France put together – exchanges hands.

A number of different types of traders are involved in the FX trader, including banks, companies, individual retail investors, and even governments.

There is no centralised exchange when it comes to Forex. It’s typically done over-the-counter. Essentially, anyone can get involved – but please only commit any capital if you are comfortable taking any losses.

In our case at Markets.com, we offer FX trading via contracts for difference (CFDs). With CFDs, you do not own the underlying asset. These are leveraged products. That means you gain exposure for a fraction of the total trade’s value. However, profit and loss is gauged by the total size of your position, not your deposit, and can far outweigh your initial deposit. Your risk of loss is higher.

What makes FX trading appealing?

There are lots of reasons why foreign exchange is so popular, such as:

  • Market size – roughly $6 trillion changes hands every day!
  • Variety – We offer over 60 different currency pairs to trade at Markets.com
  • Accessibility – Unlike stocks and other assets tied to exchanges, currency can be traded 24/7
  • Leverage – As mentioned above, currency pairing CFDs allow you to open a trade at a fraction of the trade’s total value

There is also a degree of flexibility with forex.

CFDs allow speculation on price movements in both directions. If you think the currency pairing is going to lose value, you will take a short position. If you think it will gain value, you’ll take a long position.

What are currency pairs?

Currency pairs are the financial instrument used in foreign exchange.

It is a quotation for two different currencies. It’s basically the amount you would pay in one currency for another.

Let’s look at an example.

The currency pair is GBP/USD at 1.15.

That means you could exchange 1 GBP for 1.15 USD.

If one of the paired currency’s value changes, then the currency pair’s value will change too.

For example, GBP/USD has started the day at 1.15. By the end of the day, it has risen to 1.16. That is because the strength of pound sterling has risen in value against the US dollar.

If the currency pair starts the day at 1.15, then drops to 1.13, for instance, that means the value of pound sterling has weakened against the US dollar.

At Markets.com, our currency trading offer is split into three categories: Majors, minors, and exotic.

Majors are some of the most popularly traded pairs on the market, coming from the largest global economies. They’re essentially the engines of global commerce and economics. Major currency pairs include:

  • GBP/USD – Pound sterling to US dollar
  • EUR/USD – Euro to US dollar
  • JPY/USD – Japanese yen to US dollar
  • USD/CHF – US dollar to Swiss franc
  • AUD/USD – Australian dollar to US dollar
  • NZD/USD – New Zealand dollar to US dollar
  • CAD/USD – Canadian dollar to US dollar

The minor pairings are still from important economies but do not include the US dollar. These are still popular trading assets. Take a look at some examples below:

  • AUD/CAD – Australian dollar to Canadian dollar
  • CAD/JPY – Canadian dollar to Japanese yen
  • EUR/GBP – Euro to pound sterling
  • USD/DKK – US dollar to Danish kroner

Exotic pairings are pairings featuring potentially more volatile currencies. In the past, such currencies may also have had unique or difficult conversion requirements. Many come from emerging economies.

  • CHF/PLN – Swiss franc to Polish zloty
  • EUR/RUB – Euro to Russian rouble
  • GBP/TYR – Pound sterling to Turkish lira
  • USD/ZAR – US dollar to South African rand

What factors affect the currency market?

Like any financial instrument, currency pairs are affected by numerous external factors. If you’re looking to enter the world of forex trading, be aware of the following:

  • Central bank policy & interest rates – It’s the job of central banks to essentially watch over all aspects of a nation’s monetary policy. That will give it oversight over many things that can affect currency prices. Interest rates are a key part of this. If a central bank increases its overnight rate, then currency traders looking to enjoy higher yields may end up buying more. This can make currency prices rise.
  • Economic releases – Big economic releases, such as monthly, quarterly, and annual GDP growth figures, manufacturing and services PMIs, employment figures, and inflation all have an influence on FX prices.
  • Politics – It goes without saying that political tussles can affect a currency pairing’s valuation. Think how the pound slid dramatically after the Brexit vote, or how the USD wobbled in the wake of the US/China trade war under the Trump administration.
  • Volatility – The above factors will have an impact on price volatility, which can then affect how traders trade. Some may prefer to trade on volatile currency pairs; others may wish to hold off until markets fall back to normal. Be aware that some currency pairings are more volatile than others.

Some currency trading tips for beginners

  • Research – Don’t commit any of your money until you’ve done your research. Study the markets. Take time to head over to our news and analysis section. You’ll find plenty of pieces on what’s moving markets and how major currency pairs are currently fairing. The old adage fail to prepare; prepare to fail runs true here. Make sure you’re informed before placing a trade.
  • Practice – A com demo account lets you practice trades with $10,000 in demo credit to play about with. That way you can get a feel for currency markets, familiarise yourself with our platform, and see how tools can help impact your trades, in a risk-free environment. You won’t be spending any money.
  • Tools – We have a suite of powerful trading tools designed to help you. From various different charts to sentiment indicators, and much more besides, these are all designed to give you a potential trading edge. Click here to learn more about our tools.
  • Know your limits – Only trade if you are comfortable taking losses. Don’t be afraid to cut your losses either if you feel you are losing too much. Do not overextend. At the same time, don’t be tempted to take all of your potential profit out the first time it appears. You can be confident – but only you will know your own limits.

Remember: trading is inherently risky. The value of your trades can down as well as going up. Bear this in mind if you decide to take the forex trading plunge.

A guide to Trainline shares

It’s been two years since Trainline when public. Since then, Covid has struck. What does this mean for Trainline shares – especially now the UK lockdown is lifting?

A look at Trainline shares

Post-Trainline IPO: the state of play

Its’s been nearly two years since the Trainline IPO. With its initial public offering, the train-journey planning and ticketing app managed to raise £1.7bn. It was one of the hottest UK tech stocks at the time of going public.

In the following months up to February 2020, Trainline stock enjoyed significant share price growth, peaking in February at 547p per share. Just one month later, Trainline shares derailed. The price dropped to a low of 225p in March.

Since then, the story has been one of an upward chug, only for the stock to run out of steam and tank again. The price action has taken Trainline on a bit of a journey up to the current date. It rose again near IPO levels in December, before tanking once again in March 2021, falling from the 52-week high of 536p to 271p.

How are Trainline shares performing now?

At the time of writing, Trainline shares were trading at around 290p.

You may think that the stock price should be about to shoot up. The UK is gearing up to remove nearly all Covid-19 restrictions. That means more travel for both commuting and pleasure. 85% of the UK’s adult population has had their first vaccine.

In fact, Trainline revenues have already shot up year-on-year. £334m in ticket sales was racked up in Q1 – a 324% increase compared with Q1 2020. However, these are still around £150m lower than in Q1 2019.

International ticket sales reached £63m in the same period. Encouraging, but still someway short of the £117m generated in 2019’s first quarter.

Overall, UK ticket sales remain 70% of their pre-pandemic volume.

Trainline shares could still rise as lockdown lifts, but we’ll have to be careful. Competition is rising.

The UK’s long-awaited Williams-Shapps review of the railway sector launched its findings in May 2021. The report recommended the UK set up a government-backed body to oversee the railway sector.

The report states: “A new public body, Great British Railways, will run and plan the rail network, own the infrastructure, and receive the fare revenue. It will procure passenger services and set most fares and timetables. This will bring the whole system under single, national leadership with a new brand and identity, built upon the famous double arrow. This will mark the end of a quarter century of fragmentation.”

Even so, once the report landed, Trainline stock lost a collective £500m.

Consolidation is the driving force behind this government plan. Ask any frequent UK rail traveller and they’ll tell you booking can be a confusing process driven by a Byzantine approach to rail franchising. 20 companies operate UK railways – and there are 55m different fare and ticket combinations available.

Great British Railways is seeking to create a single platform on which all tickets and fares would be available. Given the enormity of this task, Trainline, which offers ticketing for 8 of the 20 separate rail franchise, may not be licked yet.

Where can the Trainline share price go from here?

Trainline is already engrained in the minds of UK consumers. It has millions of downloads, and for many is the go to ticketing service. It already fulfils a key part of Great British Railways targets, in that it brings together a number of franchises into one app.

It also goes beyond simply UK-based travel. As mentioned earlier, the Trainline app allows users to buy international tickets. Coach journeys can also be booked via Trainline. As such, it could continue to focus on and upgrade these parts of its service should Great British Railways emerge as a major threat.

There’s also the fact that the current UK government does not exactly have a great reputation when it comes to developing apps and software. The UK track & trace app designed to help combat Covid is notorious for being poorly conceived, built and implemented with costs spiralling into the tens of billions. There’s also no indication as to when this service will launch either.

As Trainline is already an easy-to-use app, its customers may choose to stick with it.

While the Trainline share price is relatively compared to its peak, it may be able to rise in line with full economic reopening of the UK.

However, there is the added snag of working from home. While the UK government is urging remote workers to start heading back into the office, many are more that content staying working from home. There may be a consistent drop in the number of commuters travelling by train every day.

In the short term, at least, the stock may experience the same price fluctuations we’ve seen since the Trainline IPO was released. It all depends on the UK’s post-lockdown landscape.

As ever, when picking stocks for your trading or investing portfolio, do your research before committing any capital towards Trainline stock. Only invest or trade if you are comfortable taking any losses.

A guide on how to start investing for new pandemic investors

Millions of beginners chose to start investing and trading during the pandemic. If you were one of these, or you’re thinking about taking the plunge, here is what to watch out for.

Did you start investing over the pandemic?

Newcomers hit the investment & trading scene

A recent survey undertaken by Charles Schwab revealed 15% of its clients started trading or investing during 2020 at the height of the pandemic.

A mixture of more time at home and access to trading and investment platforms has led to an upsurge in new retail clients. The bulk of these newcomers are still planning on staying investors and traders after the pandemic subsides.

Interestingly, while there has been a considerable rise of youngbloods investing in Millennial’s preferred assets like cryptocurrency and the so called meme stocks, the mix of newcomers isn’t entirely dominated by younger investors. From Boomers, Gen Xers, and Millennials, there is healthy interest amongst most adult age groups.

What’s more interesting is that Investopedia research suggests a third of pandemic investors knew nothing about investing or trading prior to opening their first position.

If you wish to join them, there are some basic principles that could help you at the start of your journey.

How to start investing in stocks

To start investing in stocks and shares, you’ll first need to know what they are and why you are investing.

The act of investing is buying an asset to keep in the hopes that it will gain value over a long period of time.

A stock, also known as an equity, is security that represents ownership of a small percentage of a company. Units of stock are known as shares. By owning them, you become a company shareholder, and are thus entitled to a proportion of a company’s potential profits appropriate to the number of shares you own.

Some pay dividends, i.e. a share of company profit, but other businesses prefer to reinvest profit back into the company.

It’s a common misconception that investing is only for people who have millions to spend. You can start from a low base. However, investing carries risk of capital loss, no matter how much you choose to sink into different assets. The value of your investment can rise or fall. Be mindful before making any deposits or committing any capital.

Other asset classes to invest in

Of course, stocks are not the only asset to invest in. Plenty of options are available to you. Amongst the most popular financial assets are:

  • Commodities – Oil, natural gas, crops, metals and so on
  • Gold – A traditional store of wealth and a relatively stable investment
  • Forex – Foreign currency
  • Cryptocurrency – Digital currencies like Bitcoin and Ethereum
  • Mutual funds – A collection of assets overseen by a financial manager

What about trading?

Trading is similar to investing but is based around short term activity. With trading, you do not own the underlying asset. Instead, you trade on the asset’s price movements using products like Contracts for Difference (CFDs) or activities like Spread Betting.

Also, unlike investing where you want your asset to increase its value over time, trading means you can speculate on an asset’s price failing. This is known as shorting.

Trading allows you to get market exposure for a fraction of an asset’s total value. Brokers like Markets.com offer leverage, which allows you to trade on margin. That means you only have to place down a small percentage of how much an asset is worth to open a trade.

With trading on margin, you can potentially make some big wins. However, it would mean any losses would be magnified too, making it a riskier endeavour than simply investing.

Mistakes to avoid if you want to start investing or trading

No diversification

Investopedia’s recent research into the pandemic investor surge suggests 56% of newcomers weigh their portfolios too heavily in favour of a single asset. Most successful investors and traders ensure they have a diverse portfolio.

Diversification is important because it helps mitigate risk and gives balance to your trades. Even if you’re looking at how to start investing in shares, it’s important to have a broad base of stocks across different sectors. That way, if one sector is performing badly, you can use others to hedge against potential losses with gains from other stocks.

It’s important to also consider different assets, not just equities, when putting a portfolio together too.

Doing little to no research

When getting started with how to invest in stocks, it’s massively important to do your research. Investing and trading comes with a risk of capital loss. There are lots of factors at play that affect stock’s price, but there is a lot of information available to you to help you make a research-based decision prior to committing any money.

There are lots of ways to do your due diligence and research. Fundamental and technical analysis, for instance, is used by many successful investors when they pick stocks. These look at fundamental aspects of a stock, i.e. how the company is performing financially, and the technical, such as price trends over time.

You can also use the multitude of tools available to you on our trading and investing platforms, including powerful charts and sentiment indicators, to help you decide.

While we cannot advise you on which assets are worth spending your money on, we can say it is better to do research than go in blind. Fail to prepare and prepare to fail. So, read up on things like company performance, check earnings reports. Has there been any management or personnel changes? What are the broader market conditions? All these will give you a better picture on whether to invest or not.

Emotion-led decision making

This pairs with the above. Investopedia’s look into new investors’ habits reveals that just over a quarter of pandemic players are trading or investing on gut feeling alone. It’s not advisable to do that.

Experience may lead you to be able to spot trends down the line, but if you’re just about to start investing, do as much research as possible. Try to not let yourself be ruled by emotions. Investing is a long-term process. Spontaneity and knee-jerk reactions should be avoided.

Careful research and patience are what separates a successful investor from a mediocre one.

Taking investment advice from unreliable sources

No one can definitively tell you how to spend or invest your own money. Everyone’s circumstances and attitudes to risk are different.

Recently, with the rise of the Reddit forum /r/wallstreetbets and meme stocks (GameStop, AMC, etc.), more and more investors are turning to untrustworthy corners of the internet to get advice. It can be tempting to hop on the bandwagon and pour cash into flavour of the month equities.

Always take their advice with a grain of salt. YouTubers and influencers are often seeking to aggrandise themselves, grow their audience, and ultimately make money for themselves.

Instead, if you are seeking analyst opinions, look for reputable sources, such as the Financial Times or CNBC. Speaking with a reputable financial advisor can also help but, as if you were looking at assets to add to your portfolio, always ensure you’ve researched them thoroughly beforehand. Look at their client reviews and so on.

How you can start investing with Markets.com

At Markets.com, our Share Dealing and Investment Strategy Builder services allow clients to start investing at their own pace.

Asking yourself how to start investing in shares? Click here to learn more about our investment services.

Please note: these services are only available in certain jurisdictions.

What’s the future of the Bitcoin market?

Bitcoin. The world’s most popular cryptocurrency. It’s had a hell of a ride in 2021, from soaring highs to dramatic drops. But is there anything we can learn about the token’s future by looking at its present and its past? 

The Bitcoin market 

A look at Bitcoin price history in 2021 

Bitcoin entered 2021 with a value of $28,000 per token. It subsequently shot up to $40,000, before flagging a little. Still, progress has been relativity strong. Several all-time highs have been reached in 2021 so far. 

A peak of around $65,000 was reached in mid-April, before prices fell away again. Come the middle of May, and prices had climbed to around the $52,250 level. However, numerous factors led to a crash, with BTC dipping below $30,000 for the first time since January. 

At the time of writing, the value of Bitcoin was approximately $33,240. 

While it has fallen dramatically away from its April peak, the massive drop actually belies the year-to-date progress BTC has made so far. 

According to CoinMarketCap data, BTC has gained 100% in the first five months of 2021, helping its market cap hit $1.1tn at the beginning of May. With the drop, however, Bitcoin’s market cap fell about 30% to $705bn last week. 

Despite this, BTC is still up 30% year-on-year. 

Bitcoin value and volatility 

Cryptocurrencies are all subject to major price swings. Bitcoin probably shows this the most of all the most popular traded tokens. Certainly, it’s a market bellwether: when BTC rises, it brings other coins with it. When it falls other coins do too.  

There is a couple of reasons for this. 

  • New – Despite being first created over a decade ago, Bitcoin and digital tokens are still a relatively new asset class. Effectively, it is still in the price discover phase. 
  • Decentralised – The whole point of Bitcoin, or at least its intended purpose, was to provide a decentralised currency outside the regular financial system. It’s not currently regulated in the same way fiat currency and other securities are traded (more on that later). 
  • Limited supply – There will only ever be 21 million bitcoin tokens mined. Scarcity can drive up prices – but if something were to affect the supply, as we’ve seen with China’s recent crypto mining clampdown, prices can take a big hit. 

The Bitcoin market also fluctuates rapidly on news. For example, the recent retracement has been precipitated by China’s decision to come down hard on Bitcoin mining. It also lost value when Elon Musk’s Tesla u-turned on its decision to accept the token as payment for its vehicles.  

Accordingly, the value of Bitcoin can also rise on good news. It spiked, for instance, when Tesla announced back in February it had picked up $1.5bn in Bitcoin as an investment vehicle. 

Indeed, large scale investors and institutional backing also affects BTC price action. Whales, entities which hold at least 1,000 Bitcoin tokens in their digital wallets, can cause rapid price increases during Bitcoin market downturns by buying at low prices. The resultant interest increases demand amongst retail investors, starting the cycle over anew. 

Bitcoin & regulation 

We’ve touched on this earlier, but because cryptocurrency and BTC are fairly new assets, much of the regulatory framework around the world is still being properly developed. 

Exchanges like Coinbase still need to be reviewed by the SEC to offer crypto exchanges in the US for example. The same goes for exchanges in other jurisdictions worldwide. But, because volatility is high in this sector, many nations are moving to protect retail investors against the high risks that come from crypto trading. 

For example, the FCA has banned the sale of cryptocurrency derivatives to retail clients in the UK. China, not content with clamping down on Bitcoin mining operations, is moving to remove cryptocurrencies from its financial system altogether. 

Despite this, we’ve seen lots of institutions step up their support for Bitcoin and cryptocurrency trading in 2021. The likes of Goldman Sachs, BNY Mellon, and Deutsche Bank, amongst the world’s major banks, have all opened, reopened, or enhanced their crypto offers for retail and institutional clients. 

Where next for the Bitcoin market? 

So, we know Bitcoin is very volatile; we know that, despite losing value, it’s still up year-to-date by a considerable margin; we know regulation is evolving alongside the market; we know retail and institutional interest is still very high. 

In terms of what’s next for the Bitcoin market is more volatility, a clearer global regulatory framework, and continued trading. 

But what about prices? Bitcoin has struggled to break out of the $30-39,000 range in June. Some believe, based on Bitcoin price history, this is nothing to worry about. Fundstrat’s Tom Lee, a BTC bull, is confident what we’re seeing is a technical blip, and believes an $100,000 price will happen by the end of 2021. 

Citi Bank is even more confident, claiming Bitcoin will become the “currency of choice” for global trade going forward. 

However, it does appear Bitcoin has moved away from its original purpose. Investors don’t buy BTC to make purchases with. They buy it for its perceived value, like any other security. To function as a proper currency, it has been theorised that the blockchain infrastructure Bitcoin relies on for creation and transactions would have to be majorly overhauled to cope with the strains of frequent, everyday purposes. We are not there yet. 

In the short term, the market will be watching for BTC to clear $40,000 again.  

The risks of investing in the Bitcoin market 

Even secure trades come with the risk of capital loss. Based on price trends, Bitcoin and cryptocurrency investing and trading appears to carry much more risk of capital loss. If you are considering investing or trading the Bitcoin market, take extra caution. We’ve seen billions in value wiped out in an instant during the sector’s movements this year. 

Only commit capital if you are comfortable taking any potential losses. Always do you research prior to committing any money too. 

Thematic Investing with ETFs

Thematic investing and ETFs go hand in hand. Here’s a quick overview of what both entail so you can get started on a theme-led trading or investing strategy.

A look at ETFs and Thematic Investing

What are ETFs?

ETFs are exchange traded funds, a financial product that combines the properties of a funds and equities.

Each exchange traded fund is composed of different assets grouped together. These might be equities, commodities, bonds, or a mixture of all of them. The assets inside an exchange traded fund track the performance of the fund’s underlying market as closely as possible.

An ETF vs an Index fund

There are some similarities between the pair, but ETFs and index funds do hold some key differences. Here’s a very quick outline of what separates the two.

  • ETFs can be bought and sold at any time, whereas index funds are only available at the price set at the end of the trading day.
  • Exchange traded funds generally require lower minimum investment
  • ETFs are typically more tax efficient

For retail investors and traders, an ETF may be the better option, but this of course all depends on individual goals, personal capital expenditure and so on.

Do ETFs pay dividends?

That depends on the type of ETF. An income fund will distribute any interest and dividends back directly to you, as the name suggests.

An accumulation fund, on the other hand, will not pay a dividend. Instead, it will reinvest any accrued gains back into the fund, raising the value of your investment.

Both are valid options, but again it depends on what you are trying to achieve when investing or trading an ETF.

How does thematic investing apply to exchange traded funds?

The beauty of ETFs is that they are perfectly suited to a thematic investing strategy.

By their very nature, they group together specific assets into one product. They offer exposure to trends, industries, technologies and sectors all in one product – ideal for those who do not want to do they analytical legwork associated with other forms of investing and trading.

One thing in common with thematic ETFs is that they tend to be forward-facing. Many of the available funds out there focus on disruptive technologies and trends.

For instance, cryptocurrency and bitcoin is huge business right now, as one of the most popular trends amongst millennial investors. If this piques your interest, you may want to invest in a crypto-themed ETF.

A space travel-focussed ETF will cover numerous assets around space exploration, i.e. companies that offer commercial space flight, rocket engine manufacturers, raw materials suppliers, and so on.

Cathie Woods’ ARK series of technology-driven ETFs are the perfect example of themed funds. Each is split into different niches and ideas based around disruptive technologies:

  • Innovation
  • Fintech innovation
  • Autonomous technologies & robotics
  • Next generation internet
  • Genomic revolution

So, for example, the fintech innovation fund is based on “innovative and disruptive financial technologies.

“Companies represented within ARKF transaction innovations, blockchain, risk transformation, frictionless funding platforms, customer-facing platforms, and new Intermediaries”.

By packaging assets in the fintech space together into a single tradable asset, investors in that ARK ETF would be gaining exposure to multiple assets and mitigate their single stock risk.

How popular are thematic ETFs?

Very. In Europe alone, thematic ETFs attracted a record €9.5bn in new assets across 2020, bringing the total assets under management (AUM) for thematic funds up to €22.7bn – an all-time high.

In the US, thematic ETFs AUM stands at $183 billion, according to Global X’s Q1 2021 thematic investing report. That represents 2% of the US’ total ETF sector, but, crucially, 7% of revenue. That may look small, but growth has been massive.

Global X reports that US thematic exchange traded funds’ assets under management has risen 430% since Q4 2020. The volume of inflows has tripled since 2019. Aggregate AUM reached $133.1bn at the end of Q1, up 28% from the $104.1bn AUM achieved at the end of Q4 and exceeding the broader US ETF industry’s 7% q/q gain.

There are now 163 thematic exchange traded funds listed on US exchanges – an increase of 13 over Q4 2020. None have been closed either.

In terms of returns, we can look at the performance of some European ETFs to see what makes them a popular choice for retail investors. Some of the funds with the highest ROI include:

  • iShares Global Clean Energy ETF (INRG) – 120%
  • WisdomTree Cloud Computing ETF (WCLD) – 92%
  • VanEck Vectors Video Gaming and eSports ETF (ESPO) – 68%

Risks of thematic investing with ETFs

As with any financial product or asset, the value of an ETF can rise or fall. As such, you can lose money, so only invest or trade if you are comfortable with any potential losses.

There are risks around liquidity too. A surge in investor interest in a specific sector may cause a rally in a fund’s underlying index or component assets. If this is the case, investors may start selling their holdings, and trigger a liquidity shortage. The fund would have to be rebalanced accordingly to protect against this.

As ever, due diligence and research are important here. Make sure you do yours before committing any capital.

Top stocks of 2021

Stock markets are broadly higher this year, with the S&P 500 up more than 10% since the start of January. UK equities have also had a decent start through to the end of May and are up almost 9% this year. In Europe, the Stoxx 600 is 11% YTD. 

Here we look at some of the top-performing stocks of 2021. 

UK: Restaurant Group (RTN) leads the way with the stock up more than 90% as the UK enjoys a positive reopening story. Share have risen as investors bet on the company, owner of Wagamama, enjoying strong demand as consumers return. The company has tapped investors for £175m and completed a £500m debt refinancing to cover it over through to the full reopening of the economy and support its delivery network expansion. It had swung to a £127 pre-tax loss last year. Shares are up about 140% from the depths of the pandemic. 

FTSE 350 

  Percentage Change 
Name  RIC  1d (%)  5d (%)  MTD (%)  1 mth (%)  3 mth (%)  6 mth (%)  YTD (%)  1Y (%) 
FTSE 350 Index  .FTLC  0.95  0.93  0.50  2.14  6.06  11.27  8.77  19.11 
Restaurant Group PLC  RTN.L  3.19  -1.13  2.50  2.16  28.23  94.04  93.74  191.16 
Ferrexpo PLC  FXPO.L  -1.65  -4.13  5.74  13.89  42.83  163.20  82.45  228.11 
Tullow Oil PLC  TLW.L  -2.15  -3.48  -5.58  10.25  49.79  101.34  72.68  101.50 
Future PLC  FUTR.L  9.58  25.61  23.05  27.03  51.09  45.49  67.09  185.27 
Gamesys Group PLC  GYS.L  -0.16  -0.80  -3.62  -2.97  37.94  72.05  63.60  125.24 
Mitie Group PLC  MTO.L  2.15  6.75  6.92  3.75  25.28  69.60  61.95  83.78 
Royal Mail PLC  RMG.L  2.82  4.09  8.83  8.22  12.55  81.93  59.85  213.29 
Investec PLC  INVP.L  3.83  4.79  0.48  18.49  45.72  52.87  56.38  81.81 
Virgin Money UK PLC  VMUK.L  3.14  7.14  2.75  11.65  20.30  41.40  52.86  152.21 
Bytes Technology Group PLC  BYIT.L  1.09  1.69  3.45  4.85  20.06    52.24   
Just Group PLC  JUSTJ.L  -0.47  -1.22  -3.48  1.84  23.96  75.50  50.64  105.66 
TUI AG  TUIT.L  -2.91  5.58  -0.77  13.67  19.79  55.94  48.45  131.46 
Hammerson PLC  HMSO.L  1.10  5.48  -7.76  1.27  77.88  58.47  47.89  25.92 
Ashtead Group PLC  AHT.L  1.52  3.53  9.14  10.88  27.06  59.57  47.64  115.91 
Morgan Sindall Group PLC  MGNS.L  0.00  -2.20  -3.26  17.23  54.73  60.07  45.23  92.14 
Mitchells & Butlers PLC  MAB.L  2.28  1.49  -0.57  7.69  7.63  59.47  44.56  125.17 
Greencore Group PLC  GNC.L  0.18  2.70  5.48  7.58  22.19  47.75  43.69  20.95 
Redde Northgate PLC  REDD.L  0.80  1.33  4.40  9.83  47.00  51.70  42.86  102.13 
EVRAZ plc  EVRE.L  0.94  -0.89  3.99  9.87  20.01  76.77  41.65  153.41 
C&C Group PLC  GCC.L  1.14  11.79  7.56  18.62  35.00  50.28  40.04  69.47 
IMI PLC  IMI.L  -0.06  -0.73  2.13  17.55  21.49  48.27  39.74  87.99 
Greggs PLC  GRG.L  0.93  -0.72  5.81  10.54  19.47  44.67  39.50  44.42 
Indivior PLC  INDV.L  -0.13  1.82  -1.25  11.63  18.10  14.95  38.51  161.18 
Kingfisher PLC  KGF.L  -0.56  3.57  4.73  3.92  35.48  32.23  38.39  121.42 

 

Europe: Spain’s Banco Sabadell (SABE) is the top performer, with shares up 80% YTD and +140% in the last 12 months. The bank’s TSB unit swung to a profit in the first quarter as cost-cutting measures helped offset a 22% drop in earnings. Banco reported net profit of €73m, beating forecasts as like most banks it was able to book fewer bad loss provisions.  

 Stoxx 600 

 

  Percentage Change 
Name  RIC  1d (%)  5d (%)  MTD (%)  1 mth (%)  3 mth (%)  6 mth (%)  YTD (%)  1Y (%) 
STOXX Europe 600 EUR Price Index  .STOXX  1.27  1.05  1.03  1.87  6.51  13.42  10.74  28.90 
Banco de Sabadell SA  SABE.MC  0.85  -4.55  20.82  39.43  63.18  54.66  80.00  140.18 
Evolution AB (publ)  EVOG.ST  5.99  0.15  -14.04  3.03  33.32  117.76  72.16  172.61 
Kindred Group PLC  KINDsdb.ST  3.91  -2.37  -5.73  -9.80  9.00  96.11  71.43  185.04 
Royal Mail PLC  RMG.L  2.82  4.09  8.83  8.22  12.55  81.93  59.85  213.29 
Nordic Semiconductor ASA  NOD.OL  9.80  10.42  3.88  20.84  26.25  76.57  55.07  229.23 
Bank of Ireland Group PLC  BIRG.I  -0.20  -2.05  3.81  19.50  50.21  91.53  53.58  210.54 
Societe Generale SA  SOGN.PA  0.48  1.61  10.33  21.38  31.85  61.56  53.42  105.21 
Virgin Money UK PLC  VMUK.L  3.14  7.14  2.75  11.65  20.30  41.40  52.86  152.21 
Porsche Automobil Holding SE  PSHG_p.DE  1.68  1.27  -3.20  -8.35  30.55  50.37  50.32  83.75 
Getinge AB  GETIb.ST  2.53  3.05  0.31  6.29  27.45  55.02  49.61  63.16 
Banco BPM SpA  BAMI.MI  -2.17  4.08  13.97  19.88  24.82  39.30  49.39  150.21 
Bank Polska Kasa Opieki SA  PEO.WA  0.89  7.30  13.44  19.47  35.16  59.30  48.61  76.52 
TUI AG  TUIT.L  -2.91  5.58  -0.77  13.67  19.79  55.94  48.45  131.46 
Valmet Oyj  VALMT.HE  -0.06  1.79  -0.26  3.06  25.66  63.46  48.42  56.24 
Ashtead Group PLC  AHT.L  1.52  3.53  9.14  10.88  27.06  59.57  47.64  115.91 
Bankinter SA  BKT.MC  0.23  0.23  3.45  15.61  25.58  51.64  47.39  83.36 
Natixis SA  CNAT.PA  0.02  -1.31  0.47  0.77  0.59  62.60  46.40  105.18 
Kuehne und Nagel International AG  KNIN.S  2.09  5.97  7.33  3.53  39.46  49.11  45.92  106.70 
Compagnie de Saint Gobain SA  SGOB.PA  1.81  -0.49  3.75  4.03  25.94  37.76  45.25  119.11 
Dialog Semiconductor PLC  DLGS.DE  0.25  0.15  -0.37  1.09  -0.46  75.79  45.22  85.32 
ING Groep NV  INGA.AS  0.70  2.98  2.75  7.67  22.03  41.64  42.94  104.72 
DSV Panalpina A/S  DSV.CO  3.14  4.03  4.75  10.94  27.31  40.43  41.67  95.32 
EVRAZ plc  EVRE.L  0.94  -0.89  3.99  9.87  20.01  76.77  41.65  153.41 
Tenaris SA  TENR.MI  -0.62  -2.96  4.62  6.23  29.52  49.95  41.49  60.15 

 

US: Nucor (NUE) is the YTD top performer for the S&P 500 as the steelmaker is expected to benefit from a big increase in infrastructure spending in the US. The company reported record earnings in the first quarter and CEO Leon Topalian said he expects the whole of 2021 to be strong. The Charlotte, North Carolina company posted $7 billion in revenue, which was up 25% year-on-year and up 15% compared with the same quarter in 2019. 

S&P 500  

  Percentage Change 
Name  RIC  1d (%)  5d (%)  MTD (%)  1 mth (%)  3 mth (%)  6 mth (%)  YTD (%)  1Y (%) 
S&P 500 Index  .SPX  1.06  1.13  -0.53  0.58  6.46  16.91  10.73  39.96 
Nucor Corp  NUE  -0.39  0.33  22.94  28.84  74.24  92.45  90.13  148.60 
L Brands Inc  LB  -3.91  -1.63  -1.85  0.87  28.51  61.82  73.92  429.30 
Marathon Oil Corp  MRO  -0.69  4.16  2.40  14.05  22.01  105.89  72.86  93.78 
EOG Resources Inc  EOG  -0.02  1.18  9.34  17.43  28.81  77.40  61.46  52.93 
Gap Inc  GPS  -4.01  -2.75  -1.57  2.52  34.91  33.69  61.37  343.87 
Devon Energy Corp  DVN  -0.08  2.06  8.04  20.46  22.21  93.44  61.01  109.31 
Capital One Financial Corp  COF  0.42  0.97  5.86  20.01  31.99  88.81  59.65  156.69 
Freeport-McMoRan Inc  FCX  1.23  -1.79  9.31  14.88  9.95  93.98  58.42  351.97 
Diamondback Energy Inc  FANG.O  -1.78  0.43  -6.36  3.04  16.71  92.09  58.12  75.29 
Seagate Technology Holdings PLC  STX.O  -2.75  11.12  4.29  17.49  32.38  74.11  55.76  86.73 
Hess Corp  HES  -0.93  3.15  10.00  21.01  28.91  76.11  55.26  73.13 
Invesco Ltd  IVZ  -0.60  -1.81  -1.33  3.30  18.56  69.47  52.84  261.47 
Mosaic Co  MOS  -1.05  0.78  -0.65  8.51  20.19  78.23  51.89  198.21 
Wells Fargo & Co  WFC  -0.95  -1.44  1.51  7.50  20.88  79.47  51.52  86.50 
Applied Materials Inc  AMAT.O  4.42  8.66  -1.81  1.34  9.08  69.84  51.00  129.10 
Fifth Third Bancorp  FITB.O  -0.38  -1.07  2.44  13.97  20.24  64.22  50.63  134.63 
News Corp  NWSA.O  4.00  3.05  3.26  2.11  20.22  54.39  50.53  136.24 
Mohawk Industries Inc  MHK  0.05  -5.03  1.20  6.07  20.98  63.55  47.54  150.46 
Iron Mountain Inc  IRM  2.09  2.67  7.18  8.89  33.66  67.38  45.86  80.07 
Lumen Technologies Inc  LUMN.K  -1.53  0.28  10.68  11.99  18.93  41.43  45.64  43.43 
Schlumberger NV  SLB  -0.72  0.03  17.45  25.82  21.63  57.20  45.53  74.46 
People’s United Financial Inc  PBCT.O  -0.69  -1.16  3.75  8.35  19.96  47.76  45.48  65.00 
APA Corp (US)  APA.O  -0.91  1.13  3.15  21.35  14.48  80.33  45.38  72.64 
Snap-On Inc  SNA  -0.39  -1.91  4.44  5.79  27.28  43.50  44.99  85.57 

 

*Source: Refinitiv, prices correct as of May 21st. 

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