Time Crunch Trading

To help you pick the best market for you, we will do a kind of side-by-side comparison of the ones available to you. They each have their good and bad elements, some of which will be more or less relevant to you depending on your specific part-time timeframe.

Stocks/Shares

As noted before, the stock market is the one most people think of first when trading comes to mind, so we will start there. The stock market is where people buy and sell the shares of companies. These shares represent a portion of the ownership in those firms.

For the vast majority of traders that ownership will only ever be of the tiniest percentage. After all, owning 100 shares of a company with 1 billion share outstanding does not represent much. Even still, though, those shares allow you participation in the earnings and growth in value of that company.

The attraction to the stock market for most people is that we can understand what moves stock prices. When a company does well, the stock goes up. When a company does poorly, the stock goes down. It is pretty simple.

The stock market offers a wide array of potential trading vehicles. There are literally thousands of different companies you can trade across the whole spectrum of business activity. There are even ways you can make commodity types of trades buy playing gold or oil stocks, for example.

Additionally, the exchanges have been rapidly increasing what can be traded by adding a large collection of things like Exchange Traded Funds (ETFs). These are basically instruments which take their value from some basket of other securities, such as a stock index. The QQQs is an example. That is the so-called “tracking stock” for the NASDAQ index.

For those looking at leveraged trading, there are stock options traded on a number of exchanges. A fairly recent development as well is single stock futures. As their name suggests, these are futures contracts based on the value of a single company’s stock.

Trading in stocks is pretty easy and straightforward. There are plenty of very good brokerage options. In fact, competition in the business, especially online, has sharply reduced the cost of stock trading in the last decade, making it very reasonable for even the smallest trader.

The first major drawback to the stock market for the part-time trader – at least for some - is the trading day. Most stock markets are only open during a specified time each business day, a time that does not work too well for traders with day jobs and things like that. There is some electronic trading at other times of day, but the volume is much lower than during the normal trading day.
Now for many part-time traders the trading day limitation is not that big an issue. You can put your trade orders in with your broker any time you like, after all. For those who would like to be a bit more active, trade a little more in the short-term, however, there is a big limitation.

A second drawback to stock trading is the influence the general direction of the market as a whole has on the prices of individual stocks. When the market is in a bull phase, most stocks will have an upside bias, whereas when the bears are in charge, most stocks will slant lower. This can mean major boom-bust cycles. It was great to trade stocks in the late 1990s, but not so great in the early 2000s.
That rolls in to a further issue with stock trading. Companies are run by people. People sometimes break the law or act unethically. You have no doubt heard about Enron. The actions of one person, or a small group, have the ability to destroy a company and by extension, its stock value.

Something else that can be a drawback to stock market trading is the sheer size of it. As we noted, there are thousands of stocks from which to choose. That can be overwhelming to the part-time trader trying to find good opportunities with only limited time.

Don’t get us wrong. We aren’t slamming stock trading here. There is just as much potential in shares as in any other market. You just need to consider both the plusses and minuses when you pick the market you choose the focus on.

Indices

Index trading is a very popular way to go for traders of all kinds. These days you can trade the stock indices of most major industrial countries, and several other types as well.

Index trading means taking a position in the value of a basket of stocks or other instruments. For example, if you trade the popular S&P 500 Index, you are really trading the equivalent of a portfolio which includes the shares of the 500 highest market value U.S. stocks (market value being equal to the number of shares outstanding times the price of the stock).

Trading indices is favored by many because it overcomes some of the disadvantages of single stock trading. It is mostly is done through the futures markets, which have 24-hour (or nearly so) electronic trading for many index contracts. The volumes are high and the liquidity is excellent. There is also very active options trading, and we mentioned earlier the developments in ETFs.

Indices remove the concerns related to dealing with one single company, both in terms of the risk for corporate malfeasance and the vagaries of understanding the businesses the companies have. Many of them are basically diversified portfolios. They also take out the need for scanning through potentially thousands of stocks to find good trades.

On the negative side, price action in the major indices (as the S&P 500 chart on the previous page shows) can be very choppy. There tends to be a lot of back and forth in the trading, even when the market is primarily trending. This is especially true in the shorter-term timeframes. That can prove a big challenge for many traders.

Fixed Income/Money Markets

The fixed income and money markets are those which involve interest rates. The former is often considered to include those instruments such as bonds and notes which have initial maturities exceeding a year, while the later covers the short-term ones such as Treasury Bills, Eurocurrencies (Eurodollars, Euroyen, etc.).

The movement of these markets determines interest rates across the full spectrum from sovereign and municipal debt to mortgages to corporate debt. They also play a major part in the interest rates we pay for things like credit cards and auto loans.

There are two primary ways to play the interest rate market. One is to actually buy and sell the securities themselves. Anyone can buy government and municipal bonds, and many corporate bonds trade on exchanges. This is not where the major action is, though.

The bulk of interest rate market trading is done in the futures arena. The US Treasury Bond contract is one of the most active in the world, doing billions of dollars in transactions each day. The same is true of the Eurodollar futures. Both trade on exchanges all over the world along with similar instruments from all the major industrial countries and even the likes of the World Bank.

The great thing about the interest rate market is that it is probably the most responsive of all markets. It can react very dramatically to the release of economic data, speeches by major public officials, and news events of all kinds.
All of this action can make for very exciting trading, but it can also be scary. Longer-term instruments can be extremely volatile and thus hazardous to shorter-term traders with small accounts. They tend to be the domain of the professional trader.

That is certainly not to say that part-time traders cannot or should not trade the interest rate market. In fact, if you are in a longer-term trader, interest rates may be the best choice. Being tied, at least in part, to the interest rate policies of the countries to which they belong, they can move in nice trends, as the monthly chart of 3-month Eurodollar futures below shows.

It is hard to miss the strong, smooth trends in Eurodollars at this very long-term time scope. They can last literally for years, as has been the case in the most recent downward run representing the string of rate hikes by the U.S. Federal Reserve.

Commodities

A market that has gained a great deal of exposure in recent years is the commodity market. The biggest names there are, of course, gold and oil, which we highlighted back in Chapter 1. These two are major features of global economy, so it is no surprise that they trade very actively. That barely scratches the surface of what the commodities markets include, though.

The commodities markets can be broken up in to the following primary groups:
Agricultural—This group is pretty much anything grown by farmers including

• Corn, Wheat, Soybeans, Cocoa, Sugar, Coffee and the related goods produced from those base products.
• Live Stock—These are animals such as cattle and live hogs and the products derived from them (e.g. milk)
• Energy—The products in this category are those used for power generation such at Crude Oil and it’s distillates (Unleaded Gasoline, Heating Oil) and Natural Gas.
• Metals—Gold is the star of this group, but it also includes several other precious and non-precious elements such as silver, platinum, and copper.

Trading in commodities is done primarily via futures. There are exchanges all across the globe taking part of the action. Aside from the major international goods, however, most products trade on a primarily local scale. For example, there is active trading in Corn on the Chicago Board of Trade during the US Trading session, but not much outside that.

This mostly exchanged-based trading can be limiting for part-time traders. Electronic contracts are starting to become more readily available, though, so there definitely are opportunities to trade in the commodities markets.

There has also been a rapid move in recent years to create more small (mini) contracts. These allow smaller speculators to take part in the markets. This is particularly helpful for part-time traders as commodities can be quite volatile at times, with swings that force one to use wider stops than might be the case in other markets.

Another way the individual trader can take part in the commodity markets is through ETFs. There are an increasingly broad array of ETFs that are dedicated to specific commodities (like gold) or to groups of them (like energy products). That makes trading commodities as easy to do as trading stocks.