Types of Investment Vehicles

There are many investment vehicles available to first time traders and investors which offer a wide range of reliability and risk profiles to suit every investor. The most prevalent form of trading and investing is obviously stock trading also known as trading securities. Investing in securities is one of the oldest forms of investment and speculation but it is also one of the most limited. Until recently, the high price of trading securities has made it impractical for traders with small accounts. Accounts that are under $25,000 in value are still subject to the Pattern Day Trade (PDT) rule which limits the number of day trades a speculator can make in any given 5 day period. Modern day discount brokers such as www.robinhood.com offer stock trading completely commission free which helps small traders make small returns from trading securities. For new investors, stock trading is the easiest market to break into as information concerning these markets is readily available. However, stocks are not leveraged instruments and thus do not allow small investors to grow their small accounts quickly enough to be worth their time. For these reasons, market makers created more specialized and leveraged instruments that allow smaller investors to participate in the markets and obtain larger returns with smaller accounts. It should be noted that leverage is a double edged sword. Leverage can potentially multiply one’s trading returns but it can also multiply losses by equal amounts. Trading futures contracts allows traders to control large notional amounts in order to trade more advanced instruments such as commodities like Oil, Gold, and Corn. The advent of E-mini futures allowed traders to directly trade the underlying price of the major Stock indices like the S&P 500, NASDAQ, and the Dow Jones Industrial Average. These products allow traders to control notional amounts in $100,000 increments while only requiring them to post margins between 1 and 5% of this amount. Finally, the Forex market allows traders to participate directly in the foreign exchange markets that determine exchange rates between global currencies. Previously, these markets were only accessible to large multinational banks and large institutions. In recent years, specialized foreign exchange brokers have allowed any investor to participate in the currency markets. Trading forex allows traders to control extremely large notional amounts of currency with very small accounts. Some brokers allow traders to open accounts with as little as $10 and offer leverage of 1000:1. It should be noted, however, that these brokers often are unregulated and are located outside the United States. Brokers based in the United States offer the highest level of regulation and security available. Trading forex allows traders to grow very small accounts to very large amounts but only through the use of large amounts of leverage. For this reason, forex should only be attempted by traders who have more experience or are very aware of the significant amount of risk they are taking. 

CFTC Required Rule 4.41:

Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.

Hypothetical Performance Disclaimer: 

Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.