Investment Trading Basics

Investment trading refers to the practice of buying and selling marketable securities such as stocks, bonds, mutual funds and ETFs; derivative investments may also include options.

Investment trading allows businesses to raise capital through public markets and diversify their portfolios; however, it carries with it a potential for loss.

Liquidity

Liquidity refers to the ability of assets or securities to quickly convert to cash, which makes it an integral component of investing on markets such as the stock exchange. Marketable securities that can be sold quickly have high liquidity while tangible items like cars or real estate may have lesser.

Investors with long-term, diversified portfolios tend to be less concerned about liquidity issues and bid-ask spreads as their investments grow over time. Conversely, traders who trade frequently may be more affected by a stock’s or market’s liquidity status.

Liquidity can be measured by comparing current assets to debt, with cash as the most liquid asset and including equity, marketable securities and accounts receivable as other potential liquid assets. There are two standard methods for evaluating liquidity: market liquidity and accounting liquidity.

Diversification

Diversification is an essential tool in investment trading, and one way it is accomplished is through purchasing an assortment of individual investments – typically shares and bonds – across multiple asset classes. Studies and mathematical models have indicated that purchasing 25-30 stocks offers optimal diversification levels.

Diversifying within each asset class is also recommended, such as buying shares of companies from diverse industries and sizes to reduce the chances of an adverse market reaction affecting all of your shares simultaneously.

Investors looking to achieve this goal may also turn to pooled investments such as mutual or exchange-traded funds as an option, since these typically hold more underlying investments than you could accumulate individually.

Experience

Traders and investors employ different strategies to profit from financial markets. Investors generally look for long-term returns by purchasing and holding assets; traders take advantage of price movements for short-term profits. Both types of trading require significant time and effort from both parties involved; as well as learning to cope with market volatility which can have adverse effects on mental wellbeing.

Without an internship, breaking into sales & trading is possible, though more challenging than investment banking. Also, due to the coronavirus crisis many banks have reduced internship programs; nonetheless, having prior internship experience in finance or related field could increase your odds of receiving full-time return offers.

Time-horizons

Time horizon is an integral factor when selecting investments to help reach your financial goals. It can range anywhere from days to decades; investors with shorter investment horizons should opt for investments with short investment time horizons such as cash equivalents such as money market funds or savings accounts.

Investors with long-term investment horizons, on the other hand, are more apt to take greater risks due to having ample time to recover from any market fluctuations that cause losses. Their portfolio should contain stocks and bonds in order to achieve their financial goals such as retirement or funding a child’s college education – goals which often lie decades in the future – hence this investors can afford more risky assets like equities.

Risk

Investment risk refers to the likelihood that you could potentially lose money as part of an investment portfolio. Different assets, like company shares or bonds, carry different degrees of risk; how much risk an individual is willing to accept depends on expected returns from his or her investments.

Liquidity risk can also have a devastating effect on an investment strategy. This risk refers to how easy or difficult it is to sell stocks when needed – often higher among small cap companies with fewer investors versus large firms with greater liquidity pools.

Market risk, or systematic risk, refers to the chance that one factor can have an adverse impact on all stocks in your portfolio. Diversification helps lessen this impact of negative events on returns by spreading risk across several investments and sectors.