I have come across many people wanting to do a side business while working a 9 to 5 and even students who want to start earning income as they complete their education. However, there is always the fear of losing money that holds them back because they either have very little to invest or do not know how or where to invest. This kind of thinking often prevents people from taking up good opportunities to diversify income while keeping risks low. Today we will describe a few investment opportunities, what they are, how to invest, and other thing you may have to take into consideration while building your investment portfolio. Taking the extra time to learn to invest is the first step in helping you earn a secondary income, grow your savings, and hedge your wealth against different market shocks.
What kind of investment can this segment do? There is a perception that most investments require huge capital investment, that they require close supervision by investors to ensure growth, or that you would need to hire someone you trust to manage the investments. This discourages people with small monthly savings and fulltime commitments. While this may be true for many investments, there are a lot of opportunities to overcome these barriers which help investors invest small amounts and maintain a portfolio that is appropriate for the time they are able to give to it.
One option is the Financial Markets (FM). Let us first talk about the benefits of investing in FM. The investment amount can be very small to unlimited, and you can adjust your exposure according to the amount of time you can dedicate to this. While some financial background is helpful to understand how the market operates, it is not required. In fact, if you learn about some fundamental concepts, you can start building your market experience which is most important to make investment decisions. As you gain this experience, it is recommended to keep exposure low to reduce risk of big loss while you are still learning. To trade in these markets one needs to open accounts with brokerage firms which provide online platforms for investors to trade in exchange for a small commission.
In simple terms FM are where trade of securities happen; notable securities are Equity Stocks, Forex, Commodities and Crypto assets. The market operates by providing a platform to buyers and sellers to trade their desired security. There are different types of markets and the characteristic of that market depends on the type of security traded in it. Do read out the table at the end to get a quick overview of mentioned markets.
Now, let’s get an overview of some different financial markets:
Capital market is where most equity (stocks) and fixed income (bond) trading happens. These markets help companies and governments raise long term funds by selling their equity (companies) or borrowing money by issuing bonds. The investors buy these stocks/bonds to profit through either capital gain (buy cheap and sell expensive) or dividends/interest payments. The Capital market operates five days a week during the office hours (timings may vary by countries), which means you can do your research and make note of findings after close of normal working hours. This market is less volatile because of defined daily price movement which limits extreme rise and fall of prices. The limit on downside movement can make this market less risky since it gives you time to review your position. These controls have been put in place to prevent market manipulation since this market is easier to manipulate than other FMs. Trading is this market requires more fundamental knowledge (financial analysis) of the company and industry and less practice on technical analysis (analyzing market trends). This market is good for those who would like to invest for long or semi-long term instead of daily trading.
The Commodity market securities are natural resources. These resources can be either hard commodities which can only be mined or extracted such as oil, gold, and other metals or soft commodities which is produce of agriculture or livestock. This market stays open 24 hours, 5 days a week, and is very convenient for the jobholders and/or other individuals as they can analyze and execute trade in their convenient time. To trade in these markets, knowledge of technical analysis needs to be very strong along with some fundamental news of global markets and about the country or asset in which one wishes to invest. Compared to Capital markets, use of margin/leverage (loan from brokers) positions are quite high. However, I would only advise to use margins when you are more than 100% confident of price movement in your favour.
The largest and most traded market is Forex and it is highly liquid. Securities traded here include foreign currency and crypto assets. Like commodity markets this market also stays open 24 hours, 5 days a week. Also similar to Commodity markets, technical analysis is critical to trade in this market. This analysis must be complimented by knowledge of global news. In this market the margins can be up to 900% of the invested capital which means if one has invested $100, he/she can buy $900 worth of securities again recommendation is use margin only when you are more than confident.
I hope this information helps you understand the benefits of investing in FM and some ways to mitigate the risks. The best time to start investing is now and as a first step I would recommend you set up an account with a brokerage firm of your choice to start observing the markets. When you are ready to invest, start with small amounts to gain market experience and build up your portfolio incrementally. Participating in different financial markets can help diversify your portfolio so that even if one market isn’t performing, your overall portfolio does not suffer. Enjoy investing!
- Foreign Currency
- Crypto Assets
- Financial Reports
- Industry Specific factors
- Demand & Supply
- Govt. Policies
- Weather Condition
- US Dollar
- Global economy and some other
- Political stability
- Terms of Trade
- Govt. debt and policies
- Current Account
- Inflation and interest rates
Usman Sheikh, Managing Director
Omar Parvez Khan, Venture Partner
Omar Parvez Khan, Venture Partner