It is evident that the stock markets are highly volatile and there are some underlying factors that impact the stock markets on a higher level. Hence, it is always wise to diversify your portfolio of investments considering the volatility. One must understand that market trends to become expert in trading. Here are the different types of markets to trade and gain returns.
- Perfect Competition: This refers to a market where is there are different buyers and sellers. Since the market players are huge in number, altering the price may result in less return/gain. Therefore it is a risk for any sellers to alter the price as the buyers would have alternative options to pursue.
Investing in a company that gives constant return can be related to perfect competition. When the seller decides to alter the price, the investors may find an alternative to invest in other option which fetches similar return.
- Monopoly: This is completely opposite to perfect competition. You are the king and you rule the entire market strategy in this market. There is only one seller in this type of market with different buyers leaving them with no substitute. In this market, the price is fixed by the seller and it can be altered as he feels due to no competitor. However, since the price is unstable (either higher or lower), the buyers in this market may be less. Investing in a high-risk company with special business could be the best example for monopoly market.
- Monopolistic Competition: As the name indicates, this is the combination of both perfect competition and monopoly market. Like the perfect competition, there are many competitors in this market i.e. more buyers and sellers. The difference is that each seller is sufficiently differentiated from the other so that the sellers get the opportunity to fix their own prices. Some may charge higher while some charge lower depending on the product and circumstances. An example of this would be the trading Bots that are recently invented to track, analyze the market changes. Here is a sneak peak of trending Bot that analyzes the market trend and helps us to buy/sell shares/goods. Certain Bots have additional features resulting in high price while certain Bots are charged economically.
- Oligopoly: This is similar to Monopoly. In this market, there are few producers/sellers who dominate the market system instead of a single seller in a monopoly market. However, these sellers do not enjoy the pricing power as monopolist marketers enjoy. However, they do fix prices in consultation with other oligopolists.
Investing in a right market where there is relatively less investor may result in a higher return. Choosing the right market at the right time is the key to success in trading.