Online trading

Six things to know about online trading

Six things to know about online trading. (PHOTO: Getty Creative)

SINGAPORE – Trading seems to be getting more and more popular among young people these days. But how do we do it exactly? And what are the things to note?

This is part of a series where Yahoo Finance Singapore will focus on different aspects of millennials and finance. In this fourth part, we talk to Ernest Cai, former Director of Client Success at digital investment service ProsperUs, who shares more about the negotiation process.

How does the trade work?

Trading may seem complicated, but it basically happens when a buyer accepts the ask price or a seller accepts the bid price of a stock, Cai said.

The investor will then examine his investment portfolio from time to time, to check whether his investments will help him achieve his investment objectives. Then they will rebalance their portfolio to diversify and track the latest market performance.

But as with all financial decisions, it’s important to be mentally prepared. Cai suggests that young investors do their research first so they can better understand and identify opportunities in the stock markets.

“Only then should you execute and adjust based on the latest news, market movements, company reports and your own risk appetite. Whatever stage you are in, always do your due diligence and learn from your mistakes,” Cai added.

For young people looking to start trading, Cai assures that there is no minimum amount required and one can even start investing with “as little as S$100 per month”. They can also “stop, skip, withdraw and resume trades whenever they want”.

More importantly, young people need to make a checklist of their financial situation and determine what they are comfortable investing in. Cai also shared six golden rules young people who want to start trading should know:

#1 – Have at least six months of emergency cash funds
#2 – Understand the companies you want to buy
#3 – Diversify your financial portfolio
#4 – Expect Stock Market Volatility
#5 – Refrain from borrowing money from others to invest
#6 – Don’t time the market but invest regularly

He also warns that it is better to start investing small amounts early than to do so later due to the impact of inflation and rising interest rates.

“Growth in your bank interest rate can’t beat the rate of inflation, and passive income in the form of dividend payouts by blue chip counters over time can earn you better returns.”

Personality of a trader

However, some young people may worry that they need a certain “skill set” or “personality” to be a trader. After all, traders are often portrayed in the media as rather enthusiastic people.

“As a trader, you need research and analytical skills to monitor market movements, political, economic and other factors that can impact the stock market,” Cai advised.

Discipline and patience are also traits that are important as a trader, although Cai admits that these are traits brought by his environment and are difficult to cultivate by practicing alone.

Cai added that traders should be well prepared when trading and should never “put all their eggs in one basket”. He suggests that young people trade various instruments in different asset classes and in a range of sectors that do not have a direct correlation.

“It’s possible to end up losing all the money you’ve invested, but it’s easily preventable by diversifying your portfolio and doing your own research due diligence,” Cai said.

Gwenda Ang, 22, thinks it’s important that traders also have a good learning attitude. Ang, who is an undergraduate majoring in business and political science at the National University of Singapore, has always been interested in the stock market but never really knew how to get started.

It wasn’t until mid-2020 that she privately messaged a financial advisor on Instagram who then taught her the basics and how to get started. Ang has since earned a five figure sum from trading.

“I started out learning paper trading before moving on to ETFs after reading a lot more about the technicality, seasonality and type of stocks. There are loads of resources available online that we can use,” said declared Eng.

Take risks

Although trades such as stocks, exchange-traded funds (ETFs), bonds, and mutual funds are relatively less risky, trading may not be everyone’s cup of tea, especially if you are someone who does not like to take risks.

Celestee Low, 23, a fresh graduate, would rather save her money for a wedding and a house than trade or invest. She usually spends her money going out with friends and selling clothes.

“Right now, I’m just looking forward to starting full-time work in a job that’s what I’m passionate about, instead of making my money grow,” Low said.

However, Cai still believes that “letting your money work for you is always a better option than just leaving it lying around in a bank.”

For example, if you earned S$1,000, leaving it in your savings account would result in a measly 0.75% increase in interest rate over one year, which equals S$7.50.

Meanwhile, executing a buy trade on a dividend-paying stock would likely net you over S$30 over the same period thanks to paying dividends of around 3.5-4% per annum or sale of the purchased stock, Cai said.

“Trading allows you to have a greater possibility of achieving your financial goals. But remember to invest only in what you are comfortable with,” Cai added.

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