Basics

Forex, Shares, Bonds, Futures and CFDs are Different


Almost every day new financial products are promoted by banks and brokerages to help investors diversify their investment portfolio.

This article discusses what the origin is of many traditional investment products and the differences between asset classes like shares, forex, bonds, futures and Contracts For Difference (CFDs).

The financial markets are expanding in the range of products available making it harder for investors to choose with so many options available.

For reasons like these, investment managers and professional traders may employ automated trading systems such as using Artificial Intelligence (AI) like we do with our Wiseinvest automated and AI forex signals system.

When currency trading began

Accord to Wikipedia, currency came into existence in ancient Mesopotamia, in the form of a receipt which represented a stored commodity such as grains.

This use of receipts backed by grains is comparable to how the US Dollar used to be backed by Gold, and then Silver.

Eventually, in ancient times metals were used instead of paper receipts, and precious metals like gold and silver coins became real assets and a form of money.

The issuer of metal currencies also retained the right to collect taxes for a specific region from owners of the currency. In addition to collecting taxes from sovereign currencies, monetary policy was implemented by auctioning currency at a value that approximated the tax available in that region.

Fast forward to more modern times and exchanges such as national stock markets have existing for hundreds of years already, with the Amsterdam stock exchange first founded in 1602.

Real assets versus Financial assets

It’s important to note that a paper receipt in ancient Egypt is considered a financial asset, while the underlying grain held as collateral for the currency is the Real asset.

Thus, in today’s investment environment, many stocks, bonds, CFDs, and forex trading represent financial assets, whereas buying property or a new business can be considered an investment in real assets.

Furthermore, when products are created based off the value of financial assets, they are usually classified as derivatives, which can add to the level of product complexity.

Unlike stocks or derivatives, the forex market today is the largest market globally, with nearly $6 trillion in average daily volume, according to April 2019 data from the Bank for International Settlements (BIS).

Forex is a highly-efficient market and the technology helped to improve transparency, market integrity and the safety of participants. WiseInvest chooses forex trading as the main asset class as it also helps us in the decision-making process used in Wise AI trading.

Why shares are different than forex

Another very important financial product are shares, which is a financial asset that represent equity in some underlying real asset. The first ever publicly-traded stock was the shares of United East India Company (Dutch: Vereenigde Oostindische Compagnie; VOC) established in 1602.

Shares are quite different from other products, such as forex. Firstly because shares represent equity in a company, whereas forex represents the currency of an entire country.

Secondly, shares are strictly traded on specific localized exchanges, whereas forex is decentralized. Shares may be more regulated, whereas forex has varying levels of regulation in different parts of the world.

Some benefits of shares are the rights of receiving dividends every time company makes profit, for companies that declare to pay dividends. Comparably, holding cash currency in a bank account can earn interest and rates varying in different parts of the world.

In addition, holding shares can convey rights to an investor, such as the ability to vote or earn a board position, depending on the percentage of shares they own.

Lastly, shares are a primary market, where you buy the assets itself, and not the right to buy or sell an asset, such as in the case of the options markets.

Why bonds are not the same as forex

Another type of financial asset is bonds, which can be corporate bonds or government issued.

Bonds are a form of debt instrument, as the investor lending their money to the bond issuer, in return for a fixed rate on their principal, and for their principal plus interest to be redeemed when the bond matures.

Some investors prefer to earn a fixed rate of return over a specific time-frame, which is where investing in bonds can have its place in a trading portfolio.

Bonds can vary in levels of risk from ultra-safe all the way to junk bond status. In addition, some bonds come with other restrictions such as limited liquidity making it difficult to exit a position early, compared to US treasuries, which are highly liquid and a safe market for bond investing.

However, trading US treasury bonds is not the same as trading the USD currency in a forex pair.

Futures markets compared to forex

The futures markets were created to transfer risk away from commodity producers and those who have a need to use a commodity but do not wish to have risk associated with its potential future price change.

In attempt to avoid price uncertainty of the future, the owner of a commodity is able to hedge away the risk by transferring it to a speculator who acquires a futures contract from the hedger.

In other words, if a farm produced 100,000 bushels of corn at a total cost of $3.72 but was concerned that a price decline would cause them a loss before they are able to sell it next month, the farmer could buy a short futures contract which would profit in the event of a price decline in corn.

The example just given is a form of hedging, as any profit made on the futures contract would be offset by a loss on the corn held in storage. The counterpart on the opposite side of the trade is a speculator, who hoping the price of corn increases.

While futures originated to be used to hedge positions in agriculture, there are futures contracts today available across a wide range of products, from precious metals and energy to new digital currencies.

Exchange-traded futures contracts have a  a predefined exercise price and specific quantity of an asset at a future date, and their outcome depends on the spot price in the future. Unlike forex, the futures market is much smaller and doesn’t offer the flexibility that off-exchange forex trading provides.

Off-exchange traded and CFDs

Financial products that are based on the price of other financial assets are known as derivatives.

Like forex, which is traded over-the-counter in the off-exchange market, there is a type of trading instrument known as a CFD (contract for difference), which allows you to speculate on the price of some underlying asset, without having to buy it directly.

CFDs simply track the underlying price of a particular asset and are offered by online brokers.

For example, a trader may wish to have exposure to the price of shares of Microsoft, but without having to own Microsoft shares directly.

This is where CFDs are popular for traders, as it allows them to enter and exit the market quickly, and not have to deal with voting rights and other obligations associated with owning shares.

In addition, CFD trading can be done on other asset classes, such as the bond market, commodities, futures, and even forex.

And like forex, CFDs are usually traded from a margin account, which means traders can access various degrees of leverage, which can equally increase both potential profits and potential risks.

To keep up with so many kinds of investments you need time and the right educational information available. Follow the Wiseinvest forex Academy to stay updated, and subscribe to our premium signals to receive real-time trading opportunities via email.

Wise AI Trading and AI forex signals can complement your investment strategy. Subscribe today and compare the results with other investment opportunities.

We believe the best way to increase returns when trading forex is by following trading signals created with proper risk management. That’s why we created Wise Signals, so you only need to check your email inbox and copy-paste the signals into your forex brokerage account.

The best way to trade forex

There are two ways to invest with our AI in forex:

1. Automated with AI-Trading. Check out the 3 steps to trade automated with our AI.

automated trading with ai bot

Don’t you have a broker account yet? Our AI is integrated to trade automated with the broker Oanda. Click here to open an account.

With Automated AI trading you do not need MT4 / MT5 and other trading platforms to invest in forex. All forex trades are automatically placed into your broker account and you can monitor the AI trading performance directly on our dashboard.

2. Manually with AI forex signals.

Wiseinvest also provides AI forex signals that perfectly fit into MT4, MT5 and any trading platform. To trade with our AI forex signals, you must simply copy the data you receive from each real-time signal into any forex brokerage account of your choice.

There are five unique variables for each AI signal, and each must be copied exactly, in order to match the performance of the signal as close as possible.

Each AI forex signal alert consists of the following five data points:

  • Symbol (forex pair)
  • Direction (long or short)
  • Position size (number of units or lots)
  • Take profit (price level to exit with maximum gain)
  • Stop loss (price level to exit with maximum loss)

You can trade forex with our free forex signals clicking here, or with our Premium subscription that provides you unlimited AI signals and automated AI trading in partner brokers. Whether you are a beginner or a Professional forex trader, our AI trading system can help you save time and improve your trading performance. Get started with free AI.

  1. Subscribe to a Wise-Plan.
  2. Open a Brokerage account. Check this article about the best forex Brokers.
  3. Set an amount and a position size on your Wiseinvest dashboard.
  4. Copy the signals that we will send to you via email and paste you’re your Brokerage account.

The forex signals are sent every time that our trading system powered by Artificial Intelligence (AI forex system) identifies a new trading opportunity.

When investing through Wiseinvest automated AI trading or AI forex signals, you do not need to calculate pips and change the leverage in your forex broker account. Learn more about leverage in forex trading clicking here.

Takeaways

  • There are lots of different kinds of financial product, to choose wisely you need to know what your objectives are and follow relevant content.
  • With the right trading tools and technology, you can find trading opportunities across various markets, through subscriptions such as Wise AI trading system optimized for select forex pairs.

If you do not have time to research so many financial products, follow Wiseinvest Portal to stay up to date with the latest market opportunities.

Disclaimer: Forex and Contracts for Difference (CFDs) are complex instruments and come with a high risk of losing money due to leverage. Forex trading is not suitable for everyone. You should consider whether you understand how forex and CFDs work and whether you can afford to take the high risk of losing your money.

The forex brokerages displayed shall disclaim the overall performance of traders in their platforms. Oanda warns that 76.8% of retail forex traders lose money trading CFDs. XTB warns that 80% of retail forex traders lose money trading CFDs. The forex broker Fxcm warns that 69.66% of retail forex traders lose money trading CFDs.

The performances aforementioned are not related to Wiseinvest AI forex trading and AI forex signals system. You can check the performance of our AI forex system on our dashboard.