Roger Eskinazi | Managing Partner | Tickmill South Africa | mail me |
Many traders fall into the trap of overtrading, chasing short-term gains without a structured strategy. Others overdiversify by spreading capital too thinly across multiple assets without a clear risk management plan. Striking the right balance is key to long-term success.
While forex trading remains central to what we do, diversifying a portfolio with other asset classes such as stock indices, commodities and bonds helps reduce risk during turbulent times and unlocks new profit opportunities.
Stock indices – a smart move when diversifying a portfolio
A stock index is one of the most popular instruments to trade. It tracks the price performance of a group of company shares. Traders can take a single position to gain exposure to the entire market without opening multiple trades.
For example, the Nasdaq 100 (NDXT) tracks the top 100 non-financial US companies. It’s commonly referred to as the tech index because companies like Apple and Amazon dominate the basket.
Stock indices are highly liquid. Their biggest benefit is that they help offset forex trading volatility. They increase exposure to market opportunities less influenced by geopolitical events.
Commodities – real assets that balance currency risk
Commodities are valuable raw materials traded globally. These include precious metals, natural gas, crude oil, sugar and coffee.
There are two categories. Hard commodities are natural resources that are mined or extracted. Soft commodities are cultivated products like agricultural goods and livestock. Both offer a great hedge against inflation or currency fluctuations. For instance, commodities like gold and oil typically gain value during currency depreciation.
Unlike forex or stock indices, commodities respond to supply and demand factors. This provides a hedge against some risks. However, commodities like oil are highly volatile. This makes them attractive to traders who excel in fast-moving markets.
Bonds – a steady asset for diversifying a portfolio
Bonds are debt instruments issued mainly by governments. Unlike forex, where gains rely on price movements, bonds provide fixed income through coupon payments. They don’t lose value as quickly as stocks. This makes them ideal for preserving capital. They also appeal to traders seeking a passive way to generate returns that can supplement their forex activity.
Bonds offer stability and a hedge during economic downturns. Their prices often rise when interest rates fall. They also let traders gain exposure to large economies without the high leverage risks of forex.
For example, we offer trading on seven bonds, including German Government Bonds. These come with spreads from 0 pips and leverage up to 1:100. This allows traders to diversify effectively while managing their risk.
Strategic diversification for resilient performance
Successful forex traders know that market conditions constantly change. True diversification goes beyond spreading assets. It involves creating a balance that fits a trader’s strategy.
Safe-haven assets like treasury bonds, gold and defensive stocks can stabilise a portfolio throughout market cycles. But they work best when integrated into a thoughtful strategy. Diversifying a portfolio in this way equips traders to manage risk and seize global opportunities.
Our traders can access leveraged stock indices, commodities and bonds through Contracts for Differences (CFDs). CFDs let them take positions without committing large capital amounts. This makes it easier to integrate new asset classes into a forex trading portfolio without overextending risk.
