This article was written in partnership with IG, the world’s No.1 CFD provider (by revenue excluding FX, February 2018). All views expressed in the article are the independent opinion of DollarsAndSense.sg
Investing and trading are two different ways of making returns in the financial market. While investors aim to make money by investing in assets that will provide returns over the long-term (e.g. price appreciation, dividends or interest payment), traders profit from the market by successfully capturing price fluctuations in the financial assets they trade.
Another key difference is that investors may hold their investments for years or even decades, while most traders typically hold their positions for a much shorter periods, lasting just weeks, days, hours or even minutes.
Since asset prices are unlikely to fluctuate significantly in the short-term, most traders amplify their exposure through the use of leverage. Leverage allows investors to put up a small initial sum of capital, but take significantly larger positions in their trades, enabling them to make higher profits if they are successful.
Some Frequently Traded Products
In the financial market, there are many instruments that traders can choose to trade.
These include stocks, foreign exchange (forex), indices, commodities and even cryptocurrencies. Within each category, there are also many markets that traders can trade, depending on what they are comfortable with.
|Type Of Instrument||Examples Of Such Markets|
|Stocks||DBS, OCBC, UOB, Tesla, Netflix, Facebook|
|Forex||EUR/USD, AUD/USD, USD/JPY, GBP/USD|
|Indices||Singapore Index, Germany 30, Wall Street, Hong Kong HS50|
|Commodities||Gold, Silver, Natural Gas, Brent Crude|
|Cryptocurrencies||Bitcoin, Ethereum, Ripple, Litecoin|
These markets, as well as thousands of others, can be traded through a platform such as IG, which is the world’s no.1 CFD provider (by revenue excluding FX, February 2018). IG currently offers more than 15,000 markets to over 195,000 clients worldwide.
To understand better as to how trading works, we delve deeper into a commonly trading index such as the Singapore Index. When a trader puts down an initial capital of $5,000, he/she is able to leverage up to 20 times his capital. This means that with just $5,000, a trader can enter the market and take a position with a contract value worth up to $100,000. Of course, it’s not advisable to put all your capital into one single trade, regardless of how confident you might be.
This could be why frequent traders can accumulate very large contract values within a short span of time. If a trader were to frequently make trades that have an average contract value of about $10,000 per trade, and make about four such trades per day, the trader would accumulate an aggregated contract value of about $1.2 million by the end of 30 days.
This may seem incredibly high to those who have never traded, but it is more common for those who are frequent traders.
Risk Management Is Essential
Since traders are dealing with such large contract values on a regular basis, it’s critical that they adequately manage the risks that they are exposed to. This is why risk management techniques are inseparable from trading, if you wish to be successful in the long-run.
As its name suggests, risk management is simply being prudent about managing your risks. Being a high-risk, high-return activity, every trader needs to adopt some form of risk management strategy when executing their trades. Without adequate risk management, even the most profitable short-term traders will eventually make a mistake and bust their trading account.
Some important risk management habits include having a stop-loss on every trade, never risking more than 1% of your account in a single trade and to focus on trading well, rather than making money.
You can watch this video where we explain what risk management is through baking.
Start Trading With IG And Earn KrisFlyer Miles
If you are a frequent trader, you can now earn KrisFlyer miles when you open an account and start trading using IG.
From now till 31 December 2018, IG is running a promotion where new account holders can earn up to 30,000 KrisFlyer miles when you trade using IG.
Simply follow these four simple steps:
- Open an account from this page
- Register your KrisFlyer membership number when you have successfully open an account
- Make a minimum funding of S$5,000
- Trade between 17 September 2018 and 31 January 2019. You can see the number of miles you could receive in the table below. (That’s right, the trading period is extended one month after the end of the promotion so you can still enjoy the promotion even when you open your account in December!)
The number of miles you earn will be based on the aggregate contract value that you accumulate on the trades you make during the promotion period.
|Initial Deposit (SGD)||Aggregate Contract Value (USD)||KrisFlyer Bonus Miles|
For example, if a trader were to trade contract value of about $1.2 million for an average month since the start of the promotion, the trader would accumulate a total contract value of more than $5 million, over a period of four and a half months, earning them 13,000 in KrisFlyer miles.
If you are a frequent trader and not yet an IG account holder, this would be the perfect opportunity for you to get started on the IG platform, and concurrently earn for yourself KrisFlyer miles that you can use on your next holiday.
All miles will be credited within 21 days after the end of the trading period.
All products offered by IG are eligible for the promotion except Binaries, Digital 100s, Sprint Markets and Options. You can find out more about the terms and conditions of this promotion here.
If you are new to trading, we strongly recommend for you to start off with a free IG demo account first. A demo account allows you to understand the mindset you need to take as a trader as well as gets you familiar with the various tools that you can use to manage your risks, before putting actual money into your trades.
You can also attend online courses or webinars such as the ones available from the IG Academy – a free resource designed to help traders of different trading literacy to progress and become better traders.
If you wish to learn more specifically about volatility, and how it presents both opportunity and risk for investors and traders, IG have collaborated with Bloomberg Media Studios to publish a free-to-download eBook which condenses trending and need-to-know topics surrounding volatility. You can download this eBook here.
This article was sponsored by IG, the world’s No.1 CFD provider (by revenue excluding FX, February 2018). All views, opinions and recommendations expressed in the article are the independent opinion of DollarsAndSense.sg and do not in any way reflect the views, opinions, endorsements or recommendations, of IG Asia Pte Ltd (Co. Reg. No. 20051002K) (“IG”). Information is for educational purposes only and does not constitute any form of investment advice nor an offer or solicitation to invest in any financial instrument. No responsibility is accepted by IG for any loss or damage arising in any way (including due to negligence) from anyone acting or refraining from acting as a result of this information or material.