Thank you for visiting our page, as usual we always discuss investment, this time we will discuss alternative investments that you can run.
Not all financial instruments are traded in public markets, but you can purchase private assets, which are a form of alternative investment. Find out how to use these investments to diversify your portfolio.
What is alternative investment?
Alternative investment refers to private assets that are not traded in the financial markets like traditional assets (such as stocks and bonds). Private assets include venture capital, private equity, derivatives, real estate, hedge funds, and futures.
One advantage of alternative investments is their ability to hedge against inflation. Additionally, their transaction costs are lower than listed assets. However, this asset class is vulnerable to fraud due to its unclear legal structure. For this reason, it is important to operate these types of alternative assets through regulated brokers.
With IG, you can trade on an award-winning platform listed on the FTSE 250 index on the London Stock Exchange (LSE), as well as regulated in the Federal Republic of Germany by the Deutsche Bundesbank and Bundesanstalt für Finanzdienstleistungsaufsicht (BaFIN), and by the CNMV in Spain1.
Advantages and Disadvantages of Alternative Investments
Alternative investments have both advantages and disadvantages. One advantage of these assets is that they allow you to diversify your portfolio. Additionally, transaction costs are relatively low compared to traditional investment instruments.
Alternative investments also have the potential for high returns due to their low correlation with the returns of traditional asset types2.
These types of assets can also be a good way to hedge against inflation. Leverage products such as CFDs are often used to hedge against existing positions to minimize losses. It is important to note that in the same way that hedging limits your losses when the market moves against you, it also limits your profits when the market moves in your favor.
CFDs are leveraged products, so they give you more exposure to the underlying asset for a fraction of the total cost. However, the losses you incur will be based on your full position size and may exceed your initial deposit, so it is important to use our risk management tools to mitigate them.
The disadvantages of some alternative investments include illiquidity, which means they cannot be easily valued or sold for cash. Additionally, their legal structure is unclear, making investors more vulnerable to scams.
Although alternative investments may offer potentially high returns, they often come with high risk for investors. If you want to ensure that this type of investment is suitable for you, it is necessary to conduct a research process first. This way, you will be aware of all the risks associated with alternative investments.
Lateral Thinking: Alternative Investments
Below you will find a list of the top 5 alternative investments that you can use to diversify your portfolio and how you can invest in them.
Raw materials are goods or materials that come from nature and are obtained and processed for use in human activities. At IG, you can trade in various alternative commodities, such as mining and agriculture.
“Hard commodities” or raw mining materials, as the name suggests, are those extracted from the earth. These include gold, oil, copper, and natural gas. “Soft commodities” or agricultural raw materials include crop products such as coffee, wheat, and timber, as well as livestock products such as live cattle and pigs.
With us, you can trade over 27 of the major commodities at market price and with no fixed expiries. You can use derivatives such as CFDs, Turbo24, barriers, and vanilla options to trade on the commodity of your choice at our spot or futures price.
To do so, you need to open a commodity trading account, which you can create simply by filling out an online form and selecting the product you wish to trade: CFDs, Turbo24, barriers, and vanilla options.
If you prefer to hone your trading skills before opening a real account, you can practice in a risk-free environment thanks to our demo account. Additionally, you will receive 20,000 euros of virtual funds to familiarize yourself with trading and our platform.
Usually, you can trade forex through exchange-traded funds (ETFs). These are managed funds with a basket of currencies that you can invest in to gain exposure to changes in exchange rates. Currency ETFs can diversify your portfolio from traditional investments and be used as a hedge against macroeconomic conditions.
However, with IG, you will only be able to trade ETFs through CFDs, a leveraged derivative product. We offer over 80 currency pairs, from major ones like EUR/USD to exotic ones like HUF/EUR.
Leveraged products like CFDs allow you to increase your exposure to the underlying asset for a portion of the total cost. However, you should keep in mind that leverage also increases your losses. Therefore, it is necessary to manage your risk carefully.
Don’t forget that there is a difference between investing in currency pairs and trading them. When you invest in currencies through ETFs, you will proceed in the same way as you would when buying a company’s shares on the stock market. This means that you will own the assets in the ETFs, not the currency itself.
However, when you trade them, you will speculate on the bullish or bearish price movements of the currency pairs and you will not directly own them. The forex market is volatile, so you need to manage your risk carefully.
Many people decide to invest in the real estate market, because house prices tend to increase over time, as long as the prospects for this sector are positive. If you want to gain exposure to the real estate market, investing in a real estate investment trust (REIT) can be a good option.
Real estate mutual funds are publicly traded companies, which means you can buy and own REIT shares or invest in REITs through ETFs. In other words, you can invest in the real estate market through REITs, which are companies that buy income-producing real estate, such as industrial buildings, hotels, condominiums, hospitals, and student residences. It is important to note that IG Spain does not currently offer REIT funding.
Often celebrities or high-income individuals invest in collectibles whose estimated value is higher than the original purchase price. Collections are often classified as an alternative type of investment. These alternative assets include works of art, fine wines, historical vehicles, coins and trading cards.
As with most alternative investments, valuing collectibles is often difficult. However, collectibles kept in mint condition may receive a higher appraisal than collectibles in damaged condition.
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Hedge funds are alternative assets that are privately owned and managed. These funds may be invested in alternative assets, but other investments such as art collections or real estate may be prohibited.
Hedge funds are unstable and often require an aggressive investment strategy. Therefore, they have a higher risk, because their performance does not depend on market conditions. In addition, these assets are not liquid, making it difficult to convert them into cash. Please note that IG does not offer these products on our platform.
Alternative trading: a different approach
There is a clear difference between trading and investing. By trading, you are speculating on the ups and downs of the price movement of the underlying asset, in the short to medium term. By investing, you buy a company’s stock or ETF and become the direct owner. When you invest, your market perspective is usually long term.
With IG, you can use derivative and leveraged products such as CFDs to trade alternative markets. If you open a CFD account with us, you will be able to trade futures and options contracts on our award-winning platform1.
It is important to note that CFD is a complex derivative product. Leveraged products can increase your exposure to the underlying asset by a percentage of the asset’s price. However, they can also increase your losses, so you should always manage your risks carefully.
Originally posted 2023-03-17 16:07:00.