Which Asset Classes Should You Trade

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I often get asked by people — — “hey Tom, which asset classes should I trade?”. So in order to answer this for quite a lot of you, I’ve written this article, which I will go through the pros and cons of the asset classes that are accessible to most beginners. On the other hand, if you have been in this game for a while you probably don’t need this article. But if you’re new to this, I hope you will get a good overview of the asset classes that you might be able to trade.

The scope

We only talk about exchange traded asset classes here. There are of course other asset classes such as physical gold or property but we don’t really want to talk about them here.

First, the asset classes being considered here should be relatively liquid, in other words, there should be sufficient trading volume. If the trading volume is low, we may never get the price that’s shown in our data and running a quantitative analysis is practically worthless.

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Within each asset class there are different levels of liquidity, and, in relative terms, some of the assets can be more liquid than others.

Secondly, the asset classes discussed here should also be accessible to retail traders.

Finally, we would like our asset classes to have market data available. If you are new to quantitative trading and want to test your strategies then you will need some market data to play with. Yahoo Finance can be a great source for market data but they don’t offer a public API anymore. However, there are a few workarounds in Python that can be used (examples on how to use them can be found here).

Stocks

Let’s start with stocks. Note that this also includes ETFs (Exchange Traded Funds) such as the SPY (S&P 500 index fund) and QQQ (Nasdaq-100 index fund). In a nutshell, stocks are fairly easy to understand. Their prices go up and down and, what you see is what you get — more or less (I’ll talk about this a little bit later).

Stocks are accessible through many brokers. There’s a lot of market data available; specifically, if you look…