Trading | Apr 18, 2018
Overview of trading landscape and opportunities for mass markets
Current trading opportunities
So, you have heard of all the money that people can make by trading in stock markets, in cryptocurrency and in future contracts and you now want to give it a try yourself. How to start? There are many possibilities and you are already facing three different alternatives.
While in the stock market you actually invest in a company, and you get the ownership of some of its shares, trading in cryptocurrency means investing in a technology where the price is affected by the business indirectly.
On the other hand, investing in future contracts means trading agreements where the buyer commits, for a specific price, to purchase a fixed number of shares or an index in a pre-determined time.
Time: the most precious resource you have
Here is the main factor that these three different trading methods have in common: the amount of time and effort you need to spend in this activity, before you even start to invest your money. The market changes every minute, if not every second, and if you want to take wise investment decisions you need to constantly monitor it.
Trading cannot be a hobby; in order to be successful, you need to think of it as your main activity, and vice versa, in order to be able to make a living out of it and start getting a profit, you need to be good at it.
Before you even start to put your first trading steps, you need to be aware that a lot of preliminary work and research has to be done.
Let’s take the example of trading in the stock market.
You can start by studying the company’s financial report, analyzing not only Earning, Sales, Debt and Equity, but also ratios such as the Return of Equity and the Price/Earnings and all the other financial information you might think as relevant.
After having elaborated all the numbers and having investigated all the current information, you might want to have a look into the historical data, as your goal is to ideally be able to predict the future, and, in order to do so, understanding how the trend goes will result can be very useful.
Remember: the deeper you analyze your company, the wiser your investment will be, as you need a wide-ranging idea of your firm past and present data, if you want to be able to foresee what they are going to face.
Ask yourself questions, in order to make sure you have correctly understood all the information you have collected and that the different sources bring you to the same conclusion.
Research: a never-ending journey
Once you have done your homework in this sense, you might think you are ready to get in the game but, in reality, you are only halfway through your study phase. Now, you need to do a complete industry analysis and get the same data and evidence from all the competitors of your target company. This is a very important step, as your enterprise’s future depends also on how similar businesses are doing.
Let’s take a blue-chip company as an example: Johnson & Johnson. In order to complete an exhaustive research about the financial situation of this company, you will need to analyze not only J&J’s information, but also the fundamental data of other firms, like for example Pfizer Inc. and Sanofi.
(Data as from April 3rd. 2018 — NASDAQ)
In this table you can see October 2017’s monthly trading volume of ten of the largest stock markets in the World (The World Federation Exchanges: Monthly Reports).
Let’s have a further look at the data for the New York Stock Exchange. The value of the transactions that happened in the month almost reached two trillion dollars — would you be able to monitor and study all these individual transactions to find the best opportunities, just by yourself? Is any human capable of doing that?
Patience: the greatest virtue
One of the most important qualities of a trader is patience. You might now think “OK, compared to all the financial information I have to digest, this is a piece of cake”, but, as human beings, dominating our emotions and feelings is extremely difficult.
We have showed you some of the main information you need to learn before you start trading, but the reality is that the research never stops, and the things you can learn are endless. You can read forums, learn from the greatest investors of past years, like for example Jesse Lauriston Livermore or William Delbert Gann and you can get informed in media outlets like Bloomberg, Yahoo Finance and the Wall Street Journal. There are so many articles that can help you understanding the markets, so many classes and seminars you can join, and just as many educational materials that can make the difference between a successful trading and a complete failure.
Normally, it takes several months, if not years, before starting to get a return from a trading activity. Until then, there will be a lot of events that will make you start questioning: Is all of this really worth it?
Do not jump into the deep water following your enthusiasm and your hunger for money. If you start your trading experience without being fully equipped, you are hardly going to correspond your expectations.
Financial advisors and brokers: the shortcut to success?
If you are afraid that all this study might give you a headache and that you will be going just to waste your time without getting any kind of return, there is an easier way. The market is full of brokers that are willing to get their hands dirty on your behalf. However, the bad news is that the process of choosing a broker is not necessarily different and easier from the one of choosing a stock yourself.
Not all the brokers are right for all the investors, and before you hire one you’d better determine your investing style and needs, and have clear in mind your strategy and your objectives.
In the end, this could result as being even harder and more time consuming than investing yourself, as picking the right broker requires a great amount of time and research as well as investing your own. Thanks to the Internet, it is very easy to get in contact with brokers, but, unfortunately, not all of them happen to be honest and competent and distinguishing reliable brokers from the mass can be very challenging.
Many will promise you that can make you become a billionaire in one day, without any kind of effort from your side. Others will come up with any sort of reasons not to be transparent and give you access into the service’s workings — Be aware!
Share your path as a trader! Ask questions. We will be glad to continue the topic.