Trading is an exciting way to approach money. When you get to understand that money is not real and is just a tool. You get to have the right mindset to get in the game. Here are 5 basic concepts you need to know and links to get you started.
1)Type of trading
You can be a banana trader and be considered a trader by the concept. But we are not having a vegetable conversation here; we generally speak about trading stocks in the share market, foreign exchange, futures, or cryptocurrencies. One of the most recent ones has been NFTs which is an exciting way to own digital property.
- Stocks Trading
Let’s say you own a company that sells bananas. You want more capital to improve the quality of your current bananas and make other products related to bananas, like banana chips or face masks. After a while, you cannot get the bank to give you any loan or capital investors to provide you with more money; they said you are new into business and that banana chips or face masks will not sell well anyways. The thing is, you know it is a good idea so you, as the owner of this company, decide to open yourself to the shares market by giving maybe 50% of your ownership in perhaps 100000 shares. You say, “my company has a value of $2 per share”, and if you get it, I will give you 8% dividends every six months (dividends are a piece of earning of the company) if we multiply $2 by 100000 shares available the result is $200000. That will be your capital to improve your current business and the present value of your business.
Some people live out of the dividend of their shares, even when the share has not the same price from when the bought it.
When does the stock trading start? When someone buys a share from your company and sells it to another person for a higher or lower price.
For example, while Covid was on, I invested $500 in virgin airlines because the stock market went down to $8 a share (i was not the original buyer). One month after, the stock went up to $28 a share. Because they allowed flights between New Zealand and Australia, I sold, earning around $1250 from my original investment.
Does virgin benefit from any of these trades? Not really; what companies usually do is repurchase their shares.
Later on, we will talk about trading strategies.
Which tools can you use to buy shares? I usually do it with my bank; I know they charge fees per transaction made, but with my bank (commonwealth), I get access to my shares’ status and see what’s new. But there are different platforms like Etoro, that to be honest, is the most user-friendly platform I have seen so far; they let you copy what other experts are doing with their money. You also have access to other companies stocks that maybe your bank trading platform do not have.
On the other hand, for me to analyze companies, I use Marketingdex. I have an account with them where I can see precise data of the companies. I compare the data of my bank with the data of this platform, and if I feel like it could be a good investment, I go ahead. I’m not too fond of gambling with my money.
- Foreign Exchange (Forex)
Like the name itself say is the trade of foreign exchange currency. Let’s say the government decisions of a nation are not intelligent, and the value of their money goes down. Then a brilliant government takes power, and the economy peaks up again. But you are so bright and never got rid of that currency. You can exchange it for a higher price for another currency.
For example, I see that the value of the Australian dollar gets into 1.3 per 1 American dollar; I buy USD because I know the AUD might lose value and go back to $1.6 per $1 USD. When that happens, I will have more AUD in my hand than I had before.
If you want to get more technical, please visit Investopedia. They are one of the best advisors out there.
Platforms to invest, same Etoro can do the job for you, but there is other specialized platforms like https://www.cityindex.com.au/
- Future Contracts
Futures contract is an agreement to buy or sell an asset at a future date at an agreed-upon price. Future contracts are a way to secure investment earnings with low risk. If you can see that investing on the side will give you more money, you can resell your future contract to another person; you are trading a contract.
Future, from my point of view, is a more straightforward way to invest for people who have no time to be active traders.
The digital currency trade has been the most profitable in recent years because of its volatility; there are different cryptocurrencies Bitcoin, etherium, dogo etc… this currencies are independent economies managed by the people. But how is that secure? Because they are sequences of blockchain. A virus cannot easily break the series; the amount of blocks you get from the chain is your currency. That specific sequence is unique for you and your wallet, and every time you send crypto away, it gets registered in the chain.
Blockchain has been used for digital security in different ways the previous someone created cryptocurrencies.
The point of exchanging crypto is that 99% of people buy crypto for speculation purposes. I use it to transfer money from one place to another and avoid expensive transfer fees.
I personally use coinspot to trade crypto, is user friendly, secure and easy for Australian residents.
I am new to NFTs (non fungible token) myself, but they are a way to earn unique digital property, it could be rented, borrowed and sold as you could do with a house. Why are people talking about it so much? Because during covid Vietnam survived while playing NFT games to earn money while quarantining. The most popular game was Axie Infinity; last year, to get started, you needed to invest $200 to have a fair game return. Now the investment goes up to $1300 because more people are playing the game..
Etherium is the currency mainly use to exchange NFT, My family comes from an undeveloped country, and they are already ahead on this type of game. I did open my account, made the minimum investment advised for them, and now they managed the account in exchange for 30% of the profits. Between my science degree, my partner, this blog and work. I have no time to play the game, even if these are making money.
2) Technical & fundamental analysis.
Technical analysis is when we study the charts and assume their behaviour with tools or repeated patterns. It does not consider if the company changed CEO or the country of the currency you are trading is about to go bankrupt.
Using these patterns, they can predict how the charts will behave, Normally for short term analysis; this could work; I do it all the time to study previous peoples demand.
Then we have a fundamental analysis; it does not consider the chart’s past behaviour but considers news, companies investments, and innovations. Studies people’s behaviour according to the time we live.
For example, when I got the stocks for virgin airlines, I did a fundamental analysis because Covid was not a typical situation in the stock market. Still, when I bought ethereum last month, I saw that the pattern was stabilizing, so I applied a technical analysis. Besides, I considered that people buy ethereum to get NFTs, which will make the demand higher for cryptocurrency. You can mix a bit of both and that will do not harm.
If you want to know more about technical analysis click here .
To consider the strategy you want to use, you need to think about your lifestyle. How much time am I investing into trading? Am I doing it once a week? A little bit every day? Every morning?
For example, I do not have time to check charts every day. So I make long term investments; I check charts every month or every time I have money saved to invest. How you can see, I do not put all my eggs in one basket; I Have investments in juicy fields, axis, stock market, and if something new comes up and it looks good, I might invest something in it.
Considering your lifestyle possibilities, let’s divide this into three categories—long term, medium-term and short term investments.
- Long-term (my favourite)
The strategy is to check an entire year of chart behaviour, check the current status and read what others think. I have shared easy tools above that you can use to make these estimations.
Set alarms for your investment limits and make the trade, when the market is good to go.
- Medium-term (second favourite)
Check three months of behaviour, check the current status and possible declines. Set your limits during those three months correctly and follow the plan, do not hesitate. You will expect to see results in three months, do not panic if you do not see them in a week. Stick to the plan.
- Short-term (not my favourite)
Sadly most people looking for quick cash lose big cash, but that does not have to be you. Some people apply scalping techniques, checking any minimal behaviour, like per day, hours, even minutes. Some people use binary trading, where if you predicted the behaviour right, you could get double of what you invested, but if you lose, you can lose double of what you invested per trade.
Sadly, to make you earn consistent cash, you have to trade a set amount of hours per day, but the most successful traders do, so that could be you.
Binary options are the most dangerous way to get into the game; yes, you can earn big cash, but it is addictive, and you might fail because it is not meant for you to make a lo of money.
Yes, most of your earnings from your investments are taxable; that is why people use cryptos y other platforms to buy goods. Now I am in Australia, and I do not mind paying taxes because this country works. But for reinvestments, you do not pay any taxes; when you treat part of your investment as income, that is when you have to pay taxes.
Also, there is something called franking; the company pays tax on the dividend. If the franking is 100%, the Investors receive 100% of the tax paid on the dividend. So what do I do? I invest in companies with 100% franking and I reinvest, Sarah, but you are always saying that you have no money, Don’t you want some of it back? TRUE. I have a savings account that I did not touch because it is emergency money. And my Investment portfolio is hard to access because I have to pay fees and also pay taxes to take earnings that are not dividends. All I do is invest then reinvest and make it grow, use the dividends as profits.
5) Risk Management
While trading, you are risking part of your capital because we cannot hold the future 100% in our hands. We are not gambling we are investing.
How to avoid risk? Do not invest without backup; life is unexpected, and you never know what could happen. To practice, first, open a demo account with fake money; Practice and after you see the results, you can start using your real money.
In Forex, usually, you do not risk more than 1% of your capital per trade.
With stocks, I started investing in ASX. You can choose to invest in the top companies of Australia. These could be top 20, 50, 100, 200. Also, if your preference is technology (better returns), you can invest in the best tech companies. The returns on ASX are not high, but they are safer, as the dividends are consistent, and usually, the offer is 100% franking.
Everything in life is a risk.
Save the money at a low dividend yield savings account, and you will not lose any money, but you will not grow your wealth to retire without relying on a pension.
You can invest and lose money looking for the possibility to grow your wealth and try to retire without relying on your pension to survive.
Both things are a risk. You need to chose which risk you want. Just to let you know, 30 years from now, ordinary people will need one million dollars to retire comfortably, and your pension will not be big enough to cover these expenses.
Tons of love,
(I am not a professional advisor I am just trying to make these information easy to understand for regular people)