Strategies and Trading Opportunities

A small investment is a broad concept, covering everything from putting money in a bank savings account to investing in a mutual fund that tracks stocks or trading stock indices. Indeed, the popularity of online trading platforms has widened the scope for small investments, given more opportunities to individuals and eliminating the need – and much of the cost – for traditional wealth managers.

Defining small investments is not easy, as it is really subjective to each individual. Investing £10 per month in an ISA is just as valid under the definition as spending fifty times that amount investing in the stock market. They key to developing a small or even mini investment strategy is to have some definable parameters and goals before starting.

Also, the timeframe is integral to your investment plans. You should consider whether you wish to make a long-term investment, which can sometimes have higher profits but more risk to your capital, or if you wish to invest small amounts in short-term trading opportunities. Basically, it comes down to the choice between patiently waiting for future returns or aiming for quick profits.

Small Investments Can Yield Huge Returns

How do long-term small investments work in practice? Consider if you bought shares in Google when it first went public on 19th August 2004. Buying a single share in Google – now trading under Alphabet Inc – back then cost about $54 (£42). As of the end of May 2019, Google’s shares were worth over $1,100 (£875) each, meaning each share has increased 20-fold over the 15-year period.

Of course, it’s not always guaranteed that the stock price will go up, and there are plenty of horror stories of spectacular falls like banking giant Lehman Brothers and camera specialist Kodak.

If you don’t fancy picking individual stocks, you can invest in stock market indices. For example, the Dow Jones has increased its value more than 10-fold in the 30-year period from 1989 to 2019. The FTSE 100 price has more than tripled in the same period, rising from around 2,000 in 1989 to 7,000 today (approximate figures; the FTSE 100 record high was 7,877.45, recorded in May 2018). Other popular options for small investments with long-term gains include mutual funds, government bonds (sometimes known as treasury securities) and ETFs (exchange traded funds).

Options to Invest Small for Quick Profits

However, investing a small amount of money does not necessarily have to involve waiting a long-time for profits. Cryptocurrencies are a good example of a trading opportunity where large profits can be made quickly in a relatively short period of time. The price of Bitcoin, for instance, has more than tripled through the first six months of 2019. Cheaper cryptocurrencies, like Ethereum (Ether), have also more than doubled in value in the first half of 2019.

Indeed, if you are interested in investing small, there are also plenty of opportunities to engage in activities like day trading online and trading CFDs (Contracts for Difference). The latter, a type of derivative, is usually settled over a matter of days and weeks, and even minutes and hours. CFD trading allows you to speculate on the price of something, with the difference to be paid at an agreed later date.

Other benefits of making small investments in CFDs is that you can enter into the market for a short time, trading on the value of expensive stocks like Google or cryptos like Bitcoin without investing in the asset outright.  

Source   Presented by GMOTradingForex Columns
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