Back in January, a bunch of Redditors took the world — and, more specifically, Wall Street — by storm.
If you’re anything like me (and by that, I mean someone who’s pretty unaware about trading), you were probably a bit confused.
So people bought a tonne of stocks for fun, and that made big hedge funds mad after losing a tonne of money?
Thanks to a very helpful explainer written by one of my coworkers, I think I’ve finally got it figured out.
To summarise his summary, some Wall Street hedge funds tried to make a ton of money by borrowing GameStop stocks, selling them, and hoping they’d be able to buy them back at a lower price when returning them, thus making a profit.
Unfortunately for them, a bunch of Redditors caught on and began buying up GameStop stocks, driving the share value up so high (contrary to the hedge funds’ predictions that the value would drop) that the hedge funds lost billions of dollars.
Where does one even begin?
With the financial impact of the Covid-19 pandemic and the whole GameStop kerfuffle, many people — myself included — have gotten more intrigued about investing and trading.
The first thing most people would do is to find a trading platform.
But take a look at any trading platform, and you might as well be reading another language. Financial instruments? Portfolios?
So, for the uninitiated like me, here are some trading-related terms that are good to know before jumping feet-first into the trading world:
1. Financial instruments
No, not like a violin or a piano. Financial instruments are basically assets or packages of capital that can be traded, according to Investopedia.
More precisely, The Balance explains, they are contracts which oblige one party to transfer money or shares in a company to another party in the future, in exchange for some value.
Some examples of financial instruments relevant to trading are loans, bonds, and stocks, although they can even be things as simple as an invoice or a cheque.
According to Investopedia, diversification is the strategy of spreading your investments across a variety of financial instruments.
Investing in different assets and classes that would react differently to the same event helps you maximise returns and reduce risk.
Basically, the financial version of “Don’t keep all your eggs in one basket.”
Take a look at this example given by Investopedia: If you were to have a portfolio of only airline stocks, then any bad news involving the airline industry would cause all your airline stocks to drop and your portfolio to lose a fair bit of money.
If, instead, you bought some railway stocks as well, then if bad news hit the airline industry, the other part of your portfolio wouldn’t suffer. In fact, it might even rise, because passengers would need to find a different mode of transportation.
So, to invest only in airline stocks would be putting all of your eggs in one basket. You could even further spread out your “eggs” by investing in non-transportation-related stocks.
Wait, what even is a portfolio? I assume it doesn’t have anything to do with art, or applying for jobs…
A trading portfolio is composed of different financial instruments, such as stocks, cash, bonds, currencies, and more, according to PocketSense.
You can own multiple portfolios, and each portfolio can have its own investment strategy.
When you buy shares of a listed company, you become a shareholder. Some, but not all, companies may pay out a small portion of the company’s earnings to shareholders. These payouts are called dividends.
According to Investopedia, dividends may be seen as a reward to investors for investing their money in the venture.
Dividends may be paid out at regular intervals, such as monthly, quarterly, or annually, and can take the form of cash or more stocks.
5. Bull markets and bear markets
According to NerdWallet, a bear market is when stock prices are falling, generally by at least 20 per cent. Bear markets indicate that investors are pulling back, and the economy might not do so well.
On the other hand, a bull market is when stock prices are rising, or are expected to rise. A bull market signals investors’ confidence in economic growth.
NerdWallet noted that on average, a bull market lasts much longer than a bear market, so over the long-term, investing in stocks can potentially help you grow your money.
People also use “bull” or “bullish” to describe someone who’s optimistic about the market, and “bear” or “bearish” to describe someone who’s pessimistic.
Trading through a trading platform like POEMS (by PhillipCapital)
One of the common ways to trade, especially for busy working professionals, is to do so through an equity specialist who offers their knowledge and resources.
On one hand, you get to make your own decisions about how to diversify your portfolio (wow, look at us using our new vocabulary already).
On the other, you have the benefit of tapping into the knowledge and resources of an established financial service company to guide you along.
PhillipCapital has been operating in Singapore for more than four decades, and has over a million clients worldwide, with assets under custody and management of more than US$35 billion and shareholders’ funds in excess of US$1.5 billion in 15 countries.
If you are keen on trading products other than stocks, POEMS by PhillipCapital also offers ETFs, bonds, unit trusts, CFDs, currencies and more.
With POEMS, you get free access to educational contents, such as research articles, webinars, and tools.
In addition, an equity specialist is assigned to every account. They are able to provide assistance and guidance to the account holders whenever they need.
There are 15 Phillip Investor Centres conveniently located in neighbourhoods around Singapore.
Clients can also easily reach out to PhillipCapital via phone anytime between 8:45am and 12am, Monday through Friday.
Offering their most competitive rates yet
Of course, trading through a broker will incur some fees. Usually, these fees take the form of some percentage of the traded value, or a flat fee.
And these fees can add up, especially for inexperienced or small traders.
POEMS recently announced that the launch of their most competitive rates yet, for their Cash Plus account, a low-cost trading account.
There is also no platform fee for the Cash Plus account.
For trading on the Singapore market, POEMS takes only 0.08 per cent of the traded value, and there is no minimum commission.
Trading through Cash Plus also allows you access to more than 26 global exchanges, meaning that you can buy and sell stocks and other financial instruments in foreign markets.
Trading the Hong Kong market incurs an even lower percentage, starting from 0.05 per cent, with a minimum fee of HK$15 (S$2.56).
Since Apr. 1, 2021, trading on the U.S. market using Cash Plus only incurs a flat fee of as low as US$1.88 (S$2.49).
With the Cash Plus account, you can settle trades with 10 different currencies — SGD, USD, HKD, AUD, MYR, JPY, GBP, EUR, CNY, and CAD.
This advertisement is for information only, not an investment recommendation or financial advice. Losses can exceed your initial deposit. See risk warning/disclosure & other important information here. This advertisement is not reviewed by the Monetary Authority of Singapore (MAS). Cash Plus is regulated by MAS.
This sponsored article is brought to you by POEMS.
Top image via Nasdaq.com and Maxim Hopman on Unsplash.