In this guide, we highlight the most popular markets for online trading in 2023 and why they are so appealing to traders. These are the most heavily traded instruments across the major online trading platforms:
The most popular markets for trading in 2023
The financial markets can be broken down into these key asset classes:
The US stock market is the largest in the world, and much admired because of its vibrancy and vivacity. Wall Street provides vast trading opportunities for traders.
Why you should look at buying and selling US stocks:
- Deep liquidity – Billions of shares change hand in the US exchanges daily. Large traders can buy and sell billions worth of stock easily.
- Depth of market – The US market is unrivalled in terms of sector variation and industry breadth. No other country possesses this many leading technological, financial, industrial, pharmaceutical, and consumer-oriented companies. You can diversify your portfolio easily by trading in the US market alone.
- Price booms – US shares often produce massive price booms (some called it a ‘mania’) that generate enormous shareholder profits. One glaring example is Gamestop (GME) in 2021. Few other markets can produce these ‘MEME’ booms because of a lack of sufficient liquidity.
- Growth companies – Many American growth companies are worth trillions. Apple (AAPL), Amazo
n (AMZN), and Google (US:GOOG) – collectively known as the ‘FAANGS’ – are some examples of these growth titans. Who doesn’t want to buy into a fantastic growth sector?
- Innovative – The US capital market is highly innovative. It was the first to introduce futures, options, and Exchange-traded Funds (ETFs). The latter now has about $7.2 trillion in assets at the end of 2021.
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The S&P 500 Index is the world’s most-traded blue-chip stock index. No other equity index matches its popularity. S&P is a broad-based equity index and concentrates on large-cap stocks.
Traders buy and sell the S&P 500 Index because:
- Benchmark equity index – The S&P is the representative index for the US stock market. The total market capitalisation of S&P is more than $30 trillion and made up of the best 500 companies in the US. Most stock traders have positions in the S&P one way or another.
- Diversity of industries – The S&P 500 contains a wide variety of sectors, from financials to utilities to consumer discretionary. This means that it is not easily overwhelm by one sector move. Investors like this diversity because it balances out the index.
- Great returns – Especially if you’re are invested in the index over the past decade. In fact, since 1992, the index has risen from 400 to 4,000 – a 10x return (excluding dividends). Not many other stock indices showed such a powerful uptrend.
- Liquidity – The index is extremely liquid and traders can trade it by hundreds of millions. Spreads are tight.
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The Dow Jones Industrials Index is one of the oldest stock indices in the world. It was developed back in 1896 and is currently comprised of thirty stocks, all of which are the top blue-chip companies in America, such as Goldman Sachs (US:GS), McDonald’s (US:MCD) and Proctor and Gamble (US:P&G).
The index is still one of the most traded index because:
- Most famous market index – Dow is one of the most-watched indices of Wall Street. The index has a long history and investors often used it to study market cycles. Demand for this index remains high.
- Volatile – Because of its small number of constituents (30), the Dow is also fairly volatile. This can be attractive to traders who seek short-term trading opportunities.
- Mature index – Given that most constituents are blue-chip stocks, earnings are relatively steady over time. This gives comfort to investors that few of these companies will fade away any time soon.
- Liquidity – Market markers provide competitive quotes to buy and sell the index. Commissions and spreads are tight.
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Compared to its rival markets like NYSE, Nasdaq is a young institution. But it made its mark in the sectors like technology. Home to a large number of new and hyper-competitive tech stocks, Nasdaq is now synonymous with ‘growth’. Traders flock to Nasdaq to buy the newest and most ‘fashionable’ sectors.
In sum, traders like to buy and sell Nasdaq stocks because of the following:
- World-leading tech markets – The exchange hosts some of the largest technology companies in the world, such as Apple (AAPL), Amazon (AMZN), Google (GOOG), Nvidia (NVDA) and Adobe (ADBE). These stocks are extremely liquid.
- Huge growth sectors – No other market is more growth-oriented than Nasdaq. Nearly all the companies there are in fast-growing industries, including technology, biotech, internet-based and crypto-related.
- Volatile but solid performance – The history of Nasdaq is littered with booms and bust cycles. Such volatility attracts a large number of momentum and trend-focussed funds because of the massive up- and downtrends. If you play the market right, the rewards are immense. Look no further than Tesla (NASADQ:TSLA), which surged 10x in 2020-2021.
- International focussed – When other tech unicorns want to list, their ultimate destination will be Nasdaq. Therefore, Nasdaq has many international tech companies that traders can buy and sell.
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London is home to a large stock market. The London Stock Exchange is where many traders buy and sell UK-listed companies.
Why do traders focussed on UK stocks:
- Diversification – UK shares provides a source of returns away from UK’s traditional ‘brick and mortar’ asset class, ie property, and the gilt market (bonds). While shares are risky and cyclical, they offer returns that are sometimes better than bonds and property.
- Short opportunity – Many UK growth stocks have faltered over the past year. This provides a source of shorting opportunity for many traders. Stocks like Deliveroo (ROO), THG (THG), Asos (ASC) and Boo (BOO) – have all fallen dramatically.
- Solid dividend income – Listed UK companies are expected to pay about £80 billion in dividends in 2022, on top of the £75 billions dividends paid out last year. Major financials, commodity miners, oil majors contribute to these large dividend payments. Not only that, a few listed companies are buying back their shares. This lowers the number of shares in circulation so that shareholders get a larger slice of future profits.
- Tax efficient – if you buy and hold through ISA stock accounts, which are tax-free accounts which you hold with major investing platforms. The annual allowance on a stock-and-share ISA is £20,000.
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FTSE 100 Index
The FTSE 100 stock index (‘Footsie’) is comprised of one hundred leading companies listed in the London Stock Exchange. The index was initiated in 1984 and entire market cap of the FTSE 100 index is currently worth about £2 trillion.
Buying and selling this index is popular with traders because:
- Exposure to international assets – FTSE 100 stocks are highly international. The bulk of FTSE earnings are derived from overseas. For example, HSBC (LSE:HSBC) and Standard Chartered (LSE:STAN) generate much of their profits from Asia. When other parts of the world are doing better, traders may buy the FTSE100.
- Partial exposure to UK assets – In addition, FTSE 100 stocks also provides investors exposure to UK assets. BT (LSE:BT.A), Centrica (CNA), and property developer Berkeley (LON:BKG) are some of the pure domestic-focussed companies inside the FTSE. Occasionally, the UK economy may outperform other developed countries.
- Resource-focussed sectors – The LSE hosts some of the world’s biggest miners, including BHP (LSE:BHP), Rio Tinto (LSE:RIO), Glencore (GLEN), and Anglo American (LSE:AAL), and oil majors such as BP (LSE:BP.) and Shell (LSE:SHEL). Few developed markets have this concentration of resource-focussed sectors. During a cyclical economic upswing, this may proved to be attractive for traders.
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Germany is a highly competitive trading nation and has, over the years, developed a large number of internationally-recognised companies in a multitude of sectors include automobile, aerospace, sports, and medical. This makes the German market attractive to traders.
The German DAX index is an actively traded index as:
- Home to many world leading companies – Germany has roster of corporate famous brands such as Mercedes-Benz (MBGX), Volkswagen (VOW3), Continental (CONX), and Adidas (ADSX). Through Dax, traders can get exposure to these corporations with relative ease.
- Good set of constituents – Initially, the Index was made up of 30 stocks. But Deutsche Bourse expanded the index to 40 stocks in 2021. This creates an active and liquid index. Many derivatives (futures, options, CFDs) are layered on top of this index which provide opportunities for traders.
- Exposure to European economy – Most of the German DAX members are big European corporations with income in multiple European countries. Therefore, buying and selling into the Dax Index is a popular method to gain broad exposure to the European economy.
- Liquid – The Dax Index is one of the European stock barometers and is relatively competitive in quotes.
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While the Euro is a young currency (incepted in 1999), it is the second most-traded currency in the market. The Euro is popular because Europe is the world’s largest trading bloc and home to hundreds of world-class companies. Many governments hold the Euro as part of their foreign currency reserves. Trading between the US and EU is about $1 trillion annually.
Why traders buy and sell the Euro-USD pair:
- Trading Bloc – Europe and America import and export vast quantity of goods and services to one another. This makes the EURUSD exchange rate a very important one. Governments, multi-national companies and travelling individuals buy and sell the EURUSD.
- Competitive liquidity and spreads – Given the large fundamental needs to buy and sell the EURUSD, many financial brokers facilitate these trading activities, which add to the depth and liquidity of the currency. This makes the currency pair attractive to traders who wish to make short-term returns.
- Diverging monetary policies – Because of the need of so many countries, the European Central Bank (ECB) does not change its monetary policy easily unless it sees compelling evidence. This creates massive opportunities for traders to bet on diverging monetary policies against other countries like the US.
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Britain is one of the most open economies in the world. As such, Sterling is a major currency in the foreign exchange market, particularly the GBP-USD rate (popularly known as the Cable).
Why traders like to buy and sell Pound Sterling:
- Exposure to Sterling assets – Buying Sterling against other major currency is a bet on the British economy and monetary policy. Many traders use GBPUSD as one of the trading proxies on the UK economic outlook.
- Liquidity – GBPUSD is one of the major currency pairs in the market, with a large number competitive quotations available from major dealers and brokers. A narrow spread means it is easier to make short-term returns.
- Independent monetary policy – The Bank of England is an independent central bank. It runs a monetary policy that may divergence from the US time to time. This helps to drive the GBPUSD and presents trading opportunities.
- Volatility – GBP assets are especially volatile during political events, such as Brexit (’16), Black Wednesday (’92), Covid-19. Most of these events pounded Sterling over a short time – good for short GBPUSD positions.
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The Japanese Yen is one of the most-traded currencies in the world. Traders like it because of its volatility and trends.
Why trade the Japanese Yen?
- Exposure to Japan – Note that Japan is the second largest economy in Asia, with deep ties to many multi-national corporations. These institutions will want to hedge/adjust/increase their JPY-exposure levels in the currency market. This creates a deep market for USJPY, with plenty of liquidity for traders to employ.
- Proactive central bank – The Bank of Japan is a unique banking institution that can sometimes spring surprises on the market. It did that with ‘Abenomics‘ (’13). BoJ’s monetary policy can create self-enforcing trends in USDJPY which traders pounced on.
- Safe-Haven currency – Historically, the Japanese Yen served as a safe-haven currency. This means that during a market crisis, traders stampede to buy the Yen. While repeated Japanese QEs have blunted this characteristic, still whenever there is some financial stress, capital move into the Yen. Traders take advantage of this trend.
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Despite its reputation as the ‘barbarous relic‘, gold is still part of the investment and trading landscape. Industrial usage aside, gold is a form of monetary asset. Government and household invest billions in gold.
Why do traders like about gold:
- Tradable asset – Gold is one of the most-traded commodities in the world. Investors can buy and sell gold in major cities of the world. Two-way quotations are available on most trading sessions in London, New York, Singapore et cetera – and in major currencies. There is always a ready market for the metal.
- Volatile – Gold prices can be volatile when conditions are ripe. This creates opportunities for traders to buy and sell.
- Safe-haven asset – Gold is an asset that people buy during market stress. This characteristics is often taken advantage of by traders.
- Leverage – Futures, options and CFDs are often layered on top of the plain vanilla gold price to create a much more leveraged position. This can amplify the small returns in gold prices for adventurous traders.
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Crude oil is the lifeblood of a modern economy. Buying and selling crude oil is a key function of the capital market because without oil, the industrial complex and transport system will grind to a halt.
Trading the crude is therefore popular:
- Macro exposure – Oil is highly sensitive to the global economy. Remember how crude prices tumbled during 2020 at the beginning of the pandemic? Traders buy and sell oil depending on their macro views.
- Leverage bets – Most crude oil trading are done with financial futures, options, and forward contracts. The embedded leverage of these contracts allow traders to gain (or loss) with far less capital.
- Trend persistency – Given the cyclical nature of the global economy, price trends happen regularly in the oil market. This allows investors and traders to ride multi-month (or years) trends with oil contract. And they can make a fortune if they make a correct bet on the trend.
- Geopolitical and shorting opportunity – Traders can profit from a bearish view of the global economy by shorting crude oil futures. Occasionally, traders can reap huge returns in a short time from geopolitical events like the Russian-Ukraine conflict which pushed oil prices significantly higher in a matter of days.
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Volatility has become an asset class of its own. Trading volatility is a relatively new phenomenon that came about in the last two decades. The VIX index, created in 1993, is a proxy for market volatility. It is known as the Fear Index – because it rises whenever market fear rises.
Why trade volatility?
- Hedge against downside movements – Traders are now able to profit from a drop in asset prices through buying the volatility index – which typically goes up during a bear market.
- Sell volatility – During a long bull markets, traders can generate premium income by selling volatility (through options).
- Trend-neutral – Sometimes, traders profit from volatility regardless of the trend itself. This may prove to be an attractive point under certain market conditions. Of course, this is a sophisticated strategy and should only be used by experienced traders.
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In the past decade, no other asset attracted as much attention as Bitcoin. Invented in the depth of the 2008 Global Financial Crisis, few heard about Bitcoin until someone in 2010 paid for a Papa John pizza with 10,000 bitcoins. That sum would be worth about $300,000,000 ($300 million) now!
Traders like Bitcoin because of the following:
- Bitcoin’s performance – Relatively few other assets can match BTC’s stunning performance and capital growth in the past decade. From virtually nothing, Bitcoin is now worth around $14,000 per coin. This is an astounding level of appreciation, so much so that it gave rise to the word ‘HODL’.
- Volatility – The price for Bitcoin’s spectacular performance is volatility. Bought at the right time or with the right leverage, speculators can make a fortune. Bitcoin is a trader’s paradise because they can move in and out quickly.
- Sector leader – Bitcoin leads other digital assets. A bull market in Bitcoin is likely to create speculative uptrends in secondary crypto-coins, which generate much higher returns.
- Cyclical – Bitcoin is a cyclical asset. A massive boom and bust then to happen in Bitcoin every few years. Traders can ride the trend in both ways.