Everyone who invests in the stock markets will tell you that there are risks; the price of stocks can go down as well as up. The old adage of never investing what you can’t afford to lose is still true today. The markets have been volatile over the last few years as the global economy has recovered from the recession of 2008. Many new investors will become nervous when prices go down and may consider vacating the market for a time. However the price of shares goes up and down all the time, this is natural market movement and an essential part of any economy.
The best plan is to think long term and plan for the long term. This way you will ensure you do not make any rash decisions which can adversely affect your portfolio. However, it remains important to understand the volatility of the markets and how to weather any changes:
There are a huge range of influencers on the market every day, day trading, long term strategies, over supply or under supply and weather can all influence the price of commodities, materials and ultimately share prices. It is not easy to predict how the market will react day by day; hence the long term approach is the best solution.
If possible this is the safest long term strategy, it works on the premise that all markets can and do recover over time. However, if you watch the daily market movements and see half your wealth disappear almost overnight this can be a difficult strategy to follow. This principle only works if you buy shares for a good price in a company that has a strong market presence and is unlikely to fold in the long term. This cannot always be foretold with certainty and you will have to watch your investment and the market.
It is essential to remember that trading online is very quick and easy, but investing is a slower process. You must do your homework before committing your money. Knowing your market and your portfolio will allow you to react quickly, when needed.
Sometimes the price of a share can be very attractive, especially if it is rising fast. However, it is very important to understand the difference between a limit order and a market order.
- A market order is an instruction to purchase a set number of shares, whatever the price. This means any delay in systems or rapid price rise could leave you paying twice the price for your shares than you expected.
- A limit order is when you place an instruction for a set number of shares up to a set price. This will ensure you do not go massively out of pocket; or worse, commit to a price you cannot afford!
Despite the speed of the internet an online order is not necessarily instant! There may be system delays, bottle necks or even a breakdown in a server somewhere. In order not to miss out on a good deal it is essential to know what options are available to you before this happens. This can include email, fax, telephone or a broker; but beware! These routes may also have delays on them!
If you are unsure whether an order has been processed or not then do not place another one until you have cancelled and received confirmation of your cancellation. If you do not you may become liable for two lots of shares! This arises fairly often as there are no regulations controlling the time it takes to make a transfer. A broker must trade within the time they estimate they will to you in writing. If there is no estimation they can complete the trade at any time.
Now is the time to check your trading terms with your broker. Furthermore, you also have the option of purchasing risk management analysis software. This way you’ll be insured that your investment pays off, and that you’re not taking unnecessary risks. Regardless of your choice, it’s always a good idea to consult with a specialist, just to make sure you’re on the safe side.
By Peter Smith and Synaptic