My thoughts on Trading

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There is a type of financial instrument called a share.  Shares are nothing more than a unit of account.  Shares come in different forms such as stocks, mutual funds, exchange traded funds and real estate investment trusts.  These shares are traded on public exchanges such as the TSX, TSX-V, NYSE and NASDAQ.  To acquire shares of a security, it’s as simple as opening an account with a broker who deals in financial instruments.  Once funds are in the account, it’s wide open to explore many different forms of equity or assets in the form of shares.  The value of shares can increase or decrease over time so it’s recommended to be extremely particular of where capital is allocated.  I believe trades can actually be made quite simple when broken down.  Below is my best attempt at an explanation of the process in five steps.

1. Discover a security which has shares available to be traded.  Shares are created by companies as a form of raising capital by exchanging equity.  In order for shares to be public they must be on an exchange.  There are many exchanges in the world, I personally think there is a great advantage to investing in the country a person lives in but thats just a matter of opinion.  Capitalism would lead individuals to seeking profits wherever opportunity may present itself.

2. Comparing the discovered security to other securities using technical and fundamental analysis. Once a security is sought after, it is strongly recommended to compare it to other securities. This means no matter what type of public investment opportunity you find, compare it to as many others as relevant to determine it’s for sure the best choice at the time of investment.  Compare companies with an open mind and don’t be afraid of challenging opinions.  After all, this is still the analysis step.

3. Using capital to trade for shares of a security.  This is accessing the broker account and completing a trade to buy shares of a liquid asset which again can be stocks, mutual funds, exchange traded funds or real estate investment trusts. This is a personal choice that is up to every individual and their financial advisor but an actual purchase must be made in order for any possibility of future returns.  Nothing ventured, nothing gained.

4. Monitoring the value of the owned shares over time. In a manner that is reasonable for each individuals lifestyle, the value of owned securities should be monitored and tracked. This can be done daily, weekly, monthly, quarterly or annually but it is strongly recommended to stay informed of whats happening with investments because ultimately its every individuals responsibility.

5. Trading the shares of the security for currency and it once again becomes capital; Selling the assets. Returning to the broker account and actually selling what is owned for cash.  This can happen for any number of reasons and I think it’s a safe conclusion that it’s almost always a personal reason.  Something changed from the time a security was bought until this point for selling to become the end result.  This can lead to celebration or remorse but regardless, ensure that learning has come from the process should it need to be repeated.

Those are the five steps of a trade.  Trading can be repeated as little or as many times as a person wants until desired capital is reached or is completely depleted.  Regardless, I encourage trading. It gives everyone the opportunity to potentially increase their personal wealth and reach financial independence.

 

 

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