Top Trends Shaping Finance and How to Trade Them – Introduction
The finance industry is the backbone of any economy. It is the finance industry that provides capital to farmers, technologists, builders, and manufacturers around the world. So, while many people tend to hate Wall Street and banks, truth is that they would do badly without it. The hundreds of thousands of people who work in Facebook and Microsoft would be jobless.
The finance world is changing quickly as a result of macro and micro factors. On macro, central banks are currently doing the biggest experiment ever. They have brought interest rates at an all-time low and initiated program like quantitative easing that have never been tried before. In addition, technology is changing fast. It has brought about many good and some very dangerous things. Therefore, in this article, I will look at some of the biggest trends going on in finance and explain ways to trade them.
- Rise of Cryptocurrencies
In the past few years, cryptocurrencies have been the talk of all people in finance. Led by Bitcoin, these digital currencies have soared in the past few years. This year, bitcoin has gone up by more than 100% and its value is currently more than $100 billion. Other currencies like Ethereum and Bitcoin Cash have also soared this year.
Now, many people have questioned the credibility of these digital currencies. Wall Street Journal did a video comparing it with the famed Tulip Mania where the price of Tulip flowers soared. For example, this weekend, the price of bitcoin fell by more than $1,000.
Truth is, yes Bitcoin has been on a tear. It has done well. But, if it can fall by $1,000 within a few days, it can also go down by a much bigger percentage.
As a trader, I recommend that you do this. Buy one bitcoin and forget it. This is because, there are two routes that bitcoin can take. It can go down to zero or it can go up to $1 million or more. Therefore, the risk reward ratio is a bit attractive for you. If it falls, your loss is $6,000. If it soars, your profit is infinite.
- Rise of Robo-Investors
Recently, robo-advisors have dominated the market. These are companies that take money from investors and use technology to allocate them to different asset classes. Today, robo advisors have more than $200 billion in assets and it is likely they will continue to grow. Some of the best-known advisors are Betterment and Wealthfront.
As a trader, these robo advisors do not invest in ways that you like. They invest in diversified portfolios and often, their returns are a bit small. But, you can put little amount of money on the leading advisors and see how well they perform.
- Rise of Social Trading
Social Trading is on the rise. Essentially, in social trading, traders from all around the world copy trades from top traders. This makes it possible for anyone, even people with no trading experience to make money in the financial market. Today, many forex brokers like eToro and FXpro have services that allow their traders to benefit from the wisdom of the crowd.
As an experienced trader, you can take advantage of these platforms to make money. This is because, you make money if people who copy trades from you profit.
- Rise of Automated Trading
There is the question about whether the traditional approaches of trading work today. The question has also been asked at the highest level with investors like David Einhorn questioning their investment strategies. This is because automated trading seems to be taking over. As a trader, I recommend that you start learning more about algorithms and automated trading. By so doing, you will be able to make profitable trades and moving with the crowd.