Different Types of Investment, Their Features, and How They Work

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Many people are attracted to the financial market. That is why, it is always important to know first the different types of investment this market offers. As experts would often tell beginners: 

  • knowledge is power; 
  • in the financial market, 
  • knowledge is profit. 

Different investment channels vary in terms of their features, functions, risk factors, and rate of return. It is important to remember that some of them may not suit your trading style, temperament and needs, which can result in major losses. This is why, it will be very helpful if you learn these different types of investment before you engage in active trading: 

  1. STOCKS – commonly known as shares, stocks give its owner the right to own a part of a company. Stocks consist of two types, preferred and common, which entitle a person to either voting right or the right to receive dividends first. As a stock owner, you can generate profit through selling and, then, buying shares online to other traders. 
  2. MUTUAL FUNDS – Imagine five or ten people putting their capital in a single pool and investing it in a particular asset. That is how mutual funds work. Usually a single portfolio manager takes over and invests the money in different types of markets. 
  3. BONDS – are known as a certificate of debtedness, which means if you own a bond, a company owes you a specific amount of money, which will be settled through periodic interest payments until it matures. Normally, the price of bonds is largely affected by the direction of the central bank’s interest rates. 
  4. Exchange-traded Funds or ETFs – give you the opportunity to trade on the stock market but their value is determined in the course of the trading session. 
  5. FUTURES – are contracts or agreements which allow the owner to buy or sell an asset at an agreed price on an agreed future date. Futures are mostly used in the commodity markets. 
  6. FOREX – facilitates the exchange of various currencies in the world. It is a decentralized market where investors can buy and sell different currencies and take advantage of their price movements. 

These different types of investment offer great opportunities for traders. However, it must be borne in mind that winning is not always guaranteed. The outcome depends largely on your strategy and, of course, on events that take place in the market.

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