The Most Popular Trading Instruments Brokers Should Be Aware of

In 2024, the capital markets are evolving, offering various financial instruments that can be popular among the public. Offering profitable and high-demand trading instruments to clients is crucial for brokers to remain competitive, increase their client base, and generate bigger revenue.

This article provides an overview of the most popular instruments among traders to help brokers identify and optimise their offerings.

Trading Instruments Explained

In a financial market, trading involves using financial instruments, which can be popular among the public. Trading instruments serve various purposes like capital raising, risk management, and future price speculation and encompass multiple types of assets and contracts, including equities, forward contracts, indices, futures contracts, currencies, and more.

Offering the right financial instrument to traders is the most basic strategy for a successful broker. These instruments facilitate capital flows, manage risk, and enable individuals and businesses to invest, hedge, or speculate in global financial markets, offering potential earnings to traders.

Financial instruments are crucial for traders as they form the foundation of the trading and investment world. Each instrument has unique characteristics and risks, and understanding these is essential for brokers to offer the right instruments based on traders’ strategy, risk tolerance, market conditions, and risk management tools they use.

The Most Popular Trading Instruments in Various Asset Classes

Financial instruments, including cryptos, stocks, ETFs, commodities, and currencies, are popular trading tools with high daily volumes. Let’s discuss the most profitable instrument types in trading that brokers can choose to offer their traders.

Cryptocurrencies

Cryptocurrencies have become mainstream trading instruments due to the growing appeal of DeFi, market volatility hedging, and blockchain integration. However, inherent volatility presents both risks and opportunities. Volatility is fueled by speculative trading and regulatory developments, leading to price fluctuations and increased risk. Despite challenges, decentralisation continues to disrupt traditional monetary systems, enabling peer-to-peer transactions, fostering transparency, security, and censorship resistance, and offering a glimpse into the future of finance.

Businesses can offer this instrument to traders to help diversify their portfolios and balance established and emerging cryptocurrencies.

Bitcoin

Bitcoin is a superior trading instrument due to its global trading spread across exchanges worldwide, 24/7 market activity, and high volatility, which attracts online traders worldwide. It is also the most affordable trading instrument, with lower fees and faster processing times.

BTC can be traded using leverage, providing opportunities for private traders with limited time and funds. The price of BTC is not correlated with other market segments, making it suitable for price action setups and technical tools.

BTC is leading the cryptocurrency in 2024 due to its robust performance in 2023 and growing institutional adoption. Its limited supply and Bitcoin-ETF buzz are expected to contribute significantly to the crypto surge.

Solana

Solana (SOL) is gaining popularity in DeFi and NFTs due to its fast transaction speeds, low fees, growing investor base, advanced technology, and rapidly increasing trading volume, positioning it as a strong contender in the market.

Solana is the blockchain where most meme coin projects exist, with popular meme coins like Dogwifhat and Bonk starting there. Solana’s ecosystem of tools is solid and rapidly growing, providing a wide range of options for investors. It offers more than one project that helps coin holders stake their tokens or lend them to a liquidity pool, making it an attractive investment option.

Solana is also the preferred chain of many cryptocurrency influencers on social media, making it a straightforward strategy for capturing growth from the meme coin gold rush.

On April 15, the Solana network received a much-needed upgrade, enabling it to process more transactions. In mid-March, the network reached nearly $3.5 billion in a day due to a frenzy of meme coin trading. Other chains have not experienced the same level of traffic or governance improvements, making Solana a smart bet for investors.

Stocks

Stocks (or equities) are a popular long-term investment option in many countries, serving as an effective alternative to bank deposits. They are traded on a stock exchange and are investments in a company that fluctuate in value based on performance, making an investor a shareholder.

Equity instruments offer investors a share in a company’s ownership, allowing them to claim a portion of its gains. There are two main types: common stock and preferred stock. Common stock entitles the holder to a share of the company’s profits and the right to vote at shareholder meetings. Preferred stock, on the other hand, usually pays a higher dividend and has a higher claim on the company’s assets in case of bankruptcy.

During economic stability, companies’ growth increases their share value and dividends. While they offer the potential for high growth, they also carry an increased risk due to market volatility.

SPOT

Spotify’s Q2 earnings release was met with enthusiasm from investors, as the streaming service beat the average bottom-line estimate and showed robust growth. Goldman Sachs’s prognosticators believe the company is the clear global audio platform leader, which will translate into continued user growth, rising engagement, and stronger pricing power.

The company’s restructuring efforts are starting to pay off, and its robust free cash flow should allow it to return capital to shareholders within the next 18 months. Spotify’s total revenue increased by 20% YoY to 3.8 billion euros ($4.1 billion), driven by a 14% increase in monthly active users. Net income flipped to a profit of 274 million euros ($298 million) from a year-ago loss of 302 million euros ($328 million).

AMZN

A recent poll by Harvard’s Center For American Political Studies ranked Amazon as the most trusted institution in the country. This trust is likely why Amazon’s stock has risen over 20% this year, with two reasons for its potential for growth.

Amazon’s online stores, which contribute the largest portion of its top line, generated $57 billion in revenue last quarter. The company’s fast-growing cloud services and advertising business has also been gaining attention, with faster deliveries driving the e-commerce business in a positive direction.

Amazon’s cash flow is improving, potentially increasing its stock in 2024 and beyond. Analysts predict a cash-from-operations report of $8.61 per share in 2023 and $13.37 per share by 2025. The current stock price is $155, and a 22.5 times cash from operations valuation would put the share price at $294.

ETFs

Exchange-traded funds are stock market-traded asset baskets that track securities’ composite value.

ETFs are becoming popular among traders due to their versatility, adaptability, and ease of access. ETFs offer exposure to various sectors, from tech to stable economic segments, making them suitable for various investment goals. Their adaptability caters to different investment styles, from conservative long-term growth strategies to aggressive short-term approaches.

They offer exposure to multiple trading assets like equities, fixed income, and commodities, allowing investors to tailor their portfolios to their unique risk tolerance and goals and helping manage risk. They strike the perfect balance between individual stock growth potential and mutual fund risk diversification.

VanEck Semiconductor ETF (SMH)

SMH has a 25.5% YTD performance, with an expense ratio of 0.35% and $17.9 billion under management. The ETF’s success is largely attributed to chipmaker Nvidia Corp., which has tripled its shares over the past year.

Other leaders include Broadcom Inc. and Taiwan Semiconductor Manufacturing Co. Ltd. However, semiconductor stocks can be volatile due to their cyclical nature. Despite this, recent uptrends have seen the sector and SMH among the top leaders on Wall Street in 2024.

Invesco S&P 500 Equal Weight ETF (RSP)

RSP is a diversified investment strategy that equally weights its holdings across various companies, offering better returns by giving more weight to smaller, growing companies. Its unique portfolio balancing and reasonable expense ratio make it a viable option for investors.

Commodities

Commodities like gold, grain, precious metals, and oil remain crucial in trading as they serve as hedges against inflation and economic downturns.

Factors like production, consumer activity, economic cycles, supply, competition, and political, social, and environmental conditions influence commodity prices. Instability in commodity prices can lead to Dutch Disease, exhausting fixed assets and tightening inflation, reducing investment attractiveness in markets.

Gold

Gold’s intrinsic value often inversely correlates with the stock market, providing a buffer during economic instability. Gold is expected to experience a significant upturn in 2024 due to macroeconomic factors like Fed rate cuts and a weaker US dollar.

Gold is a traditional store of value, uninfluenced by governments and central banks, making it a “safe haven” for traders during risky trends. Gold has a wide range of applications in various industries due to its physical properties, ensuring sustained demand and stable prices in the long term.

Gold trading offers numerous benefits for traders and investors, including liquidity and protection against economic downturns. Gold diversifies investment portfolios and serves as an inflation guard.

Oil

In 2024, oil remains one of the most crucial commodity trading instruments. Oil prices are influenced by supply and demand, geopolitical stability, and technological advancements in energy. Initial market stability is expected, but potential deficits suggest rising prices.

Oil demand typically falls during the Q4-Q1 transition by 1.5-2 million barrels per day due to seasonal reasons. However, the energy transition is still in its infancy, and the long-term trend of 1.5 million barrels per day has not been disrupted.

Crude oil is a highly traded commodity with significant liquidity and price volatility. Its markets operate around the clock, accommodating traders across time zones. The best time to trade crude oil is during the New York and London market hours, where liquidity is highest.

Forex Pairs

The foreign exchange market is a crucial arena for traders, offering opportunities through major and emerging market currency pairs.

Forex trading instruments are ideal for short-term day trading due to their high volatility, large liquidity, low capital requirements, and low transactional costs. However, traders should choose a suitable currency pair and avoid exotic currency pairs to make forex trading profitable.

Currency pairs reflect the state of two economies that affect the supply and demand of an instrument. Growth in one currency in a pair implies growth against many other currencies. Major markets dependent on large economies often depend on their patrons’ currencies, allowing them to move unidirectionally and benefit from risk-free trades.

EUR/USD

The EUR/USD pair is the most traded pair globally due to its low spread, high liquidity, and stability. These factors make it ideal for traders seeking technical analysis and risk minimisation. Traders rely on this pair for its dependability and consistent profit opportunities. 

Its low volatility also provides abundant online analysis, aiding traders in making informed decisions and avoiding common trading mistakes. However, economic factors from the Eurozone and the US can influence its profitability.

USD/JPY

USD/JPY is a safe-haven profit hub, attracting traders during market uncertainty. Profitable swings are capitalised on by responding to global economic and geopolitical developments. Interest rate differentials between the US and Japan drive profits, with carry trade strategies contributing to the pair’s profitability. USD/JPY is a preferred choice for traders seeking predictable movements and offering profitable trading opportunities.

How a Broker Can Pick the Right Trading Instrument

Choosing the right trading instruments is pivotal for brokers aiming to meet the diverse needs of their clients. 

This decision should take into account factors such as the trader’s individual goals, experience level, and risk tolerance.

For novice traders, instruments with high liquidity, such as FX pairs or precious metals, are often recommended. These options are generally easier to understand and manage, making them suitable for those new to trading.

For experienced traders, more complex instruments like cryptocurrencies can be offered. These options typically provide higher volatility and the potential for significant returns, appealing to those with more trading experience and a higher risk appetite.

It’s crucial for brokers to understand their clients’ specific trading objectives and risk tolerances. Volatile instruments, while potentially lucrative, may not be suitable for everyone.

Bottom Line

In 2024, success in trading depends not only on carefully chosen trading strategies and platforms but also on a strategic approach to top instruments and staying updated with market trends. Brokers can offer a variety of trading instruments, each with unique opportunities and challenges, allowing traders to tailor their strategies for consistent and profitable trading outcomes.