Recently, most investors have been interested in the financial market, such as cryptocurrencies and stocks. Such businesses are easy to start and run, with little logistics and no physical establishment needed. They are also convenient as you can do them comfortably on your phone or computer. If you are considering investing your hard-earn money, the financial market is the way to go. Think of stock trading.
Stock trading is lucrative but not a simple walk in the park. You will have to spend time observing and analyzing various stocks before making any investment. It’s good to remember that your main objective is getting value on the stock you are buying, whether in the short or long term.
It would help to analyze the basics of the stock you buy and check whether it fits your portfolio. Also, you must consider some essential factors that will help you invest in value stocks. The following article will guide you on what to consider when trading stocks.
What Is Stock Trading?
Stock trading is the buying and selling of company shares to profit from price changes. It allows you to make either short-term or long-term investments. For short-term investments, you buy, hold, and sell your stock within one year. In this case, you monitor the changes in the stock prices and sell once you realize an increase.
If you are keen and consistent, stock trading can bring you a quick gain, especially if you time and observe the market correctly. Similarly, it also carries a significant risk of making losses. A company’s shares can rise and fall quickly. Before investing, be considerate and careful not to lose money.
To do stock trading in Czechia, things are more accessible as there are hundreds of applications and software to learn how to trade stocks from the comfort of your home. Additionally, there is adequate software where you can observe, follow closely, and analyze stock changes using your computer.
Here are Key Factors to Consider in Stock Trading
Expected Return
The expected return is a significant factor you should consider when investing in the stock market. Expected returns can be in dividends, interest, or capital gain. To minimize the risk of making a loss from your stocks, you should research to help understand the associated risk and follow fundamental steps.
For instance, it is essential to understand the time frame of your investment. An investment liquidated within one year or less is considered short-term, while an investment beyond one year is long-term. When investing in the short term, ensure you closely monitor price changes. For example, you may sell your shares when you have achieved a given level of expected return, for example, 10-15%.
The long-term investment may require buying shares from companies deemed to perform well in the next five to ten years. The company’s performance will always significantly impact the value of the shares.
In addition, you need to assess your stock investment portfolio periodically. A stock investment portfolio is the basket of all your investments in a given period. Therefore, you must monitor this portfolio as the stock market is susceptible to change. If you need help in monitoring and managing your investment portfolio, you can seek help from investment professionals, known as certified financial planners or portfolio management services.
Moreover, when considering the expected return, analyze the company’s performance, management quality, and past track records. You need to check the company’s debt management and financial performance, considering factors such as annual turnover, market capitalization, and net profit.
Risk-Return Analysis
Understanding the risk associated with the investment you want to make is essential. For example, some assets may have higher returns but carry increased risk. For instance, investments in bank fixed deposits, gold, and government bonds have a lower return and also carry lower risk. Understanding the associated risk Vis a Vis, the return helps you to determine the type of investment to make or one that fits your portfolio.
Liquidity
Liquidity is another crucial factor that you should consider in stock trading. This refers to how quickly you convert or exchange your investment into money. Liquidity in the stock exchange can be through selling your stocks or redeeming upon maturity.
You can evaluate the liquidity of your investment based on: the cost associated with liquidation and the lock-in period for the investment. Some of the expenses linked to liquidation include; brokerage, security transaction tax, redemption charges, and hidden costs.
As a foreigner who wants to invest in stocks, ensure the investment you wish to make complies with policies provided by relevant authorities. For example, you need to check on the process of capital transfer from and to a foreign country.
Time Horizon
Time Horizon is when you want or expect to hold your stock before selling. The time horizon will impact the type of investment to make and the value of your investment. For instance, the time horizon will dictate whether you invest long-term or short-term.
The Time Horizon of your investment is dictated by factors such as;
Equity instrument- ideal for long-term investment and where income flow is not a key consideration.
Debt instruments- are perfect when you want regular and guaranteed income since they generate fixed periodic interest returns.
Derivative instruments are based on a three months cycle, hence regarded as a short-term investment.
Moreover, before deciding on the time horizon of your investment, consider age profile, return, and cash flow requirements.
Volatility
Volatility is the rate of fluctuations your investment can tolerate. The higher the pace or rate of fluctuations, the higher the risk of losses or profit. Therefore, consider volatility in your stock trading to avoid investing in highly risky stocks. There are two main ways to know the vitality of investment: equity-oriented funds, which are highly volatile, and debt-oriented funds, which have lower volatility.
The Bottom Line
Before investing in any stock, thoroughly research and analyze the company. Besides looking at the possible return, check the risk associated with the stock you purchase. The above key points can guide you to get a valuable stock that will earn you a good profit. Nevertheless, always ask for help and professional training on trading on the stock market before investing. Moreover, using your phone or computer, accessing various sites to get essential tips to guide you through trading is easy. Also, you enjoy quick and easy-to-use platforms to trade and make any investment in stocks.
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