Get your skin in the game The Stock market can seem like an intimidating place: expert investors bidding up prices in anticipation of new trends, market analysts flaunting around their indecipherable jargon, important people making even more important calls. It all seems very complex and reserved to insiders. But it doesn’t have to be. Potential investors are all shackled by anxiety: in the stock market, according to Bankrate, a financial advice website. Only one in three millennials is currently investing Fear takes many shapes and forms. For many it’s the “possibility of a collapse”; for some, it’s the lack of professionals they could entrust their savings with; for many others, it’s the simple question: “How do I begin?” And that’s the pivotal point: many want to get their skin in the game, but just don’t know how. That’s why in this article we’ll cover the basic two ways of and, later on, strategies to help the newcomers out. investing trading Passive vs Active trading strategies Before you spend all of your savings on a Warren Buffet outfit and go storm the NASDAQ stock exchange, you have to sit down and choose the appropriate strategy. Everyone knows to buy low, sell high — but there’s more to it. Broadly speaking, there are two types: and . Passive Active investing Passive investing Passive investors hold on to their assets despite the up-and-down price rollercoaster — it’s all about the long-term outcome for them. They usually invest in or and are not full-time occupied with trading throughout the day. mutual funds index funds Also known as a strategy, passive investing means that investors seek to time the market perfectly or profit from short-term price fluctuations — the assumption is that the market will generally deliver positive returns over a long time horizon. buy-and-hold do not Let’s look at an example. The Standard & Poor’s 500 index — one of the most widely known of its kind — has been jumping up and down throughout the year (see graph above). But its overall value has nevertheless grown by 8.65% since the beginning of the year. Passive investors have a relatively low risk-tolerance, and think they are unlikely to out-smart the market. Their profits are thus moderate, but so are their potential losses. They seek to avoid the broker fees associated with constant buying and selling. Some collect from firms. Most spread their risk across multiple industries. dividends Active investing Active investors are more risk tolerant. They buy and sell in a time frame of a few hours for quick profits by exploiting short-term price fluctuations. In other words, they’re the ones that jump on the ship when the prices go up, and they jump out once they begin to plummet. securities The potential returns are high — some investors bring home six-digit earnings. But equally large is the possibility of burning all of your savings because of a few mistakes. Because the fees for buying/selling are relatively high and the stock prices usually don’t swing much — active traders rely on a large volume of trades to make a buck. That also means the assets they invest into must be (quickly exchangeable back to hard currency). That’s why you won’t see day-traders buying up works of 19th century French photographers — they simply couldn’t sell them on the market quickly enough. liquid In the past, active trading strategies were reserved to professional traders, who had and in-house (to lower commission fee) and could cope with high-frequency trading. brokerage But with real-time market data available to everyone — there is a whole plethora of online tools that offer opportunities for any individual to become an active trader. Active trading strategies Active trading is speculative in nature. Investors thus depend on some sort of market strategy — a type of active trading they believe will help them beat the market. Some are indeed superstitious: In one of the episodes of a famous American sitcom “Friends”, Monica, one of the main characters, notices a stock with her initials (MEG) and decides to try her luck as an active trader. Her strategy, obviously, doesn’t hold. Other methods are built on rigorous technical analysis and predictive methods. The following are only the most common ones. Trading on the News Markets rally up and down constantly for a number of reasons. It might be a corporate scandal, an announcement that central bank is raising interest rates or a speech delivered by a country’s leader. As the name implies, traders seek to exploit these news. Day trading Now synonymous with the definition of “Active trading”, Day trading is essentially a strategy to only trade securities on the same day. The stocks you bought are sold within the same day, and no position is held overnight. Positions trading Positions trading is the method of “riding the trend”. By using longer term charts in combination with other predictive methods, position traders seek to jump on the “wave” and benefit from both the up and down of market movements. Swing Trading Swing traders are the “scramblers” that get in once some trend breaks. At that point, there is some volatility in the market — the ups and downs become far more likely. Swing trading is a form of art that seeks to capture profits from those small short-term swings. Scalping Scalping is a method of profiting from thousands of tiny movements in price based on charts and one-minute charts. The strategy involves exploitation of various price gaps usually caused by tick bid-ask spreads . Short selling (Shorting) Excluding the of how it is actually done, shorting is essentially an investment on the premise that a stock or a whole market will go down. Numerous have been made about it — it is perhaps the most sinister way to invest, but, in a crisis period, potentially the most profitable. technical element movies . Other notable mentions that didn’t make it into the list are range trading , pairs trading and momentum trading A few final words Time is your friend in the stock market. The earlier you get started, the earlier you figure things out — the better your returns will be. The amount of money in the market can seem way above your pay grade — New York Stock Exchange alone had a market capitalization of US$21.3 trillion in June 2017 — but, in reality, you can begin passive investing into index funds with as little as $5. You don’t have to take your whole savings on a roller coaster ride, but it is important to put a portion of your income into stock market. You’re better off guarding against money-eroding inflation and to saving up for your retirement. Arm yourself with knowledge and storm the market. Find more useful tips and comments on new and improved . We always ready to answer your questions! ORCA Telegram group
