Short term investments
Short-term investments are assets that can be converted into cash or sold in a short period of time, usually between 1-3 years. Common instruments for short-term investment include short-term securities, Treasury Bills and other money market funds. Short-term or day trading involves a significant degree of speculation and therefore substantial risk.
What are short term investments?
Short-term investments are assets that can be converted into cash or sold in a short period of time, usually between 1-3 years.
Treasury Tickets are usually issued using auctions. The holding of auctions normally follows a calendar announced at the beginning of the year or at the beginning of each quarter. BT auctions usually take place on the first and/or third Wednesday of the month.
Postal savings certificates are debt instruments created with the aim of capturing household savings. Their main characteristic is that they are distributed at retail level, i.e. they are placed directly with savers and have low minimum subscription amounts. Postal savings certificates can be issued only to individuals and are not transferable except in the event of the death of the holder.
Securities market funds
FMMs issue shares for investors to finance their activities, offering a high degree of liquidity, diversification and market-based income.
The value of their shares fluctuates depending on the price of the debt instruments in which they invest. They have to maintain a high level of liquidity of the assets in order to satisfy daily redemptions by investors.
MMFs are considered to be systemically important entities due to their close links with the banking sector and other financial activities. In addition, MMFs are an important source of financing for corporations and public administration, so the run on funds (i.e. mass withdrawals from MMFs) in a situation of financial crisis can have important consequences at the macroeconomic level.
What advantages and disadvantages do they bring?
Advantages of short-term investment
The short term investment offers flexibility to the investor, as he does not have to wait for the maturity of the bond to obtain money. On the other hand, long-term investments can be liquidated by selling on the secondary market, but the investor earns less.
Investors can make substantial profits in a very short period of time.
It is less risky because the money invested per transaction is substantially less.
Short-term investment disadvantages
Short-term investments have high costs due to the high volume of transactions and the corresponding brokerage commission rates. Taxes and inflation also reduce the returns obtained from short-term investments.
This involves a certain level of knowledge and time, as investors must closely monitor price movements and identify the points of purchase and/or sale.
Strategies for short term investments
1. identify the right trade
It is important to seek business that involves minimal risk. Extensive market research is important to recognize potential candidates efficiently. The process includes the following:
Monitoring the moving average price of a given share over a period of time
The cycles usually include periods of 15, 50, 100 and 200 days. An action with an upward sloping moving average can be purchased, while those with a downward or flattened curve can be sold short.
Market cycles and trends should be closely monitored. Negative trends suggest few buying opportunities and vice versa.
External situations can have a large effect on stock market prices. Therefore, it is important to follow and receive business related news tips, such as settlement of lawsuits, new regulations, scandals and changing political environments.
Diversification is a method to control or mitigate risks while maximizing returns. It involves a mix of different types of assets with varying risks and returns. Diversification works only in situations where the types of assets invested are mutually exclusive. For example, a portfolio that includes investments in several securities in the same sector, i.e., that are correlated, is not considered diversified.
Hedging is a process that aims to eliminate all risks associated with an asset. Derivative financial instruments, such as options, futures and swaps (which derive their value from an underlying asset), allow investors to hedge against the risk associated with the asset in question.
4. Sold out
Sold out is a niche strategy that is usually employed only by experienced day traders. It is usually done after periods of panic sales induced by recession alarms or other external threats. Investors can buy at exceptionally low prices and make a profit soon after. This is possible because the low prices created due to panic selling do not reflect the underlying real value of the asset, which can be much higher.
5. Real time forex trading
Real time forex trading is a form of speculation in which an investor bets on the future price movements of a particular currency. He uses technical indicators to measure expected changes in currency exchange rates. It is a form of algorithmic trading, which means that it cannot be done without the use of sophisticated software.