Friday, 21 August 2015

TYPES OF TRADING

Ok, there are a number of types of share trading - you need to be familiar with these and choose a strategy which suits yourself, your lifestyle and your appetite for risk


SHARES - BUY AND HOLD
This is probably the safest, consistent and passive way to make money , you don't do much just buy the shares when you have money and collect the dividends as they pay out. Not much risk as you you are not on borrowed money but requires massive amounts of capital to get started. Probably has the lowest return, but hey... it's still cool. Its more of a long term strategy but at least you won't be having heart attacks on a regular basis if fluctuating markets are something that bothers you. To anyone doing this I would hope you have researched stocks that pay at least 5% or its probably not worth doing, just leave your money in the bank.

Important note: Warren Buffet made most of his fortune this way .... its slow, solid and long term but definatley has its upsides.


SHARES - TRADING
Still fairly safe, it is a bit more work but basically involves buying low (like say in a market dip) and selling on a market high. Other than requring a little work in reading graphs and having some idea how the market is doing (watching the news/internet etc...) its still fairly passive as an income strategy and doesn't require a lot of work but can increase your earnings from 5% to 10% maybe even 20% in a year.  This is where trading can become rater lucrative.

Only down side is that it still requires a lot of up front capital to invest before any reasonable income is achievable


MARGIN LENDING:
This is where shit starts to get serious. Essentially you take out a loan based on the value of the money you have to trade with. Example: I have $20,000 and I take out a margin lending account with my bank .... this will allow me magnify my share purchasing power.  of course this magnifies the risk too.

I opened up a margin lending acc with my bank.... (your bank probably has one... or talk to a bank that does if this interests you .... i think they're all the same from my experience) which could lend me a ratio of $4 to every $1 I had in there (4:1)

A quick example of how this works is that say I have  $10000 and I think a share is going to increase in the short to medium term (say 6 months to a year) I would use margin lending to buy up to $40000 shares.

 Lets say I was right and six months later the shares put on 10% i would make $4000 in equity evaluation  (plus any dividend hopefully 2.5% in 6 months minus any interest charges which might negate any dividend anyway but its worth noting when the dividends are due) you are left with a profit of upto 40%. this is not uncomon either and was typical of what I  was making when I traded on a margin.

Lets say I was wrong and the shares lost 10% I  would make a net loss of around 40% ($10000-$4000) which meant i would have to either hold on to the shares till they got closer to break even or made a profit or sell at a loss (remember interest is being charged the whole time you hold margin loaned shares)

Margin lending, I think is a great tool to start making money regularly if you have time to watch the markets and some appetite for risk but you need to be aware of the risks involved and not be playing with money that you can't afford to loose. This is a tool which makes it possible for average wage earners to transform their lives  and earn extra income from shares or even replace their income. without huge capital to start with

CFDS
This is similar to margin lending but for lack of a better word, is margin lending amplified. I frequently trade on these and get ratios of 10:1 upto 200:1

I watch the markets regularly and this gives me a chance to make great money without huge capital outlay. if we use the above example of buying a $10000 share package and it gains 10% with this i can make double my money on that 10% rise (minus any interest charges of course) or if it looses 10% i can loose the entire deposit.

I use this as my tool of choice but beware: CFDS's can giveth and take away in the blink of an eye!

Generally speaking I can make close to 1% a day when I'm trading on these things and provides a great income, until the markets fall apart and I have to start again







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