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Should You Trade or Invest Your Money?

26 July 2017 No Comment

One of the most common questions that financial analysts are asked is the following: Should I trade or invest my money? The short and sweet answer is the following: You should do both. Of course, there is a caveat in order. When you’re young, and building your career, it’s the best time to start putting money away for retirement.

The sooner you start, the better for you in the long-term. People who start investing later in life often have to put away substantially more per month to catch up with those who started at an early age. The fact of the matter is that people are living longer than ever before. This means that a clear plan for retirement is imperative.

In the meantime, there are plenty of ways to boost your net worth by making sensible trading decisions. Of course, your propensity to trade is determined by your risk profile. Traders are by their very nature risk seeking. There are certain trades that make more sense than others, but inevitably a decision to go long or short on an underlying financial asset is a risky proposition.

Before you start trading, it’s important to invest in a basic trading education. Saxon Trading guru, Sean Flannery Sr., believes that anyone who is considering trading should conduct extensive research into their preferred trading assets,

‘… Online financial trading is a thriving arena where greenhorns and experts can tap into lucrative opportunities in the financial markets. Nowadays, trading platforms have simplified the process to make it easy and profitable for relative novices to compete for their slice of the pie. You essentially have call options and put options available to you. Conduct your research, back yourself and place that trade. Over analysis leads to paralysis in trading, and that’s where careful money-management and budgeting can assuage your concerns and let you trade with complete confidence.

How to Make Smart Trading Decisions

People with low levels of personal disposable income are reluctant to go all in on a trade, especially if they don’t understand market dynamics. That’s why experts recommend allocating no more than 2% of your available bankroll to any individual trade. By slicing up your budget into easily managed portions, you can further mitigate losses. There are many other ways to enhance your chances of success in financial markets, notably choosing underlying assets that you are familiar with.

If you are a trader in Europe, consider the EUR, CAC 40, DAX 30, or Ibex 35. Watch what happens with the European Central Bank (ECB) and its president, Mario Draghi. Any signs of a reversal in monetary policy will invariably be good for the EUR and result in an appreciation of the European currency. Call options would be warranted. These economic data insights are precisely what is needed as a trader. Follow releases from countries like Germany, France, Italy and the United Kingdom for a better indication of which way to trade assets.

One thing to remember about trading is this: The market is extremely fluid. Things can change at a moment’s notice. You must be ready to adapt to this dynamic arena whenever the need arises. To this end, traders readily employ the use of trading bots, and other automated trading tools. Since it is impossible to keep your finger on the pulse at all times, your best bet is to use smart technology to alert you to important market movements, price movements and opportunities that exist.

Should You Invest at the Same Time?

Absolutely. In fact, investing should be your primary activity and trading should be a supplementary activity. Investing is done for the purposes of long-term capital appreciation. Markets and their movements are cyclical. There may be long periods of uptrends (as we have seen on US bourses since 2009), or long periods of downtrends.

Overall though, stock markets have shown a propensity to appreciate strongly in value. When you invest, you can invest in a myriad of assets including stocks, currencies, indices and commodities. Gold is the preferred safe-haven asset of many investors during times of geopolitical uncertainty. It is a go-to asset when equities markets head south.

There are many blue-chip stocks that you can invest in, including Google, Apple, JP Morgan, Facebook and the like. While they may be overvalued, there is certainly enough stability in these companies to warrant long-term investments. Wall Street has shown some remarkable tendencies with investors over the years.

Stocks are overpriced, and yet when slight reversals take place investors are seeing these as value-driven buying activities. Buying on the dip as characterized Wall Street for quite some time, and barring a correction, the trajectory appears to be positive. That being said, it’s a good idea to get into the markets and get started sooner rather than later.

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