Trade The Journey

Trade The Journey

Financial Liquidity

  1. Where should you trade?
  2. Should you trade?
  3. Should you Invest?
  4. Should you save?

These are some of the many questions you should be asking yourself before you decide to step in the ring. Before fulfilling your dreams and fighting for the heavyweight title, the first question should be, can I take a punch?

If you think you can, the next step would be to see if you actually can. I tend to think of investing and trading within the same framework. Its hard enough managing the daily challenges life throws upon us, why make it more difficult? There’s nothing wrong with allowing your money to grow at a slower pace if necessary to prevent you from having anxiety attacks throughout the day. There’s also nothing wrong with taking calculated risks if you are comfortable and prepared to handle the losses. It all depends on you.

Knowing your risk level can help you decide which arena you would like to play in. As I am learning and testing my knowledge in different markets, I am beginning to see if I have the temperament to be a trader or investor. Liquidity is a major factor in my decision. There are bond markets in which I can hold my funds in long-term investments preferring safety in the US Government or I can lend my funds at a rate higher than the safe rate to companies who possibly need them.

There are mutual funds, index funds, and ETFs’ which I have a large portion of my money stationed. Since the market has been doing pretty well overall in the last couple of years, I have earned a +10% return which is not bad. However, I am interested to see how the ETFs I hold will perform under the coming dismal conditions forecasted by the top financial analyst.

There are stocks which are liquid and can be brought and sold quickly. Stocks like the other investments are recommended to be held for the long term so that you are able to outlast the various fluctuations in the stock prices. Within all of these markets lie other financial instruments like derivatives, allowing you to use leverage to make purchases. Finally, there is the largest and most traded market of all, the currency market which allows trades 5 days a week, 24 hours a day. It is quite interesting to see the fluctuations in currencies that occur throughout the day based on world events and economic factors happening within the countries that affect its currency.

However broad or liquid the market is, you need to decide what are you willing to risk but also how much liquidity you need to meet your living standards and enjoy your life. It is often recommended that you separate your accounts to avoid getting into too much trouble. Trading and Investing are completely different concepts and activities, and should be treated as such.

If you are looking to invest and have set aside enough money for future emergencies, investing can be a reasonably manageable activity that can produce results in the long term. As long as you are mindful of the companies activities, its financial picture, and managements’ vision for the long term, you can increase your chances of being right in the long term. You also need to be aware of what is going on in the companies industry and the overall economic direction. Trading, on the other hand, requires you to be up to date on the latest news: domestic and international, movements in the financial markets and a host of other indicators needed to cover the cost of trading and making a profit. No easy task.

The decision is up to you. Share your Thoughts?

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