The Russian president has brought decades of peace in Europe to an end. His war in Ukraine, combined with the Coronavirus pandemic which began today’s cycle of high inflation in 2020, is causing a great deal of uncertainty in the financial markets. Investors in commodities, however, have done well.
2022 has been a challenging year for the international investor. During the height of the pandemic, the volume of mobile trading by retail traders grew enormously because people had plenty of surplus disposable income, more spare time in which to trade from the comfort of their homes and increasingly reliable internet connectivity.
Nowadays, anyone can easily trade in securities on the Internet. Online brokers make this possible, offering investors access to global trading venues through software and FinTech.
Traps For The Unwary
If someone wants to sit at home and invest on his computer or smartphone, he should compare the offers of the online brokers with each other. Although they offer their services at considerably lower prices than direct banks, i.e. banks with no branch networks, they are not completely free of charge. Sometimes the fee-free depots and trades are offset by return-reducing third-party flat rates, negative interest, exchange fees and trading commissions.
In addition to the fees, the investor should pay attention to the asset classes in which he wants to invest when choosing his online broker. Not every service offers trading in crypto-currencies or contracts-for-difference, for example. It is also worth comparing the services with each other, because not every online broker has a multi-language-speaking customer service or can be reached by phone. The user interface should be clearly designed and easy to use. An online broker that offers a free demo-account for testing is recommended.
It is important for every investor in the stock market to have a balanced portfolio. Anyone who invests in stock listed all over the world and who relies on the large, well-known global stock indices is not going to feel the effects of volatility in the markets as badly as, for example, an investor who depends on Russian companies. One should not look at the next few weeks here, but at the next few years.
The Asset Class du jour?
The inflation rate in the US was recently 8.5 per cent for 12 months ending in March 2022. Crypto-assets are the most high-profile instruments that investors are using to protect their portfolios against inflation. They are, however, only one type of asset. Investors can look to real assets as well. Gold, for example, should continue to do well during the rest of 2022. The price of this precious metal rises when inflation is high but may dip if interest rates rise. The real interest rates, i.e. the interest rates after inflation, are therefore decisive and these are likely to remain negative globally. Even if the US Federal Reserve were to raise interest rates to 2 per cent by the end of next year, which would be extremely high, real interest rates would still be well into the red given inflation of 4 per cent. This should elevate the Gold price.
In a year in which stocks have struggled and bonds have done worse, commodities are an isolated bright spot. It is important to note that investors in commodities have been able to gain this year from increases in the prices of raw materials. Investors obviously know that energy prices have surged this year, with the war between Russia and Ukraine interrupting the flow of oil and gas. The conflict has had its repercussions in many other commodity markets as well, since Russia and Ukraine export a whole host of commodities including wheat, corn nickel and palladium.
Along with exchange-traded products that target single commodities, several multi-commodity exchange-traded funds found themselves to be very popular.
Exchange-traded funds are popular with our investors as trading instruments. An ETF is a type of pooled investment security that operates much like a mutual fund. The fund tracks a particular index, sector, commodity or other asset but, unlike a mutual fund, an ETF can be purchased or sold on our trading platforms in the same way that a regular stock can.
QQQQ trades on the Nasdaq exchange and is one of the more popular ETFs. This security offers broad exposure to the tech sector by tracking the Nasdaq 100 Index, which consists of the 100 largest and most actively-traded non-financial stocks on the Nasdaq.
Alternatively, the Direxion Daily S&P Biotech Bear (LABD) 3X Shares seek daily investment results, before fees and expenses of 300 per cent of the performance of the S&P Biotechnology Select Industry Index.
The first US Bitcoin-linked ETF is the ProShares Bitcoin Strategy ETF (BITO.US), which offers investors a familiar way to gain exposure to Bitcoin returns but with the liquidity and transparency of an ETF. An investor can expose his portfolio to Bitcoin easily with this. When BITO was launched back in October last year, it became the fastest ETF to reach US$1 billion dollars in assets under management (AUM).
The Trials And Tribulations Of Investing
If a retail investor trades in an ETF, especially a crypto-related one, he will gain some advantages if he does so with the help of a regulated broker. In addition to various problems that beset the spot market itself, the unassisted investor faces some complex transactions if he wants to invest in Bitcoin directly, even through an exchange. If he looks at the disclosures made by one of the exchanges that offers Bitcoin, he might see a text in the small print that says, “you could lose all your money in a fork.” He must then spend some time on the Internet to find out what a fork is on the blockchain. Many people are comfortable with this process, but there are certainly some who are not amenable to the challenges of dealing in a new asset like that in its raw form.
Then, of course, there are the issues that surround custody and wallets. Once the investor is in an exchange, he has only just embarked on some tough decision-making. He must then determine whether the exchange ought to hold his wallet, whether he ought to hold his own wallet, whether he ought to hold his wallet and keep his code on a memory stick, or on a piece of paper in a vault, and so on. Many small investors are looking for simpler ways to take part in the crypto-market and brokers offer them one way of doing this.
Chris Illing can be reached on +1 242 603 5200 or at email@example.com
Chris Illing was born in Germany and moved to the Bahamas in the early nineties. He finished his education in Cologne and has a BA in Business. After a successful career in the hospitality industry, which included ownership of 3 hotels and several restaurants, he decided to change the industry and joined ActivTrades Corp. in 2019. His is focused in Client support, business development and contributes to a weekly financial column in the local newspaper. Chris is also the serving honorary consul for Germany in the Bahamas. His free time Chris spends with his family and enjoys the Bahamian aquatic life.