What should we know in order to have a good start in financial trading?

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First of all, investing involves taking a risk, the purpose being to get the highest possible profit. Basically, regarding investments, risk minimizing is no longer a problem, as it is for saved amounts, what has to be done here, is to maximize the profit, that can be obtained with acceptable risk.

Acceptable risk conditions are unique to each investor, some are willing to risk a greater loss and then, if the circumstances prove favorable, have a higher profit. On the other hand there are investors who want to take only a small or smaller risk and are happy with modest profits.

There are people who invest in art objects, or precious metals, but people most invest in financial instruments. Investments as a concept, encompasses most types of investments: from the lower risk ones, as bonds issued by private companies, to those involving higher risks, such as the shares listed on stock exchanges or those with the highest risks such as the futures and options.

Your success is closely related to your effort. This is true for any human activities, investments included, the more dedicated you are in achieving your goals, the higher the profits.

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Being the case of investments, your effort is all about information: identifying opportunities offered by the financial environment, studying market mechanisms and building your own investment strategies, analyzing the circumstances of the moment  and the financial indicators associated with the “tools” desired to invest in, risk measurement, etc.

Of all these activities accompanying the investment process, two are decisive: setting the investment strategy and analysis of market characteristics and instruments used to invest.

The investment strategy starts first, with the types of tools in which the money will be invested, the appropriate level of liquidity and the maximum tolerated risk. These elements will be combined in different proportions, depending on the objective of each investor.

Some will invest in bonds in liquid shares of companies that pay dividends. Such investment is less risky, with an adequate gain, but relatively safe, with the advantage that the amounts placed can be converted back into cash easily, without their value to decline.

Other investors will take a higher risk, hoping the gain to be higher. As such, their portfolio will include only shares of companies with a high growth potential on a medium and long term. These companies’ dividends are small or nonexistent because resources are invested in developing their area of activity, so as, in a few years its turnover and profits will increase and the market price of the shares of that company will grow, accordingly.

In this case, the investor gains from the shares price appreciation and not dividends. Such investments are riskier because there is a risk that the development and investment policy of the company could fail to provide the expected results and the optimal waiting period for an investment of this type is at least 1 year (generally 2-5 years).

Another basic element regarding strategy is choosing the moments of buying and selling. Some investors gradually buy small packets of shares in solid companies with good financial results, without selling them (a long term buy and keep).

Others will want to speculate the short or medium term movements of the market, and will buy shares before knowing information about financial results or dividends announcement if they anticipate that news will be favorable. Following these events, they will eventually sell benefiting from the price increases. As an alternative, follow the annual cycles of market. An important component of the strategy is to diversify portfolio investments.

Finally, there is one question to be answered, if any investment or financial trading is made by means of information, who is able to “educate” us to use it in such a way to obtain the best results? Too often when we are not very sure how to do something, now in the Internet era, we look for tutorials on youtube.com and find out everything about everything.

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