In some ways, it may be argued that there is no need for a diversified trading portfolio given the huge wealth of available assets in the existing marketplace. After all, the Bank for International Settlements estimates that an average of $5.3 billion is traded each day on the Forex market alone, offering huge liquidity and opportunity to investors who wish to make vast, margin-based returns.
This overlooks an important point, however, which revolves around the volatile nature of the foreign exchange. Prices can fluctuate wildly and suddenly in this live market, and while investors can profit in a depreciating economy they can also lose money when the prevailing sentiment is positive.
The primary Advantages of maintaining a diversified Trading Portfolio
Beyond this, investing all of your capital into a single market restricts your options and may prove disastrous if you experience sustained losses. With this in mind, let’s consider the three main benefits of building and maintaining a diversified trading portfolio: –
Access multiple markets and minimise risk
Whenever you trade derivatives through an online brokerage platform such as ETX Capital, you have the opportunity to manage your risk through features such as stop losses. Diversification can also be considered as a key risk management tool, however, as it helps to spread your capital across a broad range of assets while minimising any potential, single losses. There is no limit to the number of markets that you access and include within your portfolio, so you can tailor your investments to suit your knowledge, experience and underlying appetite for risk.
Capitalise on real-time Market Trends
On the subject of tailoring your investments, a diversified portfolio offers you a unique opportunity to develop your interests and evolve as a trader. As you gain experience of new markets and spread your capital accordingly, you develop your skills and gradually refine your interests in line with your outlook, philosophy and external market conditions. The latter point is particularly crucial, as the presence of a diversified portfolio makes it easier to capitalise on real-time trends as they take hold.
Optimise your Trading Profits at any Given time
Above all else, having diversified trading interests affords you a favourable market position from which you can optimise your profits at any given time. This is a huge boon if you have invested in liquid and real-time markets such as the foreign exchange, were volatility can undermine even the most carefully considered trades. You may even be inclined to include both short and long investment options in your portfolio, which also enables you to maximise your earning potential throughout the course of the financial year.